Acquired Rights Directive: A Practical Approach for Navigating European HR Laws

0 Acquired Rights Directive: A Practical Approach for Navigating European HR Laws Duncan Aitchison Sarah Seabury Jon Lightman 7 December 2006 Copyright 2006, Technology Partners Copyright International, 2006, Technology Inc. All Rights Partners Reserved International, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.

1 Session Agenda Presenter Profiles Understanding and Planning for Acquired Rights (TUPE) in Europe What is the Acquired Rights Directive? TUPE 2006 An Overview Sourcing Impacts & Practical Implications Summary Questions and Answers

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4 Meet The Experts Duncan Aitchison Partner & Managing Director EMEA & Asia Pacific Regions Sarah Seabury Advisor HRO Advisor Europe ARD Practitioner on multinational HRO projects TUPE transferred in 2003 (Motorola to ACS) Jon Lightman Advisor Qualified English Lawyer (non-practising) Multinational European Contract SME

5 Discussion Roadmap Let s understand the legal framework, then we can talk about the challenges! What is the Acquired Rights Directive? TUPE 2006 The revised UK legislation Sourcing Impacts and Practical Implications Summary for Clients and Service Providers

7 What is the Acquired Rights Directive (ARD)? The Acquired Rights Directive provides an EU Legal framework designed to protect the Employment Rights of individuals impacted by a transfer of services between companies. Regional and National Implementation Framework Like all EU Directives, member states enact the requirements by implementing national legislation The implementation of ARD in the UK (England and Wales) is known as TUPE Other European States have similar national legislation, but implementation varies between countries TUPE - Transfer of Undertakings (Protection of Employment) Regulations 1981 - Original legislation Revised legislation drafted and updated following several consultations 2006 Revision, known as New TUPE release in April 2006

8 Acquired Rights An Overview What is the purpose of ARD and when does it not apply? Designed to protect the Employment Rights of personnel impacted by a transfer of services; includes most European sourcing contracts: First generation outsourcing (client to service provider) Second generation outsourcing (old service provider to new service provider) Shared Services (employee moves between subsidiaries, or employee role is no longer required) Circumstances when ARD does not apply: Where there is no identifiable group of employees servicing a client Where there is an organised group of employees but they do not provide the services principally to one particular client To contracts concerning a single specific event or task of short-term duration To contracts which are wholly or mainly concerned with the supply of goods to the client

9 Key Terms Associated With ARD When discussing ARD / TUPE it helps to understand some key terms: Employment contract (T&Cs) Unfair dismissal and Employment Tribunals Transferor (outgoing employer) Transferee (incoming employer) Other European / national legislation to consider: Data Protection Information and Consultation of Employees UK - Transfer of Employment (Pension Protection) Regulations 2005 UK - Cabinet Office Statement of Practice Staff Transfers in the Public Sector

11 TUPE 2006 The main changes to the TUPE legislation fall into the following categories: 1. A wider definition of a TUPE transfer to include service provision changes 2. An obligation on an outgoing employer (transferor) to inform an incoming employer (transferee) of employee liability information 3. Joint and several liability for both transferor and transferee for failure to inform and consult about a TUPE transfer 4. Clarification on the position for employers looking to change terms and conditions in connection with a TUPE transfer 5. Greater flexibility for transferees in insolvency situations

12 TUPE 2006 Broad Qualification Criteria Service activities ceased by the transferor, are taken up by the transferee Prior to the change in service provision there was an organised grouping of employees which had as its principal purpose the carrying out of the service activities What constitutes an organised grouping of employees? There is no definition in the new TUPE regulations, save confirmation that there can be a group of one employee. Notable exception: The new definition will not cover the transfer of a single specific event or task to a contractor Again, there is no definition of single specific event or task, save that it must be short-term. Just how short is a short-term contract?

13 TUPE 2006 Duty to Notify the Incoming Contractor A transferor will be required to notify a transferee of the following employee liability information in respect of each employee who is assigned to the undertaking that will transfer: The identity and age of the employee The main terms and conditions of employment of the employee Information of any collective agreement applying to the employee Information related to disciplinary or grievance procedures in the previous two years Information of any court or tribunal case, claim or action brought by the employee against the transferor in the previous two years Information of any court or tribunal case, claim or action that the transferor has reasonable grounds to believe the employee may bring against the transferee arising out of employment with the transferor The information must be supplied not less than 14 days before the TUPE transfer

14 TUPE 2006 Joint and Several Liability Joint and several liability for both transferor and transferee for failure to inform and consult about a TUPE transfer This measure addresses some of the concerns regarding Second Generation Outsourcing, where there is no contractual relationship between the outgoing and incoming service providers Issue in insolvency transfers - while strictly speaking jointly and severally liable, the transferor is unlikely to have the funds to pay The Duty to Consult with employees in ARD/TUPE overlaps with consultation legislation TUPE consultation requirements takes precedence during transfer Can be challenging to determine who to consult with elected bodies, Works Councils, unions, etc. Must respect the requirements on appropriate consultation periods (one to three months)

