TUPE: Insourcing and Insolvency 16 May 2012 Aidan Briggs
CONTENTS THE SPEAKERS... 3 News... 3 TUPE: A Quick Refresher... 4 Approaching a TUPE problem... 4 Insourcing... 6 Consequences for the Transferee... 7 Getting Information... 8 Further Information to Ask For... 9 Providing Information... 9 Insolvency... 12 Conclusion... 13 THE EMPLOYMENT GROUP... 14 020 7400 9600 www.elyplace.com Page 2
Ely Place Chambers TUPE: Insourcing and Insolvency THE SPEAKERS. Aidan Briggs Aidan undertakes the full breadth of Employment work, representing Claimants and Respondents at both Tribunal and Employment Appeal Tribunal level, as well as making applications for costs. In addition, he advises and represents clients seeking to enforce in the County Courts and High Court and often pursues bankruptcy, windingup petitions and charging orders to that effect. He recently represented 35 claimants in a class action TUPE claim in the construction sector, conducted a string of claims against national airlines and defended businesses of all types from cab companies to the Post Office. He has advised on and drafted Freedom of Information appeals on behalf of Trade Unions in relation to the 'Consulting Association' blacklisting scandal. He is an ambassador for the Free Representation Unit and a member of the Employment Law Bar Association. News Queen s Speech. Three bills were mooted in this week s Queen s speech. The Enterprise and Regulatory Reform Bill will introduce more Tribunal reform, including the greater involvement of ACAS. The Public Services Pensions Bill will cause havoc. The Children and Families Bill will enable parents to share their parental leave. 020 7400 9600 www.elyplace.com Page 3
TUPE: A Quick Refresher 1. The law of Transfers of Undertakings springs from Directive 77/187 The Acquired Rights Directive designed to safeguard employees' rights in the event of transfers of undertakings, businesses or parts of businesses. 2. The modern implementing legislation is the Transfers of Undertakings (Protection of Employment) Regulations 2006 which apply to any transfer after 6 April 2006. The Regulations, as we shall see, ask more questions than they answer and are only ever a starting point in understanding the law. Approaching a TUPE problem 3. In a nutshell, where there is a relevant transfer to which employees are assigned, those employees employment will transfer to the Transferee and with it all the rights and liabilities which applied to the Transferor. Both employers have a duty to inform and consult in certain circumstances. 4. A Relevant Transfer may be either: a) a transfer of an Undertaking an economic entity which retains its identity r.3(1)(a); or b) A Service Provision Change where an Organised Grouping of Resources has the Principal Purpose of pursuing an Economic Activity and that activity is either: i. Outsourced (Client à contractor) ii. Insourced (Contractor à Client) iii. Reassigned (contractor à contractor) r.3(1)(b) 1. Where an Employee is Assigned to the Undertaking or Organised Grouping of Employees immediately before the Relevant Transfer, their employment contract will transfer to the transferee and they will have the protection of r.4 and r.7. 2. Employee in this context is broadly construed and extends well beyond the strict ERA 1996 definition. Some, but not all, workers will be protected. 3. Assignment must not be on a temporary basis r.2(1) but otherwise the Regulations are unhelpful. An employee need not be wholly engaged in the activity concerned, nor will their spending a significant amount of time in another activity be 020 7400 9600 www.elyplace.com Page 4
fatal to assignment. It will always be a question of fact to be determined considering all the relevant circumstances see Duncan Web v Cooper [1995] IRLR 633 for some useful guidance. 4. Immediately Before will also depend upon the facts. Termination two weeks before a transfer was held to relieve the Transferee of liability, but where there is an obvious intention to avoid TUPE longer periods may be disregarded. 5. An employee may object to being employed by the Transferee under r.4(7). If they do so, their employment will not transfer and will terminate at the time of the transfer. 6. Similarly, if the transfer would incur a material detriment by reason of substantial changes to working conditions, an employee may treat himself as having been dismissed by his employer, but cannot claim notice pay r.4(9) 7. Regs. 4 and 7 give the TUPE regulations their teeth: Assigned employees become employees of the Transferee at the time of the transfer and are entitled to retain the full terms of their contract of employment with the transferor. Collective agreements and Trade Union recognition also transfer. Any act or omission by the Transferor in relation to the employee or their contract is deemed to be an act of the Transferee. A transferee may not vary a transferred employee s contract by reason of the transfer itself. A variation may however be justified as being one which is for an economic, technical or organisational reason entailing changes in the workforce. r.4(5) Similarly, employees may not be dismissed by reason of the transfer unless there is an economic, technical or organisational reason entailing changes in the workforce. r.7 Criminal liabilities do not transfer. r.4(6) 020 7400 9600 www.elyplace.com Page 5
