CHANGES TO THE CURRENT TUPE REGULATIONS CAME INTO FORCE ON 31st JANUARY 2014
CHANGES TO THE CURRENT TUPE REGULATIONS CAME INTO FORCE ON 31 JANUARY 2014 On the 31st January 2014 changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the Regulations”) came into force.
On the whole, the changes are likely to be beneficial to employers, providing greater certainty on some practices that were already fairly commonplace such as the approach to a change of location following a transfer. However the changes give rise to some uncertainty, particularly as to when changes to terms and conditions will be permitted.
1. SERVICE PROVISION CHANGE
The service provision change (SPC) test has been retained, but will only apply where activities carried out after the transfer are fundamentally the same as those carried out before the transfer. Given that this change reflects existing case law, it will not require a change of practice and should provide greater certainty.
Parties will still need to give thought to whether the activities are sufficiently similar, and that will not always be easy to decide. The government's response to the TUPE consultation stated that it will depend on the circumstances and the degree of difference, but that providing a service in a novel or innovative way could result in the change not being caught by the SPC provision.
The reference to providing a service in a novel or innovative way is slightly misleading and does not appear in the TUPE guidance. The focus of the new language and the case law is whether the activities are different or fundamentally the same. For example, the question of whether services were fundamentally the same after the transfer meant that there was no SPC when residents of a care home moved to care in the community; or when a managed taxi-booking service came to an end, and taxi bookings were brought in-house and arranged on an ad hoc basis.
The TUPE guidance on this point is relatively limited, and simply comments that minor differences are unlikely to prevent TUPE from applying.
While the existing case law gives some guidance on whether a SPC applies, each case will turn on its specific facts. With that in mind, parties entering into an outsourcing agreement should be aware of the possibility that there may not be an SPC at the end of the agreement, meaning that any employees assigned to providing the service will not transfer to the new service provider on exit and will remain with the incumbent provider. It is therefore prudent to address this possibility in the outsourcing agreement.
2. TERMS AND CONDITIONS
Changes to employees' terms and conditions are now void only if the reason for the changes is the transfer itself.
One of the greatest challenges that employers face when acquiring a business or taking over the provision of a service is the restriction on making changes to terms and conditions. Many employers make changes, but face the risk that they will later be challenged.
Before 31 January 2014, regulation 4(4) of TUPE 2006 stated that a purported variation to an employment contract would be void 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 reason entailing changes in the workforce (ETO reason).
The government considered that the rules were potentially more restrictive than is required by EU law, and so the regulations have been amended to remove the restriction on changes that are merely connected with the transfer. The revised wording states that changes are void where the sole or principal reason for the changes is the transfer, unless one of the following applies:
· 1. The reason for the change is an ETO reason, provided that the employer and employee agree the change.
· 2. The terms of an employment contract permit the employer to make such a change (for example, a mobility clause or some other provision giving the employer flexibility).
· 3. Terms and conditions are incorporated from a collective agreement, provided that any change can only be implemented more than one year after the transfer, and must result in rights and obligations which, taken together, are overall no less favourable to the employee.
A new provision has also been introduced to clarify that a change to a place of work can amount to an ETO reason.
The new provisions only apply if both the variation of the contract and the TUPE transfer take place after 31 January 2014. Therefore, employers will not be able to rely on the provisions if the employees transferred across before that date.
The removal of the reference to a reason connected with the transfer is helpful, but, in practice, it may not be easy to distinguish between a change that is by reason of the transfer, and therefore, in principle, void, and one that is merely connected with the transfer, and so now permitted. Most of the existing UK case law has focused on reasons which are connected with the transfer and so will be of limited guidance in finding this distinction.
The TUPE guidance does not take this much further. It states that where the changes are simply because of the transfer and there are no extenuating circumstances, the reason for the change is the transfer. It goes on to say that where there are extenuating circumstances, whether or not the sole or principal reason for any purported variation is the transfer is likely to depend on the circumstances. The TUPE guidance also clarifies that this is a new test; therefore, the transfer might now be the sole or principal reason, even if that reason might previously have been considered to be connected with the transfer, rather than the transfer itself, under the pre-31 January 2014 test.
ETO. As under the pre-31 January 2014 position, changes are permitted if they are for an ETO reason. The employer and employee are expressly required to agree to the changes in order to rely on this reason. This requirement is most likely intended to be a reminder to employers that, while the changes may be permissible (and will not be automatically void), the usual processes that apply to changing terms and conditions will still need to be followed, including obtaining employees' consent before making the changes. As such, the authors do not anticipate that the new wording will restrict the scope of the ETO provision.
It is not generally too difficult to establish that a change reflects an economic, technical or organisational need. However, the sticking point has always been that the reason must also entail changes in the workforce, which has been interpreted to mean changes in the numbers or functions of employees.
