TUPE consultation – will the new Regulations be fit for purpose?

TUPE consultation – will the new Regulations be fit for purpose?

The Government, in its Employment Law Review, committed to simplifying employment law where possible. The responses to its call for evidence on TUPE, which were published last year, indicated that users wanted the complex and burdensome Regulations (which were only amended in 2006) to be reviewed. The Government appears to have listened and has launched a consultation which proposes some substantial changes to the current position.

There are a number of proposed amendments to TUPE but a few stand out either as concerns which we hear the most from business or which are likely to have the greatest impact on business.

Therefore, in this piece I will focus on the three main concerns:

  • The Government’s proposal to remove the reference to “service provision change”, inserted in 2006;
  • The problem of the inadequacy of the Employment Liability Information provision;
  • The conundrum of how to manage information and consultation when you have both a TUPE transfer and collective redundancy happening together.

1. Repeal of “service provision changes”

Under the original TUPE Regulations, most outsourcing transactions fell within the formal definition of a transfer and were therefore covered by the Regulations. There was, however, some doubt in case law. The 2006 amendments created the concept of “service provision changes” to bring outsourcing, insourcing and second round tenders into scope. It was anticipated that this would create a more level playing field in the tendering process and reduce costs.

However, the mechanism which the Government used to achieve this was the creation of two apparently different categories of transaction – “A” (the “traditional” TUPE transfer) and “B” (the “service provision change”). The certainty and costs savings have generally been achieved but recent cases have narrowed the gap between the two categories, suggesting that the distinction has always been artificial.

The Government’s approach seems somewhat driven by the ideological need to remove “gold plating” (legislation over and above the requirements of the Directive). In reality, there is no clamour for this change among business or practitioners. As a member of the Law Society’s sub-committee reporting to BIS on the consultation, my suggestion is to remove the unnecessary “Category A” and “Category B” but keep the definition of “service provision change” as part of the definition of when TUPE applies – in that way satisfying all parties and avoiding the return to the pre-2006 uncertainties.

It is also worth considering that, if, by removing reference to “service provision change”, the Government intends to indicate that such transactions will no longer be covered by TUPE, or if that is the effect of the removal, then that is likely to put the UK in breach of our Community obligations. As indicated above, these amendments brought in by TUPE 2006 were intended to regularise what was the position already, in the opinion of many advisers. They just went too far by creating a new legal “animal”. The solution which I suggest above would satisfy the need to apply TUPE appropriately, without recreating the pre-2006 uncertainty.

The Government is consulting over a lead in time of between 3 and 5 years to allow those providing services to plan for the change in the law.

If the proposed change is made, it is unlikely that fewer outsourcing situations will come within the remit of TUPE. Instead, we will have to rehearse the old arguments about whether a service provision change also amounts to the transfer of an economic entity, a position we were in 9 years ago! This cannot be in the interest of business, particularly as it might discourage outsourcing at a time when a continuingly weak economy is preventing much M&A activity.

2. Removing Employee Liability Information Requirement

Currently, Employment Liability Information has to be provided at least 14 days before the relevant transfer. Often this is supplied at the last minute with the result that key arrangements affecting employees are made in a hurry. Parties tend to treat the requirements as a standard, particularly if they are in competition for the work.

As a result, the Government is proposing to repeal these provisions in favour of clear guidance and a general duty of disclosure to enable both parties to comply with their duties in good time.

There is something to be said for more positive legislation on two levels. First, have a longer period before the transaction when disclosure is needed (the IoD suggests this should be extended to 28 days, but I feel that a generic period around “effectiveness” might be better). Secondly, have more detailed information required to be disclosed; the current ELI is evidently insufficient and a more effective list could be created out of what everyone actually does!

3. Allowing transferees to engage with transferring employees pre transfer about proposed redundancies taking effect post transfer.

The transferee may wish to make redundancies following a transfer. Where this is likely to exceed 20 at one establishment, the duty to consult employee representatives is likely to apply. This means that two separate duties to inform and consult apply: under TUPE and TULRCA. Practical difficulties arise about how consultation should be handled, which party should be involved and who is liable.

To alleviate these difficulties, the Government is considering allowing collective consultation by the transferee before the transfer, to count towards its obligations under TUPE and TULRCA. This already happens in practice. However, underpinning this within a legislative framework is to be welcomed as it will remove the current uncertainties, which can only be dealt with, by cross indemnities.

As the Consultation suggests, in circumstances where a dismissal for redundancy is to take effect immediately on or after transfer, there is a logical conundrum which the law, so far, cannot solve. The transferee cannot inform and consult for collective redundancy purposes because it is not the employer until transfer. The transferor also cannot do so because it will not be the party dismissing.

Where there can be co-operation between the parties, a legal fiction is usually created by providing for joint information and consultation, in advance, backed by appropriate indemnities. However, those provisions are not always possible, particularly when the parties are in competition (e.g. a competitive second round tender) and, in any event, they do not bind the employees or their representatives. This would always leave the transferee theoretically vulnerable to a claim for failure to inform and consult, whatever arrangements are agreed between the parties to the transaction.

The “fictional” consultation process is usually designed to include the obligations under both TUPE and collective redundancy but it must be remembered that the process for information and consultation under each piece of law is different in terms of both purpose and process.

This situation does need to be resolved.

The Government proposes to leave the choice of whether to inform and consult before the transfer to the parties, rather than make it compulsory. That is probably correct, as sometimes the redundancy exercise can be properly carried out long enough after the transfer to avoid the conundrum.

However, this is not really an issue of allowing consultation by the transferee to “count” for the purposes of collective redundancy. There are still different purposes to fulfil in the different exercises: essentially TUPE consultation is about the impact of a proposed transaction and redundancy consultation involves an attempt to avoid dismissals for redundancy. A proposed redundancy is a “measure” which needs to be included in TUPE consultation but, without much more significant changes to the law than appear to be envisaged, here, consultation about the redundancy measures does not require the provisions of s.188 of TULRCA to be incorporated into the TUPE consultation.

Therefore, what appears to be needed is one or both of the following changes to TULRCA:-

(i) Despite not being the employer at the time of consultation, the transferee may inform and consult with employees about a proposed redundancy exercise which will not take place until after transfer; and/or

(ii) If the transferee becomes involved in a consultation process for TUPE before transfer, which includes reference to the proposed redundancy exercise as a “measure”, that will suffice for collective redundancy purposes (but that would mean not having to satisfy most of the requirements of s.188 and is unlikely to be supported by the TUC).

In reality, these are changes mainly to TULRCA. TUPE probably does not require much change to achieve these aims.

Also, if the transferee has its own workforce, and a fair redundancy selection process would require pooling those employees with the employees transferring from the transferor, the changes envisaged should not remove that requirement. This will make the exercise more complicated, including the practical issues of who can realistically carry out a fair assessment – probably not managers of the transferee because they do not know the workforce. There are still practical considerations to resolve.

A final thought: however it is proposed that the aims set out here are achieved, it is likely that transferees will be reluctant to take advantage of any “permission” to engage in information and consultation with the transferor’s employees unless there are clear and effective protections written into TUPE and collective redundancy legislation.

Tom Flanagan