TUPE Regulations 2006
After much delay, new Regulations revising and replacing the Transfer of Undertakings (Protection of Employment) Regulations 1981 have finally been published. This guidance note sets out the resultant changes to the law on the transfer of undertakings and examines the reasons behind them.
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The TUPE Regulations 2006: introduce a wider definition of a "relevant transfer" to include service provision changes;
clarify the rules in relation to transfer-related dismissals, and set out the limited circumstances in which employers may change employees' terms and conditions;
place a new requirement on the transferor to notify the transferee of the identity of the employees who are to transfer, as well as specified rights and liabilities in relation to them; and
provide for greater flexibility in their application in cases where the transferor is insolvent. |
Almost 25 years ago, the Acquired Rights Directive (77/187/EEC) on the approximation of the laws of the EU member states relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses, was implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) (TUPE Regulations 1981).
Over the years a number of amendments have been made to the original TUPE Regulations 1981 - first by the Trade Union Reform and Employment Rights Act 1993, and subsequently by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995 and 1999. These changes brought the legislation more into line with the original Acquired Rights Directive, following litigation in the European Court of Justice (ECJ) against the UK in Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland.
In the meantime, it was acknowledged that both the Acquired Rights Directive and the TUPE Regulations 1981 were in need of an overhaul. The Directive was revised in 1998 by Directive 98/50/EC and consolidated in 2001 by Directive 2001/23/EC, the current European instrument governing the law on the transfer of undertakings. As early as 2001 it was decided that new TUPE Regulations would have to be issued, partly to take into account the revisions made by Directive 98/50/EC, and partly to clear up areas of uncertainty in the law, particularly in relation to outsourcing.
As a result, in 2001, the Department of Trade and Industry (DTI) issued a consultation document on proposals for reforms to the TUPE Regulations 1981. This was followed, in 2003, by publication in a press release of the aims that it wished to achieve, and, in March 2005, by the issue of a consultation paper containing draft revised TUPE Regulations. Although it was originally intended that the new Regulations would come into force on 1 October 2005, the final Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006)1 have been published only recently. They will come into force on 6 April 2006 and replace in their entirety the TUPE Regulations 1981.
Although the TUPE Regulations 2006 will in general apply to any transfer that takes place on or after this date, there are two exceptions: the new duty to supply employee liability information will apply only where the relevant transfer takes place after 19 April 2006; and, in the case of a service provision change that is not also a transfer of an undertaking or business, the duty to inform and consult affected employees will apply only where the change takes place after 4 May 2006. The new Regulations will apply to Great Britain and Northern Ireland2.
The government has also published guidance3 on the new Regulations, along with its response4 to the consultation.
Relevant transfers
One of the most significant aspects of the TUPE Regulations 2006 is their new definition of a "relevant transfer". With regard to most transfers the new definition consolidates ECJ case law and its requirement that there be the "transfer of an economic entity which retains its identity". However, with regard to service provision changes the new Regulations contain a special supplementary definition.
At present, in deciding if a service provision change is covered by the TUPE legislation, it is necessary to apply ECJ case law. This involves finding the transfer of an economic entity and then taking into account whether assets or employees are transferred. The ECJ decided in Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice and Lefarth GmbHthat the mere changeover of a contractor, without more, cannot amount to the transfer of an undertaking.
However, under the TUPE Regulations 2006, subject to a couple of exceptions, a service provision change will satisfy the relevant transfer requirements without resort to the tests under ECJ case law. The contract change will itself effect the transfer. As a result, service provision changeovers in the UK will be treated differently from those in most other EU jurisdictions, with the employees involved receiving better treatment than strictly required under the Directive.
The TUPE Regulations 2006, reg. 3 sets out the circumstances in which a "relevant transfer" occurs. An analysis of reg. 3 may conveniently be divided into four parts: public sector and "not for profit" transfers; transfers within public administration; the "standard" definition of a transfer; and the "extended" definition of a transfer applicable only to service provision changeovers.
Public sector and "not-for-profit" transfers
Regulation 3(4)(a) of the TUPE Regulations 2006 states that the Regulations apply to "public and private undertakings engaged in economic activities whether or not they are operating for gain". This consolidates existing ECJ case law and means that the following types of public sector transfer are covered by the new Regulations:
outsourcing by central government of ancillary services to the private sector;
outsourcing by local authorities and other government agencies of ancillary services to the private sector;
privatisations; and
transfers of, and by, bodies even if they are "not-for-profit" or charitable.
