TACKLING AND PROVIDING FOR TUPE IN THE CONTEXT OF PROCURMENT Peter Oldham QC TUPE claims 1. A reminder of the claims TUPE can give rise to:- Transfer of obligations (1) Where employment is transferred, all rights and liabilities under the contract of employment transfer r 4(2). There is a saving for pension rights (r 10), though see ss 257 and 258 of the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005 and paragraphs 2-5 below. (2) A variation of contractual terms is void where the reason for it is the transfer, or a reason connected with the transfer that is not an economic, technical or organisational ( ETO ) reason r 4(4). (3) Relevant collective agreements transfer r 5. (4) Trade union recognition transfers where the organised grouping of resources or employees in respect of which there is recognition maintains its identity r 6. Dismissals (5) A dismissal by reason of a relevant transfer (i.e. a transfer of an undertaking or a service provision change) is automatically unfair r 7(1)(a). (6) A dismissal for a reason connected with the transfer that is not an ETO reason is automatically unfair r 7(1)(b). (7) A dismissal for a reason which is an ETO reason is potentially unfair r7(3(b). Note that (5)-(7) apply whether or not an employee transfers or indeed is assigned to the organised grouping of resources/employees that is transferred r 7(4) Provision of information to transferee (8) The transferor must give the transferee employee liability information at least two weeks before the transfer save in special circumstances making it not reasonably practicable (this exception will be narrowly construed) r 11(6). Note that the incorrect provision of information, whether by transferor or by transferee, can itself give rise to tortious liabilities, both to the transferee and to employees: Hagen v ICI Chemicals and Polymers Ltd [2002] IRLR 31. 1
Duty to inform and consult employees (9) The employer and employee must consult affected employees, and provide them with information long enough before the transfer to make consultation effective, save in special circumstances making it not reasonably practicable (this exception will be narrowly construed) r 13(1) and (2). Where there is no trade union recognition in respect of affected employees, this will involve the election of representatives r 13(3)(b) and 14. Note that these duties are distinct from the duties under:- - section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 ( the 1992 Act ) - Information and Consultation of Employees Regulations 2004 ( the ICE Regulations ) which may also be engaged in TUPE situations. Directions and policy guidance 2. The Cabinet Office Guidance on Staff Transfers in the Public Sector ( COSOP ) purports to oblige contractors to make broadly similar pension provision to that available from the previous public sector employer. The future of COSOP was the subject of consultation ending in June 2011. 3. The Code of Practice on Workforce Matters in Local Authority Service Contracts (2003) provided that local authorities should apply COSOP when contracting out to the private sector and and that new personnel working on the transferred contract should be employed on terms no less favourable. This Code was revoked for new contracts by the DCLG on 23 rd March 2011. 4. However, the Best Value Authority Staff Transfers (Pension) Direction 2007, made under s 101 of the Local Government Act 2003, is still in force. This obliges local authorities to require contractors to provide pension protection to transferring employees. 5. The 2005 Cabinet Office Code of Practice on Workforce Matters in Public Sector Service Contracts was withdrawn in December 2010. Existing contracts which contain provisions giving effect to the Code are unaffected until re-negotiation or termination but the Code will not apply to contracts awarded after 13 th December 2010, and is replaced by new Principles of Good Employment Practice which are non- prescriptive and voluntary. 2
Caselaw on some key issues Applicability 6. By r 3(5):- (5) An administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer. But this only applies where the activity is purely regulatory or non-economic in character: Henke v Gemeinde Schierke and Verwaltungsgemeinschaft Brocken [1997] ICR 746; Askew v Clifton Middle School [1997] ICR 808; Collino v Telecom Italia SpA [2002] ICR 38; Mayeur v Association Promotion de L Information Messine [2002] ICR 1316; Law Society of England and Wales v Secretary of State for Justice and Office of Legal Complaints [2010] IRLR 407. Is there a transfer? 7. Whether there is a service provision change must be considered independently of the EU and EUderived caselaw on relevant transfer: Metropolitan Resources Limited v Churchill Dulwich Limited [2009] IRLR 700. 8. But in the case of both the relevant transfer and service provision change, this will often resolve itself into the question of whether after transfer the activity retains a sufficient degree of identity: see e.g. CLECE SA v María Socorro Martín Velor and Ayuntamiento de Cobisa [2011] 2 CMLR 30; and Nottinghamshire Health Care NHS Trust v Hamshaw EAT 0037/2011, 19 th July 2011 Which employees get the benefit? 9. Note the looseness of the assignment test: Botzen v Rotterdamsche Droogbok Maatschappij BV [1985] ECR 519. Who is liable for dismissed employees? 10. See the useful statement of principles in Kerry Foods Ltd v Creber [2000] IRLR 10:- (1) Every dismissal is effective to terminate the employment relationship. (2) A dismissal by the transferor by reason of the impending transfer will be automatically unfair. (3) The employees concerned will enforce their remedies in relation to that dismissal against the transferee (4) but not if the main reason for the dismissal by the transferor is an ETO reason. (5) If the dismissal is effected by the transferee then the employee rights are against the transferee. 3
