TUPE STEVEN FLYNN. Barrister. St John s Buildings. June 2015 St John s Buildings 1

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1 TUPE Barrister St John s Buildings June 2015 St John s Buildings 1

2 TUPE CHANGES AT A GLANCE Relevant transfers Service provision changes Change 1: The activities carried out under outsourced or tendered work must be fundamentally the same for TUPE to apply. Contracts of employment Changes to terms and conditions Change 2: Altering contractual terms and conditions. Change 3: Dismissals are no longer automatically unfair because of a change in the workplace location. Change 4: Terms and conditions from collective agreements may be renegotiated after one year provided that overall the contract is no less favourable to the employee. Change 5: In some circumstances contractual changes arising from new collective agreements agreed by the outgoing employer are not June 2015 St John s Buildings 2

3 required to be incorporated after a transfer. Dismissals and redundancies Dismissal Change 6: An employee will be automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer. Redundancy Change 7: Redundancy consultation can begin before the transfer if both employers agree. Employee liability information (ELI) ELI Change 8: Information about transferring employees should be given earlier. Information and consultation rights Who should be consulted? Change 9: Businesses with fewer than 10 employees are not required to invite the election of representatives for consultation purposes if no existing arrangements are in place. June 2015 St John s Buildings 3

4 TUPE REFORMS 2014 Back in 2009 I wrote the following introduction to a talk I gave to the Employment Lawyers Association on TUPE: Introduction The law is in a state of uncertainty; it is almost impossible to give accurate advice to [those] involved in possible transfers with any degree of certainty. This is a quote from HHJ Serota QC in the case of Complete Clean Ltd v Savage. That case came before the EAT in 2002 and related to the turmoil caused by the Transfer of Undertaking (Protection of Employment) Regulations 1981 (TUPE 1981). Due to Thatcherite political influences, the decades following the introduction of TUPE 1981 had been a period for widespread reorganisation of businesses and vast application of contracting-out in the UK s public sector. For those who sought to advise on transfers it was apparent that the law had developed in a piecemeal fashion that could not deal with the business practices of the time. Something needed to be done. On the 6 th April 2006 the revised Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE 2006) came into force. These revised regulations were intended to ensure UK compliance with European Directives whilst addressing the uncertainty that had enveloped the law in relation to transfers. There effect has been mixed. The intention of these notes is to give an overview of the TUPE 2006 regime and examine some of the growing catalogue of case law that is developing. In the period post- 2009, the effect of TUPE 2006 has continued to be mixed. Vast swathes of case law have emanated from the EAT and above, meaning that TUPE 2006 was beginning to look like its older and more feckless brother, TUPE The uncertainty for advisors referred to by HHJ Serota QC remained meaning that TUPE was a great source of appellate work for the legal profession. On 31 st January 2014, the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 SI 2014/16 (CRTUPE(A) for short!) came into force. These regulations are again intended to address some of the uncertainties that have become apparent in the operation of the TUPE provisions. The changes are also very business friendly and allow for what many commentators have described as common sense June 2015 St John s Buildings 4

5 alterations such as allowing for consultation as to collective redundancies to begin pre-transfer. The principal changes occasioned by CRTUPE(A) are: 1. To emphasise that in the definition of a service provision change in TUPE reg 3(1)(b) there is a requirement that the activities before and after the transfer must be 'fundamentally the same'; 2. To amend the provisions on automatic invalidity of contract changes and automatic unfair dismissal so that they only apply where the transfer was the 'sole or principal reason'. This change removes the previous reference to reasons 'connected with' the transfer. In short, the revised Regulations will not prevent a variation of contract if the sole or principal reason for the variation is an ETO reason entailing changes in the workforce, provided that the employer and employee agree that variation. Further, it will not prevent variations that are permitted under the terms of that contract. 3. To provide that dismissals are no longer automatically unfair because of a change in the workplace location. 4. To allow terms incorporated from collective agreements to be varied when more than a year has passed since the transfer, provided that, overall, the contract is no less favourable to the employee. 5. To provide that transferred contracts do not bind the transferee to any term of a collective agreement agreed after the date of the transfer if the transferee is not a participant in the collective bargaining for that provision. This expressly provides for a static approach to the transfer of terms derived from collective agreements as endorsed by the ECJ in Alemo-Herron and ors v Parkwood Leisure Ltd. 6. To introduce the idea of 'pre-transfer consultation' whereby a potential TUPE transferee employer can enter into consultations on projected collective redundancies with the affected employees before the TUPE transfer has happened; this is done by inserting new ss 198A and 198B into TULR(C)A 1992; 7. To extend the period for giving employee liability information under TUPE reg 11(6) from 14 to 28 days; and 8. To allow micro-businesses (i.e. fewer than 10 employees) to consult the workforce directly if there are no appropriate representatives. June 2015 St John s Buildings 5

