DTI Public Consultation URN 98/513 (December 1997)

The UK commenced its Presidency of the European Union with Prime Minister Tony Blair's promise to lead in Europe. In this vein, the Government has taken on the substantial task of persuading the other European Union states to reach agreement on proposals to amend the Acquired Rights Directive: a task which has proved beyond governments and the European Commission in the past.

It is true there is a significant difference: the Labour government does not share the Conservatives' antipathy to the very basis of the Directive. However, it is likely to take more than this change of focus to weld a political consensus from the disparate views of European governments on this controversial issue.

This may mean that the most immediate significance of the Department of Trade and Industry's consultation document is the indications it gives of the Labour government's attitude to the Acquired Rights Directive, the TUPE Regulations, contracting out and employment rights.

Thompsons produced a detailed response to the Government and has circulated it to unions. In this article, we summarise some of the main points in the consultation document.

Scope of the Directive

The last few years saw the UK and Germany leading persistent attacks by EU governments on the breadth of the Directive's application. The Commission published proposals aimed at restricting the scope of the Directive and, in particular, limiting the circumstances in which it would apply to contracting out.

The Commission was forced to admit defeat after the intervention of the European Parliament. Labour has "no wish ... to narrow the coverage of the Directive". It recognises the difficulties in interpreting the Directive following the Suzen decision (see Issue 10 of LELR: Losin' Suzen gives TUPE a bruisin') and floats the idea of an amendment which would see all contracting out covered by the Directive. This is tempered by concerns about "burdens on business" and the difficulty of drafting a definition acceptable to other EU states.

This caution has attracted criticism from unions and contractors' associations, who have jointly called upon the UK government to take action through UK legislation to clarify the situation in this country. That option appears to be ruled out by the consultation document, which means that the current level of legal uncertainty is likely to persist.

Share transfers

It is disappointing that the DTI comes down against an extension of the Directive to takeovers by share transfer. The House of Lords Select Committee had supported this change. It is of particularly important that employees and their representatives are informed and consulted on the implications of takeovers. Contrary to the DTI's assertions, there should be little difficulty in finding a suitable definition of when there has been a change of control of the business.


The Government supports the principle of "flexibility" in the application of the Directive to transfers of an insolvent business, but expresses caution at some aspects of the Commission's approach.

It is welcome that the UK recognises the need for a proper assessment of costs and benefits before proposing any relaxation of protection for workers affected by the transfer of an insolvent business: this has been conspicuously absent from past Commission proposals based only on assertions and anecdotal evidence.

The UK is right to question the efficacy or logic of a distinction based upon the intended outcome of different types of insolvency proceedings and to proceed from the basis that the Directive should apply in all insolvency cases. The Government is wrong to reject the protection against fraudulent insolvency proceedings.

The emphasis on allowing a transferee to acquire an insolvent business without acquiring pre-transfer debts is a sensible approach and should be sufficient in itself. The proposals to allow collective agreements to permit dismissals or reductions in pay and conditions present the danger that employees will suffer in the absence of adequate safeguards.

Changes in terms and conditions

The Government raises the possibility of extending the "flexibility" of the insolvency provisions to enable changes in terms and conditions where the transfer is the reason for the change. This would be permitted where there was agreement between employers and unions or "other appropriate employee representatives".

This is controversial. The Government rightly recognises the concern that individual employees would not have adequate protection against adverse changes. This is a particularly significant issue when the Government has proposals for employee representation where no union is recognised: do not deal adequately with providing protection for employers in those circumstances.

Any employee representatives must meet the test of independence stipulated in the proposed new Article 6A of the Directive.


The House of Lords Select Committee proposed an amendment to oblige transferees to provide comparable pension entitlement. The Government recognises this would "remove an exclusion which is arguably inconsistent with the underlying aims of the Directive" and considerably simplify the position.

The Government takes the view this amendment would not impose a significant additional burden on employers, as the Government interprets the current law on constructive dismissal as requiring employers to offer comparable pensions. This practice is followed in transfers from the public sector and it is fair it should be made universal.

This positive approach is welcome, although the Government needs to be persuaded that technical legal problems can be overcome. They can be: the bigger problem is likely to be persuading the Commission and other governments that the amendment is necessary or desirable.

Information and consultation

The consultation document fails to acknowledge the purpose behind the requirement that information and consultation tale place "when" a transfer and consequent measures are envisaged. This means that the process must begin at that stage: a much better test than assessing after the event whether the consultation began "in good time".

The Government should be applauded for resisting any exemption for transfers involving small numbers of employees, but misses the chance to assist contractors by preventing transferors from seeking to avoid liability by blaming a lack of information from the authority awarding the contract.

A cautious step in the right direction

The tone and general thrust of the new approach is a significant improvement on the attitude of the last government. The sensible acceptance of strengthened provisions on sanctions and legal remedies reflects this. However, the recognition that reform is necessary on the crucial areas of contracting out and pensions is diluted by a cautious approach which diminishes the prospect of achieving the necessary consensus and militates against decisive action at domestic level.