Insourcing 8. A species of Service Provision Change under r.3. Insourcing most commonly occurs when a service contract comes to an end, either at its natural conclusion, or because of some breakdown in the contract, or possibly because the service provider has become insolvent. 9. There are a few exceptions, such as: A Service Provision Change does not take place where the activity is the supply of goods for the Client s use, or where the change is only for a single specific event, or for a task of short duration. R.3(3) An Administrative Reorganisation of public administrative authorities is not a relevant transfer. r.3(5) 10. It is worth considering the position before the 2006 Regulations came in. CLECE SA v Maria Socorro Martin Valor and Ayuntamiento de Cobisa an ECJ decision where the Court held that a mere change in the provision of a service is not a relevant transfer for the purposes of the Acquired Rights Directive. 11. The SPC provisions in the Regulations are beyond what is necessary for implementation of the ARD they are a wholly new statutory concept (Judge Burke QC: Metropolitan Resources v Churchill Dulwich Ltd (in Liquidation) and others [2009] IRLR 700 at para 27. With the Conservatives manifesto pledge to scrap the SPC and now this decision one wonders how long SPC s will last. 12. The EAT in Enterprise Managed Services Ltd v Connectup Ltd (EAT/0462/10) provided a useful summary of the principles governing SPC s: (1) Establish which kind of SPC is being considered at the outset. (2) The expression "activities" is not defined in the Regulations. Thus, the first task for the employment tribunal is to identify the relevant activities carried out by the original contractor. (3) The next (critical) question for present purposes is whether the activities carried on by the subsequent contractor after the relevant date are fundamentally or essentially the same as those carried on by the original contractor. Minor differences may properly be disregarded. This is essentially a question of fact and degree for the 020 7400 9600 www.elyplace.com Page 6
employment tribunal. (4) Cases may arise where the division of services after the relevant date, known as fragmentation, amongst a number of different contractors, means that the case falls outside the SPC regime. (5) Even where the activities remain essentially the same before and after the putative transfer date as performed by the original and subsequent contractors, an SPC will only take place if the following conditions are satisfied: i) There is an organised group of employees in Great Britain which has, as its principal purpose, the carrying out of the activities concerned on behalf of a client; iii) ii) The client intends that the transferee, postspc, will not carry out activities in connection with a single event of short term duration; The activities are not wholly or mainly the supply of goods (rather than services) for the client's use. Consequences for the Transferee 13. The basic position is that for those employees whose employment does transfer, the Transferee is fixed with the contract of employment as if originally between them and the transferee. In addition, any act or omission of the transferor before the transfer is deemed to be an act or omission of the transferee. Thus the Transferee s liabilities will include: a. Anything in a contract of employment (written or unwritten) including all accrued rights, continuous employment and other timelinked contractual benefits; b. Any warranties or undertakings given by the transferor; c. Any oral or collateral agreements made between the transferor and the employee(s); 020 7400 9600 www.elyplace.com Page 7
d. Any collective agreements reached between the transferor and a recognised trade union; e. Any additional terms incorporated by course of conduct into the contract of employment; f. Any waiver or affirmation by the transferor of the employee s breach of contract; g. Any action which estops the transferor from enforcing a term of the contract. 14. The Employee Liability Information (see below) should give you a basic understanding of the contractual liabilities you are about to undertake, but as can be seen above, this is only the tip of the iceberg. Any Transfer agreement should include significant warranties or indemnities from the Transferor in respect of these matters. In other cases, you as the transferee may not have that luxury and will have to make a full investigation of these matters to protect your position. 15. Liability for occupational pension schemes within the meaning of the 1993 Act do transfer except insofar as they relate to benefits for old age, invalidity or survivors Reg. 10 as does liability for personal pensions and the duty, posttransfer, to make available a minimum level of future pension provision under the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005. Getting Information 16. If you establish that an Insourcing transfer is likely to take place, there are some key questions you must ask: i. Which employees will you become responsible for? ii. What rights and responsibilities do they bring with them? iii. What measures do you propose to take which affect their employment? 17. The starting point for the first two is the requirement under reg. 11 to provide Employee Liability Information. The transferor must notify the transferee, with regard to any employee who is assigned to the transfer: Their identity and age particulars of employment (only those specified in s.1 ERA 1996) disciplinary and grievance records going back two years court or tribunal actions, both past and anticipated collective agreements 020 7400 9600 www.elyplace.com Page 8
