Worth their wait in gold? New draft TUPE regulations are finally published

Last month saw the publication of the long-awaited revised draft TUPE Regulations. Readers who routinely deal with TUPE may feel that it is an area of law fraught with complexity and uncertainties. They are not alone: in one recent decision, the judge commented that the TUPE cases:

“now convey a message which, for breadth of possible interpretation, would be the envy of even the Delphic oracle”.

Another judge, more prosaically, commented that:

“the position in law in relation to transfers of undertakings is a mess”.

Perhaps influenced by this judicial criticism, the Government has sought in the new regulations to iron out some of the ambiguities and create greater legal certainty, with the ultimate aim of ensuring a level playing field for competition between businesses who are potentially impacted by TUPE. Many of the changes reflect judgments given in the numerous cases on TUPE and so simply codify the law as it currently exists. However, other changes are a significant departure from the existing law and these are explored further below.

Transfer of Service Contracts

Possibly the most significant change relates to transfers of service contracts (i.e. outsourcing/contracting out), which now will be more uniformly covered by TUPE. The new regulations provide that any “service provision change” will now fall within TUPE, provided that immediately before the transfer there is an organised group of employees carrying out the services in question on behalf of the particular client. This is clearly broader in scope than the current law and could catch unawares service providers who previously have not needed to concern themselves with TUPE under the old regime.

This change could come as a shock to professional service providers such as accountants, lawyers, advertising agencies, management consultants and IT project managers who routinely assign groups of employees to focus on a particular client. While temporary assignments of staff to a contract are excluded for these purposes, no guidance is given to what “temporary” means in this context. These professional service businesses could find that upon the client changing lawyers (or accountants or advertising agencies etc) the newly favoured service provider inherits not just the contract but also the allocated staff. This should also be of concern to the users of professional services, who may well be changing provider precisely because they are unhappy with the service provided by those individuals. Perhaps most concerned of all should be the professionals employed in this sector, who may no longer have control over the identity of their employer.

The Government is consulting over the possibility of excluding some professional services from the scope of the new provisions and has invited responses to the consultation on behalf of professions who believe that they should fall within the exclusion. Professional service providers and their trade associations/representative bodies should give serious though to whether a co-ordinated response to the consultation document is merited.

Ironically, while concern may be mounting over the Government’s intention to catch within TUPE some sectors not previously covered, a drafting oversight may yet let those businesses off the hook. Outgoing service providers who wish to avoid TUPE may be able to do so by the simple expedient of reallocating employees shortly before the change in provider takes effect: since they will not have employees assigned to the contract “immediately before the transfer” the new provisions then may not bite.

Changes to Terms and Conditions

Changes to employees’ terms and conditions following (and related to) a transfer will no longer be void, provided that they are for an “economic, technical or organisational reason entailing changes in the workforce”. While this proviso sounds very broad, identical language in the context of TUPE related dismissals has been very narrowly construed and has been read as, in essence, equivalent to a redundancy situation. It remains to be seen whether the same interpretation will be used in this context. Employers should bear in mind that this change in law means that contract variations are not void but does not affect other constraints on amendments to employment terms: in most cases, the employees’ consent to changes still will be required.

Provision of Information to New Employer

The transferring employer will be obliged to notify the new employer of the identities of the employees, and of all the associated rights, liabilities etc that will pass across in the transfer.

Insolvent Businesses

In order to promote a UK business rescue culture, the new TUPE regulations will protect successors to particular insolvent businesses from inheriting debts owed to employees to the extent that those debts are recoverable from the Secretary of State for Trade and Industry. Debts which fall outside the statutory recovery regime will still transfer to the new employer.

Inheritors of insolvent businesses will also be permitted to make changes to terms and conditions of employment with the employees’ consent, even where there is no “economic, technical or organisational reason” for those changes.

Pensions

Requirements for transferee employers in respect of occupational pension arrangements for transferring employees will be dealt with in separate legislation.

Implementation

The DTI has allowed only a short period of consultation closing on 7 June 2005, to permit consideration of whether the draft Regulations effectively implement the policy decisions which have already been taken by the Government. The new laws are expected to take effect in October this year.

In the long-term, the Government’s intention to clarify the law may be achieved. However, the near future is likely to involve a period of increased uncertainty while the new law beds down and its exact parameters are settled.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.