· Features

TUPE Changes: One Step Forward, Two Steps Back?

Last January, the Government began consultation on a number of proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The key proposals could be problematic for employers and employees alike, potentially involving both in expensive litigation.

The most significant change is the proposed repeal of the regulation that makes a service provision change subject to TUPE. Service provision changes catch the outsourcing of services (such as IT, canteens, cleaning), a change in the identity of the contractor providing those services, and bringing the services back in-house. When first introduced, this was seen by some as the UK "gold-plating" the underlying EU Directive. It was, but it also provided much-needed certainty, and consequential protection for employees, in often complicated situations.

The proposal, if implemented, will take TUPE back to the dark ages of uncertainty that prevailed pre-2006, and will leave employers and employees alike in doubt as to their legal positions. More litigation is therefore inevitable, as many contractors taking over services will insist that TUPE does not apply and will refuse to take on the employees. The outgoing contractor may take the opposite view, and will not make the employees redundant . As a result, employees will be left with no jobs, no redundancy payments and in many cases no option but to take action against their former employer and/or the new contractor.

Contractors bidding for contracts will also be faced with a major headache when it comes to pricing the staffing element of the contract. Will TUPE apply and remove the cost of redundancies at the end of the contract from the equation? Or will redundancy costs have to be priced in, increasing costs for the client and perhaps pricing the contractor's bid out of the process? The major providers, those better able to redeploy workers into other parts of their operation at the end of a contract, will have a clear commercial advantage over smaller operators.

As many service providers will have entered into, and priced, long-term contracts on the basis that TUPE would apply at the end of those contracts, a long lead time for this repeal has been mooted. However, those currently contemplating bidding for new contracts face a dilemma as to how they should address the TUPE risks.

A further proposal is to repeal the obligation on transferors to provide employee liability information to transferees. This is a very rigid provision which requires specified information to be provided 14 days before a transfer, and has pretty much no value to an incoming contractor which would already have had to bid for the contract without knowing the full details of what it might become liable for. Government guidance on how this gap is to be bridged has been promised, but the only sure way of addressing this lies with the client: the client should impose an obligation on every contractor to provide the client on request with specified employee information so that this information can be passed on to all prospective bidders, creating a level playing field.

Can a transferee make changes to the contracts of employment of employees that it inherits under TUPE, to harmonise terms of employment? Not if the reason for the change is the TUPE transfer itself - that much has been clear for nearly a quarter of a century, ever since the CJEU decision in the Daddy's Dance Hall case. However, another proposed change is to bring TUPE in this area more closely into line with the underlying EU Directive and CJEU case law. Whether this will allow employees and employers a broader ability to agree changes to contracts is doubtful. Whatever the semantics of the proposed amendment to TUPE, CJEU case law is clear. Inevitably, if the proposal goes ahead, it will spawn litigation.

Redundancy dismissals create a real practical problem where TUPE is concerned. Although dismissals for an economic, technical or organisational reason (eg redundancy) are permitted under TUPE, a transferee that wishes to make redundancies has to wait until the transfer has been concluded before it can start a redundancy process, thus increasing costs and losing time. Another proposal is to allow redundancies to be effected by the transferor based on the transferee's reason for dismissal. This would be a major improvement, not just for employers but also for employees who would be spared the difficult period when the inevitability of redundancies is known and the time is spent simply waiting for the axe to fall.

A connected proposal is to allow collective consultation to commence before the transfer takes place. In practice, this often happens already, although not without legal risk. This proposal will help streamline the process to the benefit of all concerned, although it will not be mandatory as some transferors will not wish a transferee to have access to its staff before the transfer takes place.

All in all, the changes are a bit like the proverbial curate's egg - good in parts.

Mark Watson is an employment partner with City of London solicitors Fox Williams