Practical Advice

Labor Law – Employer Friendly Changes in the UK’s Laws on Transfers of Business and Outsourcing

About the Author

Fraser Younson

Labor & Employment Partner, Squire Patton Boggs (UK) LLP, London

The changes, effective January 31, 2014, give employers greater flexibility to change terms and conditions of the transferring employees; dismiss employees in certain situations and bring forward the RIF collective consultation timetable.

The UK, in common with other EU Member States, fi rst implemented the EU’s Acquired Rights Directive (ARD) 32 years ago in regulations called “TUPE” – Transfer of Undertakings (Protection of Employment) Regulations. TUPE does three main things. It:

  • transfers those employees assigned to the relevant business unit to the new employer, together with their existing terms and conditions
  • gives special protection against dismissal, and
  • requires the relevant employers to inform and consult about the TUPE transfer with the workforce through their representatives

Since TUPE is designed to protect employee rights, the employment tribunals have interpreted these heavily in favor of employees. This has had the effect of placing unnecessary burdens and costs on business, particularly in outsourcings. The UK Government has implemented changes to TUPE to lighten the load for employers for transfers taking place on or after January 31, 2014.

CHANGES TO TERMS & CONDITIONS OF EMPLOYMENT

Since one of the main aims of the ARD is to preserve the status quo on employees’ terms and conditions, employers have been prevented from harmonizing the transferring employees onto the same terms as their existing workforce or even agreeing changes with the transferring employees. The courts have ruled that even mutually agreed changes are null and void if they were connected with a TUPE transfer. Since almost anything done to the transferring employees can be traced back to (and so “connected” with) the TUPE transfer, this has tied companies’ hands from making efficiencies. This was particularly so for outsourcings where required savings are often to be found in reducing employment costs.

The UK Government has therefore produced a number of measures to give employers some additional flexibility for changing employees’ terms and conditions. These include the following.

NULLITY RULE NARROWED

Changes in terms and conditions of employment will only be rendered null and void where the principal reason for the change is the TUPE transfer itself. If the reason is just connected with the transfer (but the transfer is not the principal reason for the changes), the nullity rule is not engaged.

AGREED CHANGES

Where the company and the employees agree changes to terms and conditions, these will now be valid as long as there is an economical, technical or organizational reason (ETO reason) for the variation entailing changes in the workforce. This is interpreted narrowly to mean changes relating to the day-to-day running of the business entailing changes in the numbers or functions of the workforce – such as changes in location, job duties, hours of work, etc. An ETO reason does not cover changes in the remuneration or benefits package.

FLEXIBILITY/MOBILITY CLAUSES

Due to an unnecessarily restrictive interpretation by the employment tribunals where, before transfer, the employer had the contractual right to make changes (such as through flexibility/mobility clauses), following transfer, employees could resign and claim constructive dismissal if these changes were significant, to their detriment, and connected to the TUPE transfer. The Government has now enacted that if the employment contracts allowed the employer to make changes pre-transfer, that right is inherited by the new employer post transfer. This had to be so, since the purpose of the ARD is to preserve the status quo and the right to vary clauses is as much a part of the terms and conditions of employment, as an employee’s remuneration.

COLLECTIVE AGREEMENTS

Changes in terms and conditions negotiated through a collective agreement with trade unions will now be valid provided that:

  • the variation takes effect on a date more than one year after the transfer date
  • it only applies to TUPE transfers which occur on or after January 31, 2014, and
  • after the variation, the rights and obligations in the employee’s contract, when considered together, are no less favorable to the employee than those which applied immediately before the variation

The UK employment tribunals had historically taken the view that where a transfer of employees meant that their new employer was (unlike the transferor) not a participant of a centralized, sector or national collective bargaining structure, those employees still benefited from future changes in their terms and conditions negotiated through that structure.

This created an impossible position for companies. The UK has now enacted that this will no longer be the case, on the condition that the new employer is not a participant in that old collective bargaining process. So, as at the moment of transfer, existing terms and conditions negotiated in collective agreements will transfer with them, but not future ones.

