The Government has published its response to the consultation on the proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).
The TUPE review aimed to ensure that the regulations did not reduce flexibility, effectiveness or fairness in the labour market or introduce unnecessary ‘gold plating’ to the Acquired Rights Directive.
The changes are much less far reaching than expected with the proposed changes to the service provision change rules being dropped in their entirety.
No implementation date has been provided for the changes, but BIS has informally indicated that we can expect the changes to take effect in January 2014.
The response indicates a wish to increase certainty for individuals and business and it has perhaps, for the most part, achieved this. The Government’s initial proposal to repeal the service provision change rules which was expected to have the most significant impact and create the most uncertainty has been dropped.
In its response the Government expresses concern that the uncertainty caused by the repeal of these provisions could hinder commercial agreements which would damage both the economy and the labour market. It is concluded that the provisions are necessary gold plating to the Acquired Rights Directive.
However, it is acknowledged that the service provision change rules can cause problems for small to medium sized businesses. Therefore, it is proposed that the test developed in case law: that for TUPE to apply to a service provision change the services provided pre and post transfer must be “fundamentally or essentially the same” will be expressly set out in TUPE.
This is not a new test, but it is suggested that expressly including it within TUPE may increase awareness and the confidence of businesses providing services in novel or innovative ways.
On balance, the retention of the service provision change rules is good news for business. The repeal of these provisions would have resulted in a return to the position prior to the implementation of the 2006 TUPE regulations. This would very likely have caused significant uncertainty as to whether TUPE applied and led to increased litigation and legal cost for employers.
Further certainty will be provided for transferees by a requirement for transferors to provide them with employee liability information at least 28 days prior to a transfer (rather than only 14 days). The initial proposal that the time limit should be removed entirely and the matter left to the parties to agree has been dropped.
In addition, the changes to TUPE will confirm that transferees will be able to rely on collective redundancy consultation that they carry out before a transfer provided that the transferor and transferee agree and the transferee has carried out meaningful consultation. This approach is often adopted by the parties in practice, but it has previously been uncertain if the transferee could subsequently rely on that consultation should a redundancy made following a transfer be challenged.
The parties to a TUPE transfer will gain further comfort from the proposed clarification of the meaning of an ‘economic, technical or organisational reason entailing changes in the workforce’ (“ETO reason”) to potentially include redundancies arising from a change in workforce location following a transfer.
Currently, redundancies arising as a result of a change in workforce location where there is no subsequent reduction in the numbers employed or change to job functions, were not capable of constituting an ETO reason. As a result such dismissals could be fair under ordinary redundancy legislation, but would be automatically unfair under TUPE.
TUPE will also be relaxed for businesses with 10 or fewer employees (micro businesses) for whom it is considered that the employment relationship is more personal. Micro businesses will be able to inform and consult directly with their affected employees where there is no recognised trade union or appropriate existing employee representatives. This will remove the need for such businesses to hold an election which can be technical and time consuming.
The response also clarifies the approach to collective agreements. It is confirmed that the ‘static approach’ will be expressly adopted by TUPE in respect of terms derived from collective agreements. This effect is that only those collective agreements agreed at the date of the transfer will bind the transferee unless it is a party to subsequent collective agreements or to the bargaining process.
In addition, transferees will be able to re-negotiate terms derived from collective agreements one year after the transfer even if the reason for wanting to change the terms is the transfer, provided that the overall changes to terms are no less favourable to employees.
Changes requiring further clarification
Perhaps the changes which will cause the most uncertainty for business and individuals are the changes to regulations 4 and 7 of TUPE which will mean that they more closely reflect the Acquired Rights Directive.
Currently, regulation 4 provides that any variation of a contract will be void if the sole or principle reason for the variation is the transfer itself or a reason connected to the transfer which is not an ETO reason.
Regulation 7 provides that the dismissal of an employee for the sole or principal reason of the transfer itself or a reason connected to the transfer which is not an ETO reason will be considered automatically unfair.
The Acquired Rights Directive has been interpreted by the European Court of Justice to void variations to terms or make dismissals automatically unfair only where the transfer itself is the reason.
Arguably, the inclusion of the second limb (i.e. ‘reasons connected to the transfer’) in TUPE introduces gold plating and increases the risk that TUPE will be interpreted more widely by domestic courts.
The Government’s response confirms that the wording of these regulations will be changed to remove the second limb and probably refer to the transfer itself as being the reason. However, this will create a new test for whether changes to terms are void or a dismissal is automatically unfair.
The response emphasises that a reason which is considered under the existing test to be ‘connected to the transfer’ and which would make a variation to terms void or a dismissal automatically unfair may still have that effect under the new test.
Although the changes to these regulations should narrow the effect of TUPE in line with European law and have a positive effect for business, it will increase uncertainty until the interpretation of the new legislation is clarified by case law.
This uncertainty is likely to increase litigation and cost for business and individuals. Therefore, detailed guidance as to the interpretation of the new provisions and application of this new test will be required to comfort individuals and businesses in the meantime.