Transfer of Undertakings (Protection of Employment) Regulations 1981: Government Proposals for Reform and Detailed Background Paper URNO1/1158
On 10 September at the TUC Congress, the Secretary of State for Trade and Industry announced the publication of the government's consultation document on proposed revisions to TUPE.
The consultation is much-delayed and long overdue. In 1998 the UK government secured amendments to the Acquired Rights Directive. The government heralded these changes as an opportunity to improve and simplify the operation of TUPE. The deadline for implementing the changes was July 2001. The consultation period runs to 15 December 2001. Legislation does not appear to be imminent as the consultation document is not accompanied by draft Regulations and there is no fixed timetable for introducing the changes. Thompsons will be submitting a response to the DTI. Here, we summarise some of the key points in the public consultation document and give some initial comments.
General objectives - It is welcome that the government recognises TUPE as based on a positive principle and acknowledges the need to balance "flexibility for business with fairness for employees". The government refers to "giving assurance to and securing the commitment of employees" affected by change. This is all the more necessary in the uncertain climate created by the government's pronouncements on reform of public services.
Scope of TUPE: public to public transfers - The government reaffirms its commitment to apply the Cabinet Office Statement of Practice "Staff Transfers in the Public Sector" and, where necessary, to legislate to extend TUPE-style protection to specific transfers within the public sector.
Scope of TUPE: service provision changes - The new Regulations will adopt the changed definition of a transfer of undertaking in the Acquired Rights Directive. The government rightly fears this may not be enough and is contemplating specific regulation to ensure that TUPE applies whenever there is a "service provision change". This would cover contracting out where the same or essentially the same activities are performed by a contractor in essentially the same manner as they were performed when in-house. It would also cover, on a similar basis, subsequent retendering involving a change of contractor or the work coming back inhouse.
This approach would involve treating a transfer as covered by TUPE when before the service provision change there are employees assigned to an organised grouping the principal purpose of which is to perform the service concerned.
This would be a welcome step which would reflect the general practice in UK contracting out and help to insulate the UK from the uncertainty caused by the unpredictable swings of the European Court. A situation where virtually all contracting out is covered by TUPE would be welcomed by the vast majority of workers, unions, public sector organisations and contractors. It creates a level playing field and minimises the risk of avoidance.
We shall be arguing strongly that the government should adopt this approach. Simply adopting the Acquired Rights Directive definition and leaving it to the courts would be a recipe for chaos.
Occupational pensions - The revised Directive gives governments the option of applying TUPE to pensions.
The government does not propose to apply the automatic transfer provisions in the Directive to pension rights and obligations. This would be difficult to achieve.
The government invites views on whether to legislate to provide "a degree of protection for occupational pension rights on transfer, for public and private sector employees alike".
We strongly support the need for protection, but are concerned that the various options
in the document fall short of a requirement that the new employer offer a pension which is "broadly com parable". All the options canvassed would mean that employees could be worse off after the transfer than before.
It is welcome that the government will be legislating to ensure that rights to a redundancy payment under a pension scheme, such as the NHS scheme, are transferred when there is a TUPE transfer. This is the point in the Beckman case for a UNISON member which Thompsons is currently pursuing before the European Court (see LELR issue 43 February 2000).
Notification of employee liability information - One of the changes introduced by the UK in the amended Directive was the option of requiring the outgoing employer to notify the potential new employer of all rights and obligations relating to the employees that are to be transferred.
The UK is likely to take up this option. This would require written notification in good time before the transfer.
This is sensible, but it is essential that the information is provided at the same time to the workers' representatives. This would enable any errors or omissions to be pointed out before any transfer takes place. Curiously, the government is equivocal on this.
It is also curious that the government does not propose that the new employer can sue the old employer for damages if information is inaccurate or incomplete and causes financial loss. Instead the government floats the idea of liability for any claims by employees being split between the old and new employer. This would cause expense and uncertainty and may mean that employees lose out (through no fault of their own) if one of the employers is insolvent.
Dismissals - The provisions relating to transfer-related dismissals will be changed to make clear that a dismissal for an economic, technical or organisational reason ("ETO reason") is not automatically unfair, even where the ETO reason is connected to the transfer. In other words, a reason which is transfer related may still be an ETO reason. It is arguable whether this is correct. It would be a cause for concern if it made Tribunals more willing to find dismissals fair for an ETO reason.
Changes in terms and conditions - A change in terms and conditions may only lawfully be made by individual or collective agreement. If a change is imposed by an employer it will be a breach of contract (unless the employees acquiesce in the change). If an employer terminates the contract and imposes new terms, it would be a dismissal which may be unfair (and would be if for a reason connected with the transfer unless an ETa reason entailing changes in the workforce).
None of this will be changed by the government's proposals.
There is one amendment proposed. At the moment, an agreed change in terms and conditions will be unlawful and ineffective where the reason for the change is the transfer itself. The government proposes that an agreed change in terms and conditions will be valid where the reason for the change is an ETO reason entailing changes in the workforce.
This is the government's interpretation of the current legal position. Again, it may not be correct. It will be a retrograde step if it leads to an increase in changes in terms and conditions which would not have arisen'but for the transfer.
Insolvency - It is welcome that TUPE will still apply to transfers where the business is insolvent. However, there will be changes under the proposals. Where there is a transfer of an insolvent business subject to insolvency proceedings, pre-transfer debts to employees will not transfer to the new employer but will be met out of the state National Insurance Fund. There are limits to the amounts paid out under the Fund, so workers will lose out and taxpayers will foot the bill for the payments. In addition, the insolvent business will be able to agree transfer-related reductions in terms and conditions with workers' representatives designed to safeguard the survival of the business. There are no adequate safeguards. There is no requirement that the representatives be independent or accountable to the workers. These two changes will weaken protection for workers.
Recognition - The revised TUPE regulations will provide that statutory recognition is transferred.
Information and consultation of employee representatives - Employers will not be able to hide behind the decision of a controlling undertaking as an excuse for not consulting.
What's missing? The main omission is the lack of an anti-avoidance provision. It is too often the case that employers seek to avoid TUPE by refusing to take on staff, leaving workers with no job and with no redundancy payment from the old employer. The government appears to have neglected the option of allowing employees faced with a loss of employment on a possible TUPE transfer the right to apply to a Tribunal for interim relief to determine urgently whether there is a TUPE transfer and whether the dismissal is unfair.
The document does discuss the possibility of a predetermination procedure where employers could ask the court whether or not a particular transaction would be covered by TUPE. The government rightly expresses concern that this may exclude employees from the decision. Employers could collude to "stitch up" employees.
What next? - The consultation ends on 15 December 2001. The government should take the opportunity to introduce early legislation to ensure that TUPE applies to virtually all contracting out and to improve protection of jobs, pensions and terms and conditions. This is needed to ensure greater security for workers at a time of increasing change, particularly in the public sector.