18. Failure to provide this information renders the transferor liable to a claim under reg. 12 for an unlimited amount, having regard to any loss sustained by the transferee and the terms of any contract between them. Further Information to Ask For 19. Although there may be a defence of reasonable and genuine belief for a failure to inform and consult, this oversight will not absolve the transferee of their liabilities for employees whose employment transferred. Thus, it is worth looking behind the transferor s assurances and examining the actual facts of the scenario to see which employees are assigned to the entity, applying the tests set out above. 20. Ask not only what actions the Transferor has taken, but also what actions have been taken in relation to the Transferor. This encompasses almost every aspect of an employer s affairs, including: Providing Information Tied accommodation arrangements; Staff/ travel loans; Liabilities under the Agency Workers Regulations 2010 Investigations made by the Equal Opportunities Commission or the Equality and Human Rights Commission and any recommendations or undertakings given in that respect; The management of pending Personal Injury claims Acts of direct discrimination, harassment, or failures to make reasonable adjustments; Latent discrimination in the workforce; Requests under the Information & Consultation Regulations 2004. 21. Regulations 1315 require both the Transferor and the Transferee to Inform and Consult, and a failure to comply attracts a punitive protective award of up to 13 weeks pay for each affected employee. The burden is heaviest on the Transferor, but by virtue of Reg. 15(9) the Transferor and Transferee are jointly and severally liable for any award. For this reason alone it is preferable for both parties to conduct the exercise jointly and with the maximum of cooperation. 020 7400 9600 www.elyplace.com Page 9
22. These obligations are not only in respect of those employees assigned to the transfer, but to all employees who may be affected by the transfer or by measures taken in connection with the transfer reg. 13(1). 23. In a nutshell, the Transferor must: 24. The Transferee must: inform the Transferee in writing of the identity, age, particulars of employment, disciplinary and grievance records, court or tribunal actions and collective agreement of all the employees who are assigned; hold an election of employee representatives to represent all affected employees if there is not already Trade Union or other representation in place r.14; Inform representatives of the fact, date and reasons for the transfer as well as its legal, economic and social implications; Inform representatives of any measures he envisages he will take in relation to the transfer; Consult representatives with a view to seeking their agreement to those measures, considering and replying to any representations made; Inform representatives of any measures he envisages the Transferee will take in relation to the transfer; inform the Transferor of any measures which it envisages it may take in relation to transferred employees; Consult representatives with a view to seeking their agreement to those measures, considering and replying to any representations made; 25. Envisages taking any measures is also undefined in the Regulations. Measures includes any action, step or arrangement, envisages is not wide enough to encompass mere hopes and possibilities; the employer must have formulated some definite plan Institution of Professional Civil Servants v Secretary of State for Defence [1987] IRLR 373. Envisaging measures can be distinguished from merely foreseeing that some inevitable administrative changes will result. 26. As noted above, an employer is entitled to rely upon their reasonably held belief when giving information Royal Mail Group v Communication Workers Union [2010] ICR 83. Waller LJ gave a useful indication of the standard expected: There must be an obligation on the employer to consider the legal implications. If he does not do so, then he will not be able to defend his view as being genuine. What representatives should be informed of is a considered 020 7400 9600 www.elyplace.com Page 10
view as to the legal implications and an employer will not be able simply to say without considering the point this is what I believed. 27. Regulation 13 only requires information and consultation to be carried out in relation to affected employees. These are defined in r13(1): Any employees of the transferor or transferee (whether or not assigned to the organised grouping of resources or employees that is the subject of the relevant transfer) who may be affected by the transfer of may be affected by measures taken in connection with it. 28. So to be informed the member of staff must be: a) an employee: defined in r2(1) b) of the transferor or transferee c) Who may be affected by the transfer or measures taken in connection with it. 29. Therefore not merely the employees who will transfer who are affected employees. The BIS guide says there are three types of affected employee: a) those who will transfer; b) those of the transferor employer s workforce who will not transfer but their jobs might be affected by the transfer; c) the transferee s workforce whose jobs may be affected. 30. There is a defence to the failure to inform and consult where it would not be reasonably practical r13(9). However this exemption is not contained within the Acquired Rights Directive. 31. Case law suggested it will be narrowly defined. R13(9) is similar to the that in s188(7) TULR(C)A. Under this section special circumstances are only this if they are exceptional or out of the ordinary : Clarks of Hove v Bakers Union [1978] ICR 1076, CA. 020 7400 9600 www.elyplace.com Page 11