6 New guidance In addition to CRTUPE(A) coming into force in January 2014, BIS also published new guidance as to the operation of TUPE. This was a response to repeated calls for such clarification due to those repeated criticisms I have referred to above. Whilst there is some useful guidance as difficulties that have been encountered since the introduction of TUPE 2006, the BIS Guidance is lacking any real clarification as to how some of the more controversial new changes are likely to operate in practice. As before, this uncertainty is likely to lead to innumerable appeals and commentary being passed down from on-high meaning that the uncertainty of previous years will continue. In terms of the guidance that has been provided, I would draw your attention to the following in particular: Contractual variations and transfer: Regulation 4 of the 2006 TUPE Regulations is substantially redrafted by CRTUPE(A), permitting variations to a contract of employment where the sole or principal reason for the variation is the transfer if: a legitimate economic, technical or organisational reason entailing changes in the workforce (an ETO reason) can be established and the employee agrees the change; there is a pre-existing contractual right of variation of the transferor. (An example that was previously cited in this context is a mobility clause). The Guidance does not tell us when a reason might not be solely or principally the transfer, instead reasserting the age-old government guidance reference to the same depending on the particular circumstances. The Guidance does however refer to the presence of some extenuating circumstances. The examples, such as: a sudden loss of an expected order by a manufacturing company ; or a general upturn in demand for a particular service; or June 2015 St John s Buildings 6

7 change in a key exchange rate. Pre-transfer consultation will count CRTUPE(A) adds new sections (198A and 198B) to TULR(C)A, permitting early, pre-transfer, consultation undertaken by a transferee to now count towards collective redundancy consultation obligations. There are, however, conditions attached to the operation of these provisions. These are: The transferee must give the transferor written notice that it intends to engage in pre-transfer consultation, and The transferor must agree in writing (and may also withdraw this consent at any time). The transferee is also only given one opportunity. Where pre-transfer consultation is cancelled at any time, it cannot resurrect the process subsequently (new section 198A(6)(d) TULR(C)A). Collective agreements The Amended Regulations lift the restrictions upon contractual changes in a transfer context after one year, for terms derived from collective agreements. A proviso is that any revised terms must be no less favourable when considered together. These new provisions will certainly allow employers to review terms and conditions once a year has elapsed post-transfer. They are not without difficulty, however, from tracing the origins of such terms, to establishing comparative equality. The Guidance does not offer any clarification on any such issues but merely recites the legal changes. One can expect there to be considerable dispute as to whether the revised terms are no less favourable, with Claimant s being unwilling to accept such variations. Steven Flynn Barrister, St John s Buildings 6 June 2015 June 2015 St John s Buildings 7

