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TUPEnews Edition 5
This is the fifth issue of an occasional hrlaw e-newsletter, highlighting key developments about TUPE for managers and HR teams and others who have to deal with TUPE in practice.
Consultation with “affected employees”
The duty to inform and consult under TUPE applies in relation to “affected employees”. If an employer has two distinct parts to its business and sells one part but not the other, does the sale “affect” the employees in the part not sold? In the case of I Lab Facilities v Metcalfe, the Employment Appeal Tribunal held that the employees in the part of the business not sold are not “affected”, even if at the same time the employer closes down the unsold part of the business. It said that such employees were affected by the closure rather than the sale itself, and that this would have been the case even if the sale indirectly led to the closure. The employer was therefore under no obligation to inform and consult with those employees.
Liability for failure to inform and consult
TUPE provides that transferees and transferors are “jointly and severally” (i.e. collectively and individually) liable for compensation for failure to inform and consult under TUPE. The recent Employment Appeal Tribunal case of Country Weddings v Crossman confirmed that Employment Tribunals cannot apportion liability between the transferor and the transferee (e.g. 90% transferor, 10% transferee).
The case is a reminder that transferees are vulnerable to having to pay the whole of an award incurred by a transferor who has failed to comply with its duties. It underlines how important it is for transferees to secure effective indemnities from transferors. In some situations, such as a second generation outsourcing where a service provider is taking over from a rival, this may not be feasible, in which case transferees should seek indemnities from their client.
Compensation for breach of duty to inform and consult
Some good news for employers who largely comply with their duty to inform and consult under TUPE but commit some minor or technical breaches of that duty. In the case of Shields Automotive v Langdon the employer committed two minor breaches of their duty by rushing the process for election of employee representatives and deciding to select one employee to be a representative when the voting by employees produced a tie-break. In all other respects, it complied with its duty.
The Employment Appeal Tribunal considered the two breaches to be minor and reduced the protective award that had been awarded by the Employment Tribunal to one of the employees from seven weeks’ pay to three weeks’ pay.
Therefore the severity of any breach is key in determining the amount of a protective award. This is because the purpose of protective awards is to punish the employer for the breach. The worst case scenario award of 13 weeks’ pay per employee will normally only be appropriate where there has been a complete failure to inform and consult. This is a change of approach as previously cases had indicated that the starting point for awards should be 13 weeks’ pay with reductions only in limited circumstances.
Outsourcing and “organised grouping of employees”
In an outsourcing scenario, there will be a TUPE transfer if certain conditions are met. One condition is that there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client.
The Employment Appeal Tribunal’s judgment in the case of Seawell v Ceva was reported in the last edition of TUPEnews. The case has now been heard by the Court of Appeal which has confirmed that the word “organised” is of crucial importance. The word “organised” connotes a deliberate “putting together” of a group of employees to do a client’s work rather than such a group simply evolving over time. The fact that a group of employees works mostly for a particular client is not enough. The amount of time that individuals spend working for a client is only relevant to whether they are assigned to the group – a secondary question; there must first be a group deliberately organised into a particular client group, for example “the Boots team” or the “M&S team”.
The case concerned one individual who spent all of his time working for a particular client but because there was nothing deliberate or intentional about the organisation of the group of employees he was in, there was no TUPE transfer.
This is good news for service providers concerned about inheriting staff when they win new contracts and also good news for companies which decide to bring back in-house functions which are currently outsourced functions. This is because unless the current service provider has its employees clearly working in specific client teams, it may be difficult for it to argue that the employees working for that client transfer under TUPE to the new provider or the client when the contract ends.
For the same reason, the case is bad news for service providers whose staff are not deliberately organised into specific client teams. Such service providers should consider whether it would be prudent to change their arrangements.
Changes to TUPE
Earlier this year, the Government conducted a consultation on changes it is proposing to the provisions of TUPE. We surveyed hrlaw readers on the proposed changes and the responses formed the basis for our response to the consultation. The changes are due to take place in October and we had been expecting the Government’s response to the consultation in July. However, the Employment Minister, Jo Swinson, has stated that it is now unlikely to be published before September. We will keep readers informed of developments.