7 March 2006

The new Transfer of Undertakings (TUPE) Regulations came into force on 6 April 2006. The Regulations continue to protect employees on the transfer of a qualifying business.

From April 2006, TUPE will expressly apply to outsourcing, re-tendering and Insourcing of services. This will occur where services transfer from a business to a contractor, or from a contractor to a subsequent contractor or back to the original business.

Increased liability – for unfair dismissal and redundancy

Previously, dismissals connected with a transfer were automatically unfair, unless there was an economic, technical or organisation reason (ETO reason) entailing a change in the workforce, enabling the employer to lawfully dismiss the employee. The new regulations now expressly state that an ETO reason in itself is not enough, an employer must also prove that they have acted reasonably.

Secondly, the basis for a dismissal under a TUPE transfer was previously by reason of the catchall phrase of ‘some other substantial reason’. This had the effect that an employee was not entitled to a redundancy payment. The new regulations expressly state that a dismissal can occur for ‘some other substantial reason’ or by ‘reason of redundancy’. Now employers will have to be careful when dismissing for an economic technical or organisational reason, as not only can employees be entitled to a redundancy payment, but they have the opportunity of bringing an unfair dismissal claim if the correct consultation or selection procedures have not been followed.

The employer’s ability to vary an employee’s terms and conditions has been limited. The new regulations expressly state that a variation of a contract will be void if the principal reason for the variation is the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational reason entailing a change on the workforce. The previous regulations permitted variations to the extent that it was not significant and to the employee’s detriment. This change will curtail the ability of the employer to harmonise minor terms and conditions where there is not an economic, technical or organisational reason for the change.

Lastly the new regulations also amend the compensation due to an employee where there has been a failure to inform and consult. This failure could be caused by the transferring company’s failure to pass on information to the receiving company or by a failure of the receiving company itself. The compensation due to the employee remains at 13 week pay but the statutory cap on a weeks pay (currently £310+) has been lifted and an employee earning £1000 a week net pay can claim at the higher rate.