8 OVERVIEW OF TUPE FOR CLIENT DEPARTMENTS What is TUPE? 1. TUPE refers to the Transfer of Undertakings (Protection of Employment) regulations 2006 as amended by the Collective redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) regulations They apply to organisations of all sizes and protect employees rights when the organisation or service they work for transfers to a new employer. The TUPE regulations can apply when activities are outsourced, brought in-house, transferred or a contract for services is moved from one provider to another. Employees from the newly-acquired business, service or contract will transfer automatically to the incoming employer. Their terms and conditions of employment (apart from occupational pensions) and continuity of service transfer with them and they also receive certain protections around dismissal and redundancy. 2. There are impacts for: the employer who is making the transfer (also known as the outgoing employer, the old employer or the transferor) the employer who is taking on the transfer (also known as the incoming employer, the new employer or the transferee) the affected employees, including any employees remaining with the outgoing employer and existing employees of the incoming employer as well as those who are transferring. When does TUPE apply? 3. TUPE applies to the private sector, the public sector and the third/not-for profit sector. There are two situations when the regulations may apply; business transfers and service provision changes. Collectively these are called relevant transfers. In some situations a service provision change can also qualify as a business transfer. Business transfers 4. The TUPE regulations apply if a business or part of a business moves to a new owner or merges with another business to make a brand new employer. A part of a business might for example be a distribution function of a larger organisation. June 2015 St John s Buildings 8

9 5. Under the TUPE regulations, a business is not judged by its name but by the use made of its assets such as the: premises equipment work in progress goodwill (such as the value of a brand name or a customer base) intellectual property employees. 6. To test whether a business has transferred, a useful guide is to see whether the core assets of the business have transferred to the incoming employer and are being used in essentially the same kind of business activity as previously. For labour intensive businesses the core asset is the workforce, so a business transfer may occur just by reason of the transfer of the majority of the staff. 7. TUPE business transfers may occur even where the transfer is within the same group of companies. 8. It is possible for a transferring business (or part of it) to have just one employee. If this is a labour intensive business, there can be a TUPE business transfer. 9. However TUPE will not apply if there are just shares, limited assets and/or equipment transferring to a different owner. Service Provision Change 10.The TUPE regulations apply in the following situations: a contractor takes over activities from a client (known as outsourcing) a new contractor takes over activities from another contractor (known as re-tendering) a client takes over activities from a contractor (known as insourcing). 11.These types of transfer are called service provision changes and can involve organisations, charities, the public sector and academies as well as the public to private outsourcing of public services. 12.The service provision change rules under TUPE will not apply if there is just a supply of goods: the transfer must include a supply of services as well. TUPE will also not apply if the service is for single-event activities, or June 2015 St John s Buildings 9

10 for activities of short-term duration (such as an exhibition, a contract for the repair of a factory roof, or a conference). 13.Additionally, the following must exist immediately before the transfer for the TUPE regulations to apply: an organised grouping of employees employees should be assigned to the group the client should remain the same the activities should not become overly fragmented the activities should remain fundamentally the same. 14.An organised grouping of employees. The group has to be deliberately organised by the employer to provide a service for a particular client (some groups may include just one person). Employees working together randomly on a client contract are unlikely to meet this requirement. Similarly employees who happen to have been working on the same contract for the same client will not necessarily be regarded as being in an organised grouping of workers for that client. 15.Employees should be assigned to the group. The roles that transfer should be linked to the delivery of services for a particular client. Employees who carry out activities not related to the contract are unlikely to be part of the group. This could include managers who work on maintaining relations with the client. 16.The activities should not become overly fragmented. The more split up the activities become between different providers the less likely it is that the TUPE regulations will apply. 17.The activities should remain fundamentally the same. If the same work is being performed, with the same equipment at the same premises then TUPE is likely to apply. However if the work activities are fundamentally different after the transfer then TUPE will not apply. 18.There are exceptions which mean TUPE may not apply to some service provision situations such as: those working temporarily in the group if there is a supply of goods only if the service is intended to be for single-event activities (such as an exhibition or a conference) if the service is intended to be for activities of short-term duration. June 2015 St John s Buildings 10

