Transfer of Undertakings (Protection of Employment) Regulations, 2006 ("TUPE")

The previous regulations had been with us since 1981. The new regulations came into force on 6 April this year, effective for transfers after that date, and entirely replace the 1981 regulations.

The regulations have already been the subject of some criticism. Recently, the House of Lords debated whether they should be repealed, and the motion was only narrowly defeated. The main criticism of the House of Lords was that the new provisions as they related to insolvency did not achieve their objective of making the rescuing of an insolvent business easier and less risky. It remains to be seen whether the House of Lords will be proved right on this.

Just to recap - TUPE's main purpose remains unchanged, so that on a "relevant transfer" of a business, or part of a business, the contracts of employment of the employees involved in that part of the business transfer, so that the employees continue to be employed on the same terms and without any break in continuity of employment. The regulations still do not apply to share sales as these do not constitute a change in the identity of the employer - nor simply to the sale of, for example, equipment or machinery without more.

There must be a transfer of an "economic entity which retains its identity". "Economic entity" means "an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".

The main changes to the operation of TUPE in practice are:

Specific extension of the definition to service provision changes - to make it clearer when TUPE will and will not apply
New duty on transferor to provide specific employee information to the transferee
Special provisions intended to make it easier for insolvent businesses to be transferred to new employers
Provisions dealing with the variation of terms on transfer
Provisions clarifying the circumstances under which it is unfair to dismiss employees for reasons connected with the transfer

Service provision changes

This new definition is likely to apply to situations in which a client changes the provider of labour intensive services such as, for example, catering, servicing/maintenance of equipment/machinery, cleaning etc.

The definition in the regulations provides that they apply where "activities cease to be carried out" by one party, and are:

Contracted out or outsourced by the client
Re-assigned by the client from one contractor to another
Contracted back in or "insourced" by the client

But only provided certain conditions are met.

Those conditions are as follows:

Immediately before the transfer there was an organised grouping of employees in the UK whose principal purpose was to carry out the activities being transferred ( note: this applies even where looking at only one employee)
The client intends that those activities will be carried out by the transferee, other than in connection with a "single specific event or task of short term duration"
The activities do not consist solely or mainly of the supply of goods for the client's use.

So for example, while the transfer of the provision of catering services in a staff canteen from one contractor to another is likely to be covered, the stocking up of a vending machine, for example, would almost certainly not. The vending machine example would fail to meet two of the grounds - because there is unlikely to be an organised grouping with a principal purpose to carry out the activities being transferred (presumably any employees stocking the machine are likely to be stocking other machines), and because the activities consist mainly of the supply of goods for the client's use.

Staying with the catering theme - if you had, for example, in house caterers, but you wanted to engage external caterers for a specific function, or even a specific series of functions, this would not be covered under the definition, provided that the series of functions was of short term duration. You might, however, get into a TUPE situation if you had a long series of functions and changed contractor in the middle of them, subject to there being an "organised grouping of employees whose principal purpose was to carry out the activities being transferred".

Duty to provide information

Lack of information about employee liability regularly arose as an issue in transfer situations. This was more of an issue for transfers of contracted out services - if you are looking at a transfer arising by the sale of a business, or part of a business, hopefully lack of information would not be an issue as would be covered as part of the due diligence process.

However, in a competitive tendering situation, inadequate information about employee liability could seriously affect the bid. A consequence of this was that the price quoted to the client depended in part on the view the contractor took as to the potential employee liability. Although it is of course good practice to provide complete and accurate information at the tender stage it is not always provided.

The new regulations attempt to provide for this so that the transferor must provide to the transferee certain information in respect of employees affected by the transfer, namely:

• The identity and age of employees who are to transfer

• Their statements of particulars of employment

• Information on disciplinary action or grievances raised within the last two years

• Information on tribunal claims within the last two years, and possible pending claims

• Information on applicable collective agreements

The information must be:

In writing, or readily accessible form
Up to date as at a specified date not more than 14 days before the date on which it is provided
Provided not less than 14 days before the transfer

The difficulty here is with the last point - in reality, it is unlikely to help in competitive tender situations. The tenderer will need to have information at a much earlier stage if it is to have any practical effect on the tendering process.

A transferee may complain to an employment tribunal in the event of non-compliance by the transferor and the remedy is a compensation award of not less than £500 per employee, unless the tribunal considers it just and equitable to award a lesser sum.

Special provisions in relation to insolvent businesses

The aim of these special provisions is to make it easier to rescue an insolvent business. These provisions apply to transferors subject to insolvency proceedings which have not been opened "with a view to the liquidation of the assets of the transferor and which are under the control of an insolvency practitioner". This is where part of the uncertainty over the effectiveness of these provisions arises, because it is not entirely certain which types of insolvency situation are covered.

Bearing in mind the stated definition, the provisions probably cover: administration, company and individual voluntary arrangements, creditors voluntary winding up; but not: administrative receivership and members' voluntary winding up.

Two key changes

Limitation on liabilities that the transferee will inherit

Employees dismissed for a reason connected with the transfer, other than an economic, technical or organisational (ETO) reason, or who are deemed dismissed on the date of transfer will be eligible for certain National Insurance Fund payments. They include: statutory redundancy pay and arrears of pay up to 8 weeks, statutory minimum notice pay, holiday pay, and basic award, all subject to the £290 per week cap. These liabilities will not pass to the transferee, though certain other liabilities over and above this will.

Allows transferee to vary contracts for reasons connected with the transfer

This applies in only very limited circumstances, so that the change:

• must be designed to safeguard employment opportunities by ensuring the survival of the business; and

• must be agreed by the appropriate representatives of the employees.

Variation of terms and conditions

The problem here under the old regulations arose from the ECJ's decision in Daddy's Dance Hall case that an employee may not waive the rights granted to him in connection with a transfer. This meant that any variations made by reason of the transfer are void, even if made with the employee's consent. The new regulations seek to clarify this so that purported variations are void "if the sole or 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 (ETO)

Logically therefore, variations are not automatically void if the sole or principal reason is not connected with the transfer, or if it is for an ETO reason. Note, however that the ECJ in Daddy's Dance Hall did not provide an exception for ETO reasons - hence the new regulations may be in conflict with European law.

Unfair dismissal

The changes here are for clarification only, so that:

The dismissal will be unfair where the principal reason is:

• the transfer itself; or

• a reason connected with the transfer that is not an ETO reason.

• The dismissal may be fair where the principal reason is:

• a reason connected with the transfer that is an ETO reason; or

• a reason unconnected with the transfer.

Conclusion

These are of course new regulations and there is no case law as yet as to their interpretation. Difficulties are most likely to arise in insolvency situations and perhaps in relation to the provisions on varying terms, because of the conflict with the ECJ's decision in the Daddy's Dance Hall case.

Written by Helen Essery, Solicitor at Newsome Vaughan LLP, Greyfriars House, Greyfriars Lane, Coventry, CV1 2GW

Telephone: 024 76 234227

Email: helene@n-v.co.uk