It is 25 years since the Transfer of Undertakings (Protection of Employment) – better known as TUPE – Regulations became law in the UK.

The idea behind them (at least in theory) was to protect the rights of employees if their employer decided to transfer their business to someone else.

That meant, for instance, that employers could not make changes to the terms and conditions of transferred staff (such as reducing their pay), so that they could be harmonised with existing staff.

The regulations proved complex to implement, however, and in 2001 the EU issued a revised directive to clarify matters.

Fast forward to 6 April 2006 and those revised rules have finally been implemented in the form of the 2006 TUPE regulations.

In this article, Richard Arthur, a solicitor from Thompsons Employment Rights Unit in London, summarises the main changes introduced by the new regulations and assesses their likely impact.

What are the main changes?

The new regulations have introduced a number of changes, such as:

  • a new definition of a transfer
  • clarification about transfer-related changes to terms and conditions
  • clarification about transfer-related dismissals
  • new provisions relating to insolvent businesses
  • a new liability for a failure to inform or consult
  • a new duty on a transferor to supply employee liability notification.

Apart from these revisions, the regulations remain more or less the same as before.

There is very limited protection in relation to pension rights, which can be found in the Pensions Act 2004, but pension rights still do not transfer under TUPE.

What constitutes a transfer?

There are now two types of transfer under the new regulations.

The first are “standard transfers”, which take place in the same way as transfers under the previous regulations: “where there is a transfer of an economic entity which retains its identity.”

An “economic entity” is “an organised grouping of assets or resources which has the objective of pursuing an economic activity, whether or not the activity is central or ancillary”.

The second is new and involves transfers when a client engages a contractor to do work on their behalf, including bringing the work “in-house”.

Examples of these “service provision changes”, as they are called, include contracts to provide labour-intensive services like office cleaning, workplace catering, security guards, refuse collection and machinery maintenance.

The changes can take three main forms – where services are being outsourced, insourced or assigned by a client to a contractor. They only apply, however, when there is an organised grouping of employees whose main job is to carry out the activities on behalf of the client.

They do not apply if the client buys in the services on a one-off basis and/or for a short time. And they do not include public administrative reorganisations and transfers.

The “professional service” exception proposed in the draft regulations has been dropped from the final version.

What changes can be made to terms and conditions? 

Employers cannot make changes to employees’ terms and conditions if the “sole or principal” reason for the change is:

  • the transfer itself, or
  • a reason connected with the transfer that is not an “economic, technical or organisational (ETO) reason entailing changes in the workforces”.


The regulations do, however, allow changes to be made if the reason is an ETO reason connected with the transfer, but is not the transfer itself. It remains to be seen whether permitting variations in this way actually complies with the acquired rights directive.

What transfer-related dismissals are allowed?

As with transfer-connected variations, dismissals are automatically unfair if the reason or principal reason is:

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

There is bound to be lots of debate for both transfer-connected variations and dismissals, as to when the reason for a variation (or a dismissal) is the transfer itself (in which case there can be no escape for the employer through an ETO), as opposed to a reason connected to the transfer.

The new regulations confirm that employees who are made redundant (where the reason is not the transfer itself) are entitled to redundancy payments.

What about Insolvent businesses? 

The regulations introduce two new mechanisms with the stated objective of encouraging “business rescue”.

As a result, pre-transfer liabilities under statutory insolvency schemes (such as for redundancy payments) do not transfer. The schemes become responsible for those payments.

In addition, employers who are subject to certain types of insolvency proceedings can agree “permitted variations” to contracts of employment with “appropriate representatives”.

“Permitted variations” are where:

  • the sole or principal reason is the transfer, or a reason connected with it that is not an “ETO” reason, or
  • the variation is designed “to safeguard employment opportunities by ensuring the survival of the undertaking”.

What about a failure to inform or consult?

Under the new regulations, employers who fail to inform or consult their staff are both jointly and severally liable. That means that unions can decide whether to pursue the incoming or outgoing employer.

What is employee liability information?

In order to help the new employer, the outgoing employer now has to provide something called “employee liability information”.

Unfortunately, that information does not have to be provided to unions. The outgoing employer must supply the employee liability information not less than 14 days before the transfer.

The information must be “as at” a date not more than 14 days before it is supplied, and must contain the following in relation to employees assigned to the undertaking to be transferred:

  • identity and age
  • particulars of employment
  • information on grievance/disciplinary procedures activated by employees
  • information on court or tribunal cases within the last two years, and claims that may be brought
  • information on collective agreements.

Comment

So, although the wait is over and it is clear that more transactions will be covered by TUPE, the new regulations do not clear up all the uncertainty – for example, in relation to the definition of a transfer, or the extent to which the directive permits variations to contracts of employment. As a result, the number of tribunal cases is unlikely to go down dramatically.

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