11 Who transfers? 19.Business transfers: All employees assigned to the business (or part) that is transferring will transfer with it. It is usually clear who these people are, but it also makes good business sense if the outgoing and incoming employers liaise over who is included in the transferring group. 20.Service provision transfers: The position becomes complicated for employees who have split job functions, some of which fall within the transferring business and some which don t. The amount of time spent on each activity may be a guide but might not be an accurate indicator in all cases. Sometimes it may be necessary to look at the nature of the job and identify core/ key tasks, as these situations are almost always based on individual facts. 21.Sometimes an outgoing employer will include staff in the group who the incoming employer believes does not belong there. In this situation, the incoming employer should attempt to reach agreement with the outgoing employer about who ought to be in the group as early as possible, and before the transfer takes place. If there is a failure to agree, the incoming employer is advised to seek legal advice on the matter. When a business transfer takes place, all employees engaged by the outgoing employer automatically transfer to the incoming employer at the point of transfer. 22.In a business transfer where only part of the business transfers, all employees assigned to that part of the business automatically transfer to the incoming employer at the point of transfer. 23.In a service provision change, employees assigned to the organised grouping of employees automatically transfer to the incoming employer at the point of transfer. Which employment rights and liabilities transfer? 24.Where an employee transfers under the TUPE regulations, the following rights and obligations, powers and liabilities also transfer with them to the incoming employer: contracts of employment, including all terms and conditions of employment such as pay, commission and bonus entitlements, holidays, job title and function, and sick pay provisions. There are special rules regarding pensions (see below) June 2015 St John s Buildings 11

12 the employers contractual provisions such as job or workplace flexibility or mobility, restrictive covenants, or restrictions on outside work where this applies continuity of service accrued entitlements such as where a bonus or holiday entitlement has built up over a period of time, but has yet to be taken or paid liability for the outgoing employers acts and omissions in respect of the transferring employees are passed across under the TUPE regulations to the incoming employer. 25.Employees who transfer from the outgoing employer to the incoming employer are not regarded as dismissed under TUPE, so a transfer does not trigger an entitlement to redundancy pay or pay in lieu of notice unless there is an actual dismissal. The incoming employer takes over any collective agreements made by or on behalf of the outgoing employer in respect of any of the transferring employees and which were in force at the point of transfer. These will include terms and conditions of employment negotiated through collective bargaining as well as the wider employment relations arrangements. Examples include the collective disputes procedure, time off facilities, training for union representatives, negotiated redundancy procedures or job security arrangements and flexible working arrangements. 26.Under the TUPE regulations, union recognition only transfers where the business unit keeps its identity and is not merged into the incoming employers wider organisation. However to maintain good employment relations, the incoming employer should discuss ongoing collective representation arrangements for the transferring employees with the appropriate trade unions, ideally ahead of the transfer. Employee liability information 27.Under TUPE regulations the following employee liability information must be provided: identities of the transferring employees age of the transferring employees employment particulars of the transferring employees active/live disciplinary and grievance records from the last two years of the transferring employees any collective agreements which are in force any outstanding claims the transferring employees have against the outgoing employer. June 2015 St John s Buildings 12

13 28.The information must be accurate, up-to-date and secure, and must be provided not less than 28 days before the transfer. If the information is not provided within this time, the incoming employer may apply to an employment tribunal for compensation which starts at a minimum of 500 for each employee for whom the information was not provided or was incorrect. 29.Outgoing employers often receive requests for information either not included within the TUPE requirements or at the early stage of the bidding process. Where possible they should release the information in an anonymised form so that the individuals cannot be identified but otherwise only with the consent of individual affected employees. TUPE AND PENSIONS 30.In a transfer situation, the incoming employer must assess the transferring employees on the date of transfer and auto-enrol them for pension purposes if they are eligible. 31.Occupational pensions do not transfer under TUPE, but if the transferred employees were members of an occupational pension scheme, the incoming employer must offer them a pension which is either: final salary or career average pension a non-money purchase (defined benefit) occupational pension scheme, or a scheme that provides the same benefits to those of the old employer s scheme, or a money purchase (defined contribution) occupational or stakeholder pension scheme to which the new employer must make contributions equalling the amount contributed by the outgoing employer to the scheme. June 2015 St John s Buildings 13