An example of where an employer might currently rely on an ETO reason is where an existing role is no longer required following a restructuring of the business and the employee is offered a new role on new terms and conditions as a suitable alternative position. However, a change to salary and benefits in order to save costs or to match the transferee's workforce will not qualify, because it does not normally involve changes to numbers or functions. This position remains unchanged, unless the employer can establish that the sole or principal reason for the change is not by reason of the transfer.
Change to place of work. One very helpful change is the clarification that a change to a place of work can amount to an ETO reason. This means that the relocation itself will be a permissible change, along with any other changes to terms which are a consequence of the relocation. Employers wishing to rely on this exception will need to demonstrate that the change is because of the relocation. This may be successful; for example, where a transferring employee is relocated to a site operating a different shift system or work pattern.
Similarly, the removal of a contractual payment based on geographical location (for example, a London weighting allowance), is likely to be permissible as the payment is directly linked to the workplace location. However, a reduction of base salary or change to benefits more generally is unlikely to qualify unless the employer can show that the reason reflects differences in the standard cost of living and market forces in the new location. That should be the case, at least in respect of salary, where work is offshored to a different country, and the terms offered to employees who choose to relocate are based on local market rates.
However, within the UK it may be more difficult to establish unless the relocation involves a long-distance move to a clearly lower cost location (for example, from London to the North East); even then, it may not justify a wholesale change to the benefits package.
Changes permitted by contract. The express provision allowing changes that are permitted by the contract is helpful to employers. To some extent, this reflects existing practice, as many employers already rely on flexibility wording to make post-transfer changes, for example to bonus and benefit plans, but it was previously unclear whether this was permitted.
Collective agreements. The new right to change terms and conditions incorporated from collective agreements where the overall package is no less favourable. It is helpful to employers, in principle, but requires some caution.
Most collective agreements in the UK are not legally binding as between the employer and the union, but often terms of the collective agreement will have been incorporated into the individual contracts of employment, in which case they are legally enforceable by the employee, and can only be varied with the individual employee's consent.
Dismissals are now only automatically unfair if the sole or principal reason is the transfer itself and there is no ETO reason.
It is common for there to be some dismissals on the sale of a business or an outsourcing. Before 31 January 2014, dismissals were automatically unfair where the sole or principal reason for the dismissal was the transfer itself, or a reason connected with the transfer that was not an ETO reason.
The definition of an ETO reason will now specifically include relocations. This is to be welcomed, given how common relocations are in the context of TUPE transfers, particularly outsourcings.
Employers should still remember that, while the changes mitigate the risk of a dismissal being automatically unfair, they must still comply with the usual procedures for a dismissal to be fair.
The changes only apply to TUPE transfers which take place on or after 31 January 2014, and where notice of termination is given on or after that date.
Substantial detrimental changes
Regulation 4(9) of TUPE 2006 enables employees to treat themselves as dismissed, and bring a claim of unfair dismissal, where, as a result of the transfer, a substantial change in their working conditions is (or would be) made to their material detriment. Any such dismissal is automatically unfair, unless the employer has an ETO reason for the change.
In its response to the TUPE consultation, the government stated that both case law and the comments made during the TUPE consultation suggested that this provision is most often relied on in practice where an employer wishes to change an employee's place of work. The government's view was that its decision to expand the ETO definition to include a relocation would largely address any employer concerns and therefore, no changes to regulation 4(9) have been made.
4. EMPLOYEE LIABILITY INFORMATION
The time by which transferors must provide the employee liability information specified in regulation 11 of TUPE 2006 to transferees has been extended from 14 days to 28 days before the transfer. This change reflects the view of the majority of the respondents to the TUPE consultation, who considered that the pre-31 January 2014 timeframe of 14 days was inadequate.
In brief, this information consists of: the identity and age of the employees who will transfer; information contained in those employees' written particulars of employment; certain information on collective agreements; certain information regarding any disciplinary proceedings taken against an employee or grievance brought by an employee; and certain information regarding any legal action taken by those employees against the transferor.
No changes have been made to the categories or detail of information to be provided.
While the extension of time is helpful to (confirmed) new service providers, it does not extend to information sought during an early due diligence or bidding process. Access to information during the bidding process will still be dependent on the co-operation of the existing employer, and, in the case of services that are already outsourced, any contractual arrangements in place between the client and incumbent service provider.
Therefore, best practice remains to ensure that there are effective and well-drafted provisions in commercial agreements addressing the provision of adequate information at an appropriate time in the tender process, backed up by appropriate warranties and indemnities.
The change will only apply to transfers which take place on or after 1 May 2014.
If you require any further information on the issues raised in this article or any area of Employment Law, please do not hesitate to contact Claire Berry on 01480 442040 or email email@example.com.