TUPE - The Latest. special reports

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1 What if employees don t want to transfer? An employee has the fundamental freedom to choose their employer. Therefore, on notification of the proposed transfer, an employee has the right not to transfer to the new employer. If they so wish they can resign from their employment, but in doing so they will not be able to claim unfair dismissal or have any entitlement to redundancy payment. However, if they do not want to transfer because the transfer will involve substantial changes to their working conditions that are to their detriment, the employee may treat themselves as dismissed and may be able to successfully claim compensation for unfair dismissal or redundancy, even if these changes do not involve a fundamental breach of contract. Where there is a fundamental breach of contract, they may leave and claim constructive dismissal. If an employment tribunal upholds the latter claim, any restrictions on the employee, such as a post-employment restrictive covenant, will be void and unenforceable. If you are the transferee, make sure that you honour the transferred employees terms and conditions of employment otherwise you could be in breach of contract. What liabilities will transfer? In summary, if you take over a company, part of a company or the services of a company under a TUPE transfer, all the transferor s rights, powers, duties and liabilities transfer to your business. This includes any outstanding claims by employees, such as a claim of sex discrimination, the transferor s liability in negligence or for a breach of statutory duty for an employee s accident. However, the courts have held that in such circumstances the transferee has the benefit of the transferor s indemnity under its employers indemnity insurance. What if the transferor has no indemnity insurance? However, what s the situation where the transferor is exempt or not required to hold insurance under the Employers Liability (Compulsory Insurance) Act 1969 such as central government, local authorities and other public bodies? In such situations, the TUPE Regulations provide that the transferee and the transferor will be jointly and severally liable for any personal liability that arises from an employee s employment with the transferor prior to the transfer. 6

2 How should we protect ourselves? As the majority of outsourced contracts are from such organisations, for example the NHS and local authorities, this raises an important issue. If you are involved in a TUPE transfer with a business that is exempt from Employers Liability insurance, you need to ensure that all liability information is obtained and a financial risk assessment is conducted. In addition, it is wise, as part of the contractual conditions of the transfer, to insist that the transferor takes out voluntary employers liability to cover any future eventuality. Make sure that you are covered in the event of a future claim; insist that the transferor has employee indemnity insurance. How do we obtain the liability information? The Regulations require the transferor to provide the transferee with employee liability information of any person employed by them, and who is assigned to the organised grouping of resources or employees that are subject to the transfer. This is to be provided in writing or in a suitable accessible format. The information to be provided includes: the identities and ages of the employees the details of their terms and conditions of employment details of any collective agreements any disciplinary procedures within the previous two years any grievance procedures within the previous two years any court or tribunal case, claim or action brought within the previous two years, or where the transferor has reasonable grounds to believe that an employee may bring a claim collective agreements which will have an effect after the transfer details of any employee who would have been employed by the transferor, and assigned to the organised grouping or resources or employees that is the subject of the transfer immediately before the transfer, if they had not been dismissed prior to the transfer the liability information provided must not be more than 14 days old before the date on which the information is notified to the transferee, and must be provided no later than 14 days before the transfer in addition, following the notification of the information the transferor has a duty to inform the transferee of any changes to the liability information. 7

3 If the liability information is not forthcoming, make sure you put in writing to the transferor that they have a legal duty to provide it. Failure to comply will result in a claim against them. What if the liability information is not provided? The transferor has a duty to provide the liability information no later than 14 days before the transfer date, or if not reasonably practical to meet this deadline, the information must be supplied as soon as reasonably practical. If the transferor has not provided the required liability information the transferee may, within three months of the transfer date, present a claim to an employment tribunal. The tribunal can make an award of compensation which is just and equitable in all the circumstances, including any loss sustained by the transferee. The amount of compensation can be up to 500 per employee in respect of whom the transferor has failed to provide the information. There are no benefits from withholding the liability information, only financial penalties which can be significant. What is the duty to consult? The Regulations impose a duty on both the transferor and the transferee to inform and consult with representatives of the employees affected by the transfer. That is, whether you are selling, buying, outsourcing or taking on a service contract you have a duty to inform and to consult with the employees in your business that may be affected by the transfer, whether or not those employees are assigned to the organised grouping of resources or employees that is the subject of the transfer. Unlike redundancy situations, the duty to inform and consult is not limited to the number of employees, and therefore it will apply even if the transfer affects only one. The TUPE Regulations impose a duty on both the transferor and the transferee to inform and consult. 8

4 What information needs to be provided? As a transferee you have a duty to provide the transferor with such information that will enable the transferor to meet their obligations of informing and consulting their employees. The information to be provided to affected employees includes: that a transfer is to take place with the date or proposed date of the transfer the legal, social and economic implications of the transfer for any affected employees any measures that may be taken in connection with the transfer. The Regulations do not set a time period for this process, only stating that it should be done long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees. There are no benefits to not informing and consulting with employees. By following the process the transfer will be smoother and result in fewer issues. The requirements to inform relate to the fact that a transfer will take place, rather than on the proposals for a transfer. However, having said that, you need to be aware that if you employ 50 or more employees, you may have a duty under the Information and Consultation or Employees Regulations 2004 to consult on the proposals for a transfer, as these Regulations relate to potential changes in the business that may affect employees. The duty on the transferor to consult only applies to measures that the transferor employer itself envisages taking. Therefore, the transferor does not have to consult representatives about measures which the transferee may envisage, although it must inform them of these measures. How do we elect employee representatives? If the employer recognises an independent trade union in respect of the employees affected, representatives of that union must be informed and consulted. However, where there is no such trade union, the employer must inform and consult employee representatives. The process of election of employee representatives is the same as for redundancies. It is for the employer to determine the number of representatives, but there must be sufficient to represent the interests of all affected employees. All affected employees must be allowed to vote for the candidates, and the employer has a duty to ensure as far as reasonably practical that the election is fair. The voting can be held as a postal ballot. If the employees fail to elect a representative and provided that the election was held with sufficient time to consult, it will be treated as the employer having satisfied its statutory duty to consult. 9

5 If candidates are elected they do have the right to take a reasonable amount of paid time off during working hours to perform their function, or to undergo training to perform such functions. In addition, they can make a claim to an employment tribunal if they are refused reasonable time off, are not paid for the time off, or have been subject to detriment by their employer on the grounds that they were an employee representative. The process for the election of employee representatives must be as fair as reasonably practical. What if there s no consultation? With the exception of above, failure to elect and/or consult with employee representatives can result in claims to an employment tribunal. Although there is a defence that there were special circumstances which rendered it not reasonably practicable for the employer to comply, these circumstances will be very limited. This is because the employer (whether transferor or transferee) will still have to show that they took all such steps to comply, as were reasonably practicable in the circumstances. In addition, for example, the transferor cannot use the argument that they were not able to consult because the transferee did not provide the necessary information in the required time, unless they can show that they gave the transferee notice of their intention to show this fact, which will then make the transferee party to the proceedings. In the event of a claim both the transferor and the transferee will be jointly and severally liable in respect of any compensation awarded. Therefore, it is equally important to both the transferor and the transferee that the other is meeting their obligations to inform and consult. The Regulations provide for a protection award of up to 13 weeks pay per employee affected by the failure to consult. It is important to be aware that the award is intended to be punitive and to have a deterrent effect. In Sweetin v Coral Racing 2006 it was held that where there are no mitigating factors and the employer s failure to consult was serious and gross, it is not open for the tribunal to award anything less than the equivalent of 13 weeks pay. Whether you are the transferor or the transferee, the financial penalties for not informing and consulting employees can be severe. 10