Insolvency Regulation 8 contains two separate provisions for companies in Insolvency proceedings: 32. Reg. 8(7) disapplies Regulation 4 (transfer of employment) and Regulation 7 (dismissal by reason of the transfer) where the Transferor is subject to: a. bankruptcy proceedings or any analogous insolvency proceedings; b. which have been instituted with a view to the liquidation of the assets of the transferor; and c. are under the supervision of an insolvency practitioner 33. Reg. 8(5) passes liability for the sums set out in Parts XI and XII ERA 1996 from the Transferee to the Secretary of State where the Transferor is subject to: a. insolvency proceedings; b. which have been opened in relation to the transferor; c. not with a view to the liquidation of the assets of the transferor; and d. which are under the supervision of an insolvency practitioner. 34. Rimer LJ in Key2Law (see below): If it were to be viewed and interpreted exclusively as a piece of domestic drafting, regulation 8(7) would pose questions of interpretation that would be sufficiently challenging to lead to despondency if not despair 35. Many of these have not yet been decided, but the following would appear correct: a. Compulsory Liquidation: 8(7). The Official Receiver s remit is only to maximise the realisation of the Company s assets. BIS has given guidance on this, entitled Guidance on the TUPE 2006. b. Members Voluntary Liquidation: N/A Not strictly insolvency proceedings until a liquidator has been appointed. Investigate whether there was any intention to sell the business as a going concern at the time when the Members resolution was passed. c. Creditors Voluntary Liquidation: 8(7). As with Compulsory Liquidation, but investigate whether there was any interest in selling the business as a going concern at the outset. 020 7400 9600 www.elyplace.com Page 12
d. Receivership: 8(7) / 8(5). Very factsensitive. Some receivers realise assets, others run the business as a going concern e. Company Voluntary Arrangement: 8(5). Intended to keep the Company afloat rather than to liquidate its assets. f. Administration: 8(5). This was firmly decided by the Court of Appeal in Key2Law (Surrey) LLP v De Antiquis [2011] EWCA Civ 1567 but is now on appeal to the Supreme Court. The Schedule B1 objectives are determinative and it is irrelevant if, as soon as he is appointed, the Administrator decides to liquidate the company s assets. This finally brings the law back in line with the original guidance from BERR (now BIS). 36. Thus the logical questions to ask when faced with an insolvency scenario are: a. Is/Was there a transfer at all? b. At the date of the transfer, was the Transferor subject to insolvency proceedings? c. Were those proceedings under the supervision of an insolvency practitioner? d. Do those proceedings fall under 8(5) or 8(7)? e. Consequently, what liabilities does the Transferee inherit? Conclusion 37. Where services are outsourced and there is a risk that they will have to be taken back inhouse at some stage in the future, the following would seem to be sensible precautions: a. Within the tendered contract, include specific undertakings to provide regular information as to those employees engaged on the tendered work, including not only that required by reg.11 but the additional information above. b. Include indemnities for failure to provide that information. c. Where there is an insolvency scenario, see what steps are available to force the provider into insolvency and thereby avoid the burdens of TUPE. d. In other scenarios, where insourcing is anticipated, decide at the outset what measures are likely to be taken and prepare information sheets for transferring employees. e. Look behind the information given by transferors and ensure that you have the requisite access to confirm the accuracy of their assessments f. Try to get a joint consultation going, whereby you can control the consultation process and ensure that employees get the information to which they are entitled. Aidan Briggs 020 7400 9600 www.elyplace.com Page 13
THE EMPLOYMENT GROUP The Employment Group at is fourteen members strong. Our barristers appear for both employers and employees before the ET, the EAT, the High Court and the Appellate Courts. Recently Chambers was instructed in the in the high profile Court of Appeal case of Rolls Royce v Unite the Union. Our barristers are often instructed for High Court injunctions. They also undertake representation before regulatory and internal disciplinary hearings. The Employment Group provides advocacy and advice in the areas detailed below: Unfair, constructive and wrongful dismissal Redundancy Discrimination and Equality Law Equal pay Whistle blowing Transfer of undertakings Illness related disputes Restraint of trade Noncompetition Gardening leave Trade union law and industrial relations Injunctions Central Government and Local Authority matters Our barristers also advise in more specialist areas such as health and safety, psychological injuries, industrial relations and union activity, aggravated and exemplary damages, costs and the liability of public bodies. Members of the Employment Group David Preston 1993 Amy Stroud 2004 Simon Perhar 1997 Jonathan Price 2004 Johnathan Payne 1997 David Mitchell 2004 Gillian Crew 1998 Liam Ryan 2007 Michael Salter 1999 Aidan Briggs 2009 John Samson 2001 Cath Urquhart 2010 Bushra Ahmed 2001 Max Cole 2011 020 7400 9600 www.elyplace.com Page 14
CONTACT US Christopher Drury: Richard Sheehan: Kevin Morrow: Dave Lovitt: cdrury@elyplace.com rsheehan@elyplace.com kmorrow@elyplace.com dlovitt@elyplace.com 30 Ely Place London EC1N 6TD Tel: 020 7400 9600 Fax: 020 7400 9630 DX: 291 London Chancery Lane 020 7400 9600 www.elyplace.com Page 15