TUPE related problems in the procurement process 11. A procurement process which is successful in dealing with issues to which TUPE gives rise will probably be informed by human resources expertise as much as, if not more than, by legal expertise. The law is, to that extent, only a starting point and, with luck, not a finishing point. 12 So for example, TUPE (as well as the 1992 Act and the ICE Regulations) gives a framework for informing and consulting with employees. But good human resources practitioners will doubtless have kept staff and union representatives in the loop before those obligations kick in by regular meetings with staff side, newsletters etc. 13. Nevertheless sometimes the legal issues do come to the fore. (1) Being clear about whether TUPE is likely to apply 14. In any procurement process, the authority needs to have a clear idea about whether TUPE is likely to apply for a number of reasons:- (1) if it is contracting out for the first time, or if it is taking work in house, it will be the potential transferor or transferee, and therefore face potential liabilities under TUPE. (2) Regardless of whether it is or is not itself potentially liable as transferor or transferee, it will want the market to have a clear idea of employee costs, so that bids are calculated on the correct basis. (3) The transferee has a duty of transparency under the Public Contracts Regulations 2006: r 4. 15. Where there is a lack of clarity as to whether TUPE is likely to apply, the employee costs involved (if it does or does not apply) could be separated out from the tender cost and treated as a sum payable on top of the tendered price. 16. An alternative solution is to have a price adjustment mechanism in the contract, but it is best to avoid price adjustments in case that gives rise to assertions by third parties that this lacks transparency (2) Provision of information 17. Inevitable uncertainties over the application of TUPE are often exacerbated by difficulties over the provision of information by the transferor. Bidders need accurate information on which to base their tender. If workforce information is incorrect or incomplete, the bidders may misprice their bid. 4
18. If they underprice this could affect the viability of service provision. The bidder may even decide not to enter into the contract, or they may ask the authority for indemnities against TUPE related liabilities which they were unable to foresee on the basis of the information they were provided by the previous contract. 19. If they overprice this affects value for money. 20. The remedies provided by TUPE give some clout to its requirements for provision of information, but even if the contractor decides to abide by them, there are still problems e.g.:- - the obligation under TUPE is to provide information to the transferee, not the authority (if it is not the transferee) - there is only an obligation to transfer ahead of a relevant transfer. If there ends up being no relevant transfer, there will have been no obligation - the obligation is to provide information only 14 days in advance of the transfer - the information is limited in scope - the information may be incorrect, or based on a misapprehension as to the numbers of employees involved. 21. Therefore the authority should consider building into its contracts an obligation to provide employee information at the relevant time, and possibly even warranties as to the correctness and completeness of the information. (3) Inflated lists of transferees 22. On losing a contract an incumbent will sometimes inflate the numbers of those entitled to transfer. 23. They should be reminded that, if these employees are not assigned to the transferring service, their employment will not transfer, and that if the incumbent refuses to recognise them as an employee upon transfer, that is likely to be an act of dismissal entitling the employee to claim unfair dismissal, and probably automatic unfair dismissal, against it. (4) Dealing with liability through indemnities 24. It is not possible to contract out of TUPE, so the authority, if it is transferor or transferee, cannot isolate itself against the possibility of being joined to employment tribunal claims by employees displaced by the transfer. 25. Often employees or their representatives will claim against transferor and transferee and leave it to the two employers to sort out amongst themselves whether there was a TUPE transfer and possibly also whether the employees were assigned to the undertaking or grouping transferred. 5
26. Alternatively if the authority (as transferor or transferee) is not joined as a party, because the claimant thinks that TUPE was/was not applicable to the transfer and accordingly the employer in the frame is the contractor, the contractor will probably take the point that there was/was not a TUPE transfer and itself apply to have the authority joined as a respondent to the claim. 27. However, while (short of settlement see below) an authority cannot protect itself against the possibility of claims, there is no reason why it cannot seek indemnities in the contract agreed with the provider against TUPE-related (and other) employee liability arising out of the termination of the prior contract and the letting of the new contract. (5) Settling claims 28. If the authority is joined to an ET claim, it may want to settle the claim. R 18 provides:- 18 Restriction on contracting out Section 203 of the 1996 Act (restrictions on contracting out) shall apply in relation to these Regulations as if they were contained in that Act, save for that section shall not apply in so far as these Regulations provide for an agreement (whether a contract of employment or not) to exclude or limit the operation of these Regulations 29. S 203 of the 1996 Act is the provision which allows claims under that Act to be settled if they meet certain conditions (agreement in writing, the claimant has received appropriate advice etc.). R 18 would appear to be intended to allow claims under TUPE to be settled in the same way (and anyway claims of unfair dismissal for a TUPE related reason are still claims under the 1996 Act, not under TUPE). This is because (as the EAT pointed out Solectron Scotland Ltd v Roper and ors [2004] IRLR 4, a case under the 1981 version of TUPE) a settlement of a claim is about rights arising after employment has ended, not about the operation of TUPE to transfer employment. 30. A possible difficulty is that s 203 applies only to claims by employees, and some claims under TUPE can be brought by others e.g. unions under r 15(1)(c) failure to consult; or transferee employers under r 12 failure to provide employee liability information. 31. Nor is there provision (as there is for claims by unions for breach of section 188 of the 1992 Act) for such claims under TUPE to be settled by an ACAS conciliation officer through a COT3 agreement). 32. However, the authority may feel that the risk of a challenge to a settlement agreement on this basis is limited. September 2011 6