TUPE Update – Mitigating The Risk – November 2013

Draft Amendment Regulations Published

The Government published draft Regulations to amend TUPE on 1 November. This follows the publication of the Government’s response to the consultation process on reforming TUPE in September 2013 (“Consultation Response”) (see earlier Briefing Note). In brief, the key headlines are as follows.

Timing

The current indication is that the draft Regulations will be laid before Parliament in December and that the amendment Regulations will come in to force in January 2014.

TUPE and collective redundancy Consultation

In order to allow redundancy consultation to commence pre-transfer, the collective redundancy legislation will be amended so that a transferee may, with the transferor’s agreement, elect to engage in pretransfer consultation regarding redundancies which will impact on one or more of the transferring employees after transfer.

Restrictions on varying contract Terms

Arguably, this is the most interesting amendment. TUPE currently provides that any changes to terms and conditions post transfer are void if they are made because of the transfer, or for a reason “connected” with the transfer, that is not an “ETO”; (an economic, technical or organisational reason entailing changes in the workforce).

Under the new provisions, if the variation is because of the transfer, but there is an ETO reason, then the variation will be permissible. Within the Consultation Response the Government acknowledged that the Directive (and case law on it) does not explicitly allow variations by reason of the transfer even if there is an ETO. It argues, however, that it would not be logical for the Directive to permit dismissals for an ETO but not to permit agreed contractual changes. The issue of whether this new provision is consistent with the Directive will need to be considered by Employment Tribunals if the regulations are bought in as currently drafted.

Additionally, there is completely new provision that a variation will be permissible if the contract permits the employer to make such a variation. Again, this was trailed in the Consultation Response. Particularly, mobility clauses were given as an example and the reference was to “unilateral variations”. It is arguable that application of a mobility clause or a flexibility clause permitting alteration of duties does not amount to a variation of contract, rather it is merely the application of the existing contractual terms. In any event, it seems as though this new provision is only intended to cover this type of circumstance.

What will be interesting, however, is the extent to which employers try to argue that an existing clause within a contract, purporting to allow a unilateral variation permits a harmonisation variation or even that a clause providing for variations to be agreed between the parties and recorded in writing permits this. There is also the wider question of, again, whether this new provision is compatible with the Directive and the case law on it. Again, this is questionable.

The final point made clear in the Consultation Response is that the Government, given free reign, would ideally wish to provide that harmonisation variations, that are agreed and leave employees no worse off overall, are valid. However, the Government recognises there is “a very high risk” that any such provision would be incompatible with the Directive and particularly the case law on it (Daddy’s Dance Hall and Martin). The Government indicated, however, that it will engage with European Partners, “to demonstrate the potential benefits of a harmonisation framework for individuals and the economy”.

These new provisions may be subject to change in the final form amendment regulations. If not, whilst potentially they may increase the scope for transferees to harmonise contracts, they are certainly likely to lead to early litigation as advisers and Employment Tribunals grapple with their implications. We will keep you updated.

Taking advantage of express provision in the Acquired Rights Directive permitting this, there is a new provision that this type of variation will be permitted, even if by reason of the transfer, provided that it takes effect more than one year after the date of transfer and the rights and obligations of the employee are no less favourable than those which applied prior to the variation.

Transfer of terms incorporating provisions for collective agreements

There is a new provision that terms of collective agreements transfer at the date of transfer, and do not incorporate subsequent changes, such as pay increases. This is designed to ensure a “static” approach in the UK; so that a transferee can’t be caught out by provisions agreed using collective bargaining without its involvement post transfer.

Dealing with Regulation 4(9) risk on change of place of work

Regulation 4(9) provides employees with a dismissal right where there has been a substantial change to their working conditions to their material detriment. The provision has caused a real problem in relation to outsourcing where frequently there is a change of place of work. This is addressed, as had been promised in the Consultation Response, by including an express new provision within TUPE that a change in place of work will be a “change in the workforce” for the purposes of an ETO defence. The effect is to take away the automatic unfair dismissal risk.

Deadline for notification of employee liability information

As was promised, this has been amended so that the requirement is to provide this 28 days, rather than 14 days, in advance of transfer.

Information and consultation of micro businesses

There is a new provision allowing micro businesses (those employing fewer than 10 employees) to inform and consult directly with employees on the transfer, rather than having to put in place and inform and consult with representatives, provided that there are no appropriate representatives in place and no invitation to elect has been made.