15 TUPE 2006 Changing Employee T&Cs Harmonisation of employees T&Cs has been problematic, especially where an outsourcer acquires many transferred employees from various transactions. New TUPE has a specific allowance for a valid change to employment terms by agreement where such changes are an economic, technical or organisational (ETO) reason However, in practice, case law has already established that for an ETO to occur, there must be changes in the workforce - therefore bringing TUPE transferred staff terms into line with existing staff is not an ETO In practice, the only way to harmonise T&C s remains dismissing and reemploying employees under new contracts This method could leave the employer open to claims for unfair dismissal If the transfer involves a substantial detrimental change in working conditions, an employee may be able to claim unfair dismissal The European ARD in this area is proscriptive, limiting room for manoeuvre of national governments to alleviate practical issues in this area

16 TUPE 2006 - Insolvency The Acquired Rights Directive (and TUPE) specifically allows for changes to terms and conditions of employment to be agreed between employer and employee in insolvency situations A transferee in an insolvency situation will not inherit liability for various statutory employment payments but these will remain the responsibility of the Secretary of State, for example: Statutory redundancy payments Statutory payments in lieu of notice

18 Pricing the Transfer Element of the Sourcing Transaction Less uncertainty, but potentially more cost Most sourcing transactions now covered by TUPE; therefore more certainty regarding transfer costs Employee transfer costs Potential penalties for non-compliance and unfair dismissal claims assume a minimum penalty of 500 per employee (no statutory maximum) The 14 day minimum rule for employee details (potentially) comes much too late for the data to be used in pricing discussions Equivalent requirements to TUPE under pensions legislation Transferee now has a duty to provide employee pensions, dependent on the pensions in place prior to transfer In essence, employee contributions are matched by the employer up to 6 percent of base salary

19 Pensions Negotiations (Second Generation) Normally, following the initial outsource from client to service provider, employee pensions are added to the general Service Provider Pension Scheme; however, with the underperformance of these schemes (due to poor returns on the stock market) moving employees to the next Service Provider (2G) scheme is proving problematic. Pension transfer costs hit schemes that are already underfunded Second generation pension transfers now being bitterly contested If employees remain deferred members of 1G pension, no issue, but transferring pension to new 2G employer is usually preferred to deferral The client has no contractual position in this debate, but often ends up as the arbitrator of this issue between incoming and outgoing service providers Terms and Conditions (ARD/TUPE transferred with employee) associated with employee retirement may impact pension funding requirements Employee rights to early retirement

20 Advice on Timescales and Planning More details to plan into the precontract and transition phases Start consultation processes early (even before TUPE applies) In most European countries (including the UK), assume consultation will take three months or more Request the HR data as early as possible, as the client needs a robust Data Protection Policy to control the transfer of personal data Understand the detailed severance conditions and costs per employee Initiate early discussions on redeployment opportunities Be aware of legacy T&Cs / redundancy terms handed down through multiple TUPE transfers (especially if the original transfer was from a public sector organisation) Service providers must actively project manage the employee transfer process and costs a close focus can reduce costs, aid the new employment relationship and will be well received by the client

21 An Opportunity or a Challenge? Pesky European Regulation, or a good opportunity to focus on transferred staff? If employee transfer is managed badly: The service may decline below the required service levels triggering early service credits. Additional exit and recruitment cost incurred Existing staff may be disrupted Potential unfair dismissal proceedings If employee transfer is managed well: Staff respond to well-managed and positive consultation Feedback and retention of staff knowledge that may improve the transition and service Lower attrition rates Improved assimilation into new service provider culture

23 Summary The Acquired Rights Directive / TUPE ARD compliance is mandatory in Europe A positive view helps sweeten the bitter pill Plan for the differing national laws across Europe Beware liability issues and Employment Tribunals Manage the transfer Build the costs into the business case Appoint resources to manage the employee transfer process Ensure key ARD/TUPE tasks and action dates are identified early and added to plans Investigate legacy TUPE implications Employees transferred several times may have some interesting T&Cs

25 To Learn More Feel free to contact our experienced European Advisors Duncan Aitchison, MD EMEA & Asia Pacific duncan.aitchison@tpi.net Denise Colgan, Marketing Manager EMEA denise.colgan@tpi.net Sarah Seabury, Senior Advisor HRO Compliance SME sarah.seabury@tpi.net Jon Lightman, Senior Advisor Andrea Riffle, Manager of Corporate Marketing Communications andrea.riffle@tpi.net European Legal Compliance SME jon.lightman@tpi.net

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