New TUPE regulations: escaping the ambiguity?

3 May 2005

The Government has recently put forward proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). The draft regulations propose several new provisions and key amendments intended to address uncertainties and incorporate existing case law. It is anticipated that the final regulations will be laid before Parliament in early July 2005 and will come into effect on 1 October 2005.

Service provision changes - The new regulations will be extended to cover more widely ‘service provision changes’. TUPE will therefore apply in cases where a client contracts out services, changes contractors or brings a service back in-house. This change is intended to bring more certainty in outsourcing situations, however, there are several exceptions to it. It does not apply in situations:

where a contractor is engaged by a client to provide services on an ad-hoc basis
where the contract is for the procurement of goods rather than services, or
in one-off contracts where the client does not intend to enter into an ongoing relationship.

Some may think that the latter exclusion can be easily overcome. However, DTI has already stated that this is not meant as a loophole whereby the parties enter into a series of short-term contracts in an attempt to avoid compliance with the Regulations. This issue will no doubt be brought before the Tribunals.

The regulations also introduce a new definition of a transfer in cases where a service provider changes. This is very wide as it does not include the requirement for the economic entity to retain its identity after the transfer. Thus, a TUPE transfer will occur provided there was an organised grouping of employees whose main purpose was to carry out those activities before the changeover. The Government hopes that this provision will provide more flexibility to the transferee who will be able to retrain the transferred staff in some circumstances.

Employees’ terms and conditions - The new regulations also attempt to clarify the effect they have on the employees’ terms and conditions. Parties will be able to agree to transfer–related changes to terms and conditions where the sole or principal reason is connected with the transfer and is also an ETO (economic, technical or organisational) reason entailing changes to the workforce. This may prove somewhat difficult to show in instances where there is no major reorganisation but more than a mere harmonisation of terms and conditions. Moreover, it is not clear whether this is possible under EC law.

Dismissals - In order to reflect the current case law, the new regulations propose that the transferee will inherit liabilities in relation to employees who have been unfairly dismissed immediately before the transfer for a transfer-related reason.

Notification of liabilities - There will be a new requirement for the transferor to notify the transferee, in writing, of all associated rights, powers, duties and liabilities in relation to assigned employees. It is specified that this information should be supplied in ‘good time’ before the relevant transfer or in any event no later than the completion of the relevant transfer. It can also be supplied in instalments and through third parties. This duty is unquestionably wide and ambiguous as there is no precise time limit imposed. Employers should also consider the wider implications of confidentiality and Data Protection law.

Information and Consultation - The liability for failure to comply with the information and consultation requirements pre-transfer will fall on both transferor and transferee. Although the mechanism is not yet clear, DTI envisage that a party could be joined or seek contribution from the other, if at fault, for any protective award.

Pensions - The occupational pensions exclusion remains and the new regulations do not afford the employees the right to bring a claim against the transferor for breach of contract or constructive dismissal arising from a loss or reduction under an occupational pension scheme. However, employees are now granted protection of their pension rights under s 258 of the Pensions Act 2004 (The Transfer of Employment (Pension Protection) Regulations 2005, which came into force on 6 April 2005.

Territorial extent - The proposed Regulations will also protect employees working abroad but the extent of their protection will depend on the normal principles of international law. However, somewhat disappointingly, the new regulations fail to address the issue of offshoring. Without further guidance, it will be presumed that the regulations should be used as TUPE states that it applies where a business is situated in the UK before the transfer.

Although the new proposals intend to bring more certainty into this grey employment law area, it is doubtful that their objective will be achieved.