We will update you on the final form and timing of the amendment regulations. Do contact us if you require clarification or advice on how these changes to TUPE may affect your business.

Current trends

The “static” or “dynamic” approach resolved The ECJ has finally resolved the issue of whether the Acquired Rights Directive precludes courts from adopting a “dynamic” rather than “static” interpretation of TUPE. Following the decision in Alemo- Herron v Parkwood Leisure Ltd it is clear that, where transferring employees’ contracts provide that their terms are to be determined in accordance with collective agreements negotiated by certain parties from time to time, the transferee cannot be bound by post-transfer collectively agreed terms if it is unable to be involved in the negotiating process.

A recent UK decision in Visteon Engineering Services Ltd v Oliphant and ors, heard before the ECJ decision in Alemo- Herron, had opted for the “dynamic” approach, allowing for an agreement with a European Works Council to be mirrored indefinitely following a transfer, including a right to future pay rises, but this decision must be wrong in light of Alemo and should not be relied on.

As part of the proposed reforms, the government is planning to amend TUPE to confirm the Alemo approach (see above). Changes will also be made to allow transferees to change terms derived from collective agreements one year after the transfer, provided the overall change is no less favourable to the employee.

What is an “organised grouping”?

Two recent cases look at the issue of what amounts to an “organised grouping”. In order for there to be an SPC transfer, there must be “an organised grouping” of employees which has as its “principal purpose the carrying out of the activities concerned on behalf of the client”. In Ceva Freight (UK) Ltd v Seawell (UK) Ltd, Ceva dealt with freight forwarding. They organised staff into 2 groups, one dealing with “inbound” goods, and the other with “outbound” goods. When Ceva lost the Seawell contract, the issue arose as to whether Mr Moffat, who had spent 100% of his time on the Seawell contract, should transfer under TUPE.

The Court of Session said TUPE did not apply. Mr Moffat was not an “organised grouping” as there needed to be some sort of conscious organisation by the employer for this to be the case. Here, although Mr Moffat spent 100% of his time on Seawell’s contract, several other employees also spent some time on the contract and there was no client specific structure to the way the work was conducted. It was organised on an “outbound” gods and “inbound” goods basis. This approach was endorsed and followed in Rynda (UK) Ltd v Rhijnburger . Here, Ms Rhijnburger was specifically assigned to manage a portfolio of commercial properties in the Netherlands. At the time the management of the property was transferred, she was the only employee engaged in managing these properties. A Tribunal found that there was an SPC transfer as there was a conscious organisation by the employer that she work on the activities of managing the Dutch properties, it was not a matter of “happenstance”.

Following these cases, it is clearly therefore not enough to consider the activities that particular employees carry out. It is also crucial to ask whether the employees have been consciously organised according to the requirements of the particular client. In Ceva they had not, so there was no SPC transfer, but in Rynda they had, so there was.

Indemnity Spotlight

In our July Update Indemnity Spotlight we looked at the issue of an indemnity to a service provider to cover the risk of TUPE not applying on exit, leaving the service provider with unbudgeted-for redundancy cost.

As we flagged, a service provider’s negotiation position when pushing for such an indemnity had been significantly strengthened by the proposal, as part of the review of TUPE, to do away with service provision change transfers. What impact, therefore, has the about turn in relation to this proposal as initially flagged in the Consultation Response had?.

Certainly it does take away some of the risk on exit of TUPE not applying. Nonetheless there is still risk for any service provider. Firstly, that there may not, as a matter of law, be a TUPE transfer on exit, this risk having increased over the last two to three years as case law regarding the requirements for a service provision change transfer has developed. In relation to this, see Current Trends – SPC transfers – “What happened to the certainty?” in our June 2012 Update. Secondly, there is the real, but often forgotten, risk that, on exit, it just may be that the client will genuinely not require the service going forward.

Many well advised service providers will, therefore, still seek to negotiate this type of indemnity. Where a service provider is not able to obtain such an indemnity then, as flagged previously, it needs to ensure that the service fees are such that it is able to absorb these possible costs on exit, or that it is likely that it would be able to mitigate costs through, for example, redeploying staff elsewhere in its business. As also flagged previously, the definition of “redundancy costs” for these purposes, and exactly what is/is not covered will be vitally important.