DISMISSALS

Under TUPE, dismissals connected with a TUPE transfer were automatically unfair, giving rise to compensation of up to about $150,000, if they were connected with a TUPE transfer, but not for an ETO reason (see above). From January 31, 2014 this automatic unfairness rule will only apply where the principal reason for a dismissal is the TUPE transfer itself. Again, the wider net of “connected with” is abolished, so making it possible for employers to justify such dismissals. They still have to satisfy the normal reasonableness test for mainstream unfair dismissals.

Somewhat bizarrely, the employment tribunals had also decided that a relocation caused by a TUPE transfer did not constitute an ETO reason. The new rules now say that it does.

COLLECTIVE CONSULTATION

Where a company proposes to dismiss 20 plus employees within a 90 day period for redundancy, it must inform and consult with either recognized trade unions or elected employee representatives. The consultation period for the dismissal of 100 plus employees is 45 days, reducing to 30 days for a number between 20 and 99.

Some TUPE transfers necessitate that this consultation process takes place pre-transfer so that the excess workforce can be dismissed as at the transfer date. In the past, such pretransfer consultations were not treated as counting towards the 45/30 day periods. The new regulations now permit this, provided that the outgoing employer agrees to it and allows access to the employee representatives/employees.

Collective consultation with the representatives of affected employees is also required for all TUPE transfers, regardless of the numbers impacted. Where a company has less than ten employees, it does not have to hold elections to establish employee representatives. Instead it can now simply consult directly with all the employees together.

EMPLOYEE LIABILITY INFORMATION

Under TUPE the outgoing employer (transferor) is required to give certain employee information to the incoming employer (transferee).

This includes:

  • employee identity and age
  • certain particulars of employment (e.g. salary, benefits, sick pay, vacations, pension etc)
  • employee grievances and disciplinary procedures over the preceding two years
  • details of any tribunal or court proceedings brought by any employee in the last two years
  • details of claims, cases or action which the outgoing employer reasonably believes may be brought against the incoming employer, arising out of the employees’ employment with the outgoing employer

Ahead of the TUPE transfer, the timescale for provision of this information has been increased from 14 to 28 days.

SERVICE PROVISION CHANGES

The Government had originally announced that it proposed to repeal the special rules that applied TUPE to a wide range of service provision changes – e.g. outsourcings, in-sourcing and change of external service provider. The Government felt that this was unnecessary “gold-plating” which made TUPE apply in circumstances where, under the ARD, it would not normally have applied. Following a consultation exercise, the Government performed an unexpected volte face and dropped this idea.

Further Information

Fraser Younson is an internationally renowned labor law specialist with more than 30 years’ experience in the field. Fraser is co-founder, former Chairman and currently Life Vice-President of the Employment Lawyers Association (ELA) and a member of the European Employment Lawyers Association, the International Bar Association and the Industrial Law Society. He is a Partner at Squire Sanders, based in London. He specializes in all types of employment litigation (including executive severance, discrimination claims, whistleblowing, restrictive covenants, team moves and confidentiality, and breach of contract). He also regularly advises on union recognition issues and industrial disputes, restructuring, outsourcing, and redundancy. He has written two books on TUPE and has advised the Government on the recent changes to TUPE.

Squire Patton Boggs (UK) LLP is one of the world’s strongest integrated legal practices.  With 44 offices in 21 countries, the firm is renowned for its local connections and global influence, delivering comprehensive legal services across North America, Europe, the Middle East, Asia Pacific, and Latin America.   With expertise spanning all key sectors, the firm is also known for its preeminent public policy practice and deep-rooted relationships in Washington DC and Brussels. Squire Patton Boggs’ global Labor and Employment Practice is 155 lawyer-strong, with specialists across the firm’s global network. The London office is a major hub for the practice and links the U.S. and continental Europe with Asia Pacific.

 

For more information contact:

Email: fraser.younson@squirepb.com
Website: www.squirepattonboggs.com

 

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