Transfers within public administration
Meanwhile, reg. 3(5) of the TUPE Regulations 2006 provides that "an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer". In doing so, reg. 3(5) implements the provisions of art. 1(c) of Directive 200 1/23/EC and gives effect to the ECJ ruling in Henke v Gemeinde Schierke and Verwaltungsgemeinschaft "Brocken".
The meaning of an "administrative", as opposed to an "economic", function is opaque, although certain intra-public-sector reorganisations will clearly not attract the protection of the TUPE Regulations 2006.
However, in this regard the government points out in its guidance on the new Regulations that public sector workers' rights are intended to be covered by other means, ie the Cabinet Office statement of practice on staff transfers in the public sector and case-specific legislation made under s.38 of the Employment Relations Act 1999 (ERelA 1999) - such as the Transfer of Undertakings (Protection of Employment) (Rent Officer Service) Regulations 1999 (SI 1999/2511) and the Transfer of Undertakings (Protection of Employment) (Transfer to OFCOM) Regulations 2003 (SI 2003/2715). Thus, in the government's opinion, no additional provisions were necessary in the new Regulations.
The "standard" transfer definition
The "standard" definition of a transfer is contained in reg. 3(1)(a) of the TUPE Regulations 2006. This states that the Regulations apply to "a transfer of an undertaking, business or part of a business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity".
For this purpose, "economic entity" is defined in reg. 3(2) as "an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary". In this regard the Regulations implement art. 1(b) of Directive 200 1/23/EC, which is declaratory of ECJ case law on the subject (see Spijkers v Gebroeders Benedik Abbatoir CVand Sanchez Hidalgo and others v Asociacion de Servicios Aser and Sociedad Cooperativa Minerva). It is important to note that interpretation of the "standard" definition will continue to be governed by the ECJ's interpretation of the Directive.
One significant point is the retention in the TUPE Regulations 2006 of the requirement that there be a change of employer (reg. 3(1)(a)). Acquisitions of companies by share sales will therefore continue to be excluded, as no change of employer is involved. The government has not exercised its power under s.38 of the ERelA 1999 to include acquisitions by share sales.
The "extended" transfer definition: service provision changeovers
Many putative transfers will continue to be governed solely by the standard transfer definition. However, in the TUPE Regulations 2006, service provision changeovers are given preferential treatment, as they are also governed by what can be described as the "extended" transfer definition, which exceeds the protection given to employees by Directive 2001/23/EC.
It should be noted that this is a supplementary definition: if a putative transfer does not meet the test in the "extended" definition, it may still pass as a TUPE transfer if it nonetheless qualifies under the "standard" definition.
The government's rationale for the extended definition is to reduce the uncertainty in the law, to insulate the parties in service provision changeovers from the effects of ECJ jurisprudence and to create a level playing field wherein a contractor's bid for services is based on its commercial merits, rather than its views of the employment rights of the individuals involved.
The supplementary definition of a transfer under reg. 3(1)(b) is simple. So long as service activities cease by one person (the transferor) and are taken up by a new person (the transferee) and, prior to the changeover, there was an organised grouping of employees with the principal purpose of carrying out those activities on behalf of the client, there will be a transfer. This is in contrast with the requirements under the general law, and the "standard" definition, as laid down in Süzen, in which the ECJ stressed that a mere changeover of contractors is not a transfer and that what is required is a concomitant transfer of assets or a taking over of a major part of the workforce.
It should be noted that reg. 3(1)(b) covers client-to-contractor, contractor-to-contractor and contractor-to-client changeovers. It does not, however, apply where:
the client intends that the activities will, following the service provision change, be carried out by the transferee in connection with a single specific event or task of short-term duration, eg a conference (reg. 3(3)(a)(ii)); or
the activities concerned consist wholly or mainly of the supply of goods for the client's use, eg a company changes the factory from which it buys component parts (reg. 3(3)(b)); although these exceptions remain covered by the standard transfer provisions and the relevant ECJ case law.
While the government originally intended that service provision changeovers of "professional services" were to be excluded, this exemption was dropped from the final version of the Regulations. One of the reasons for the abandonment of the professional services exemption was the difficulty in defining "professional services". In the draft TUPE Regulations issued in the 2005 consultation, professional services were to be identified by name in a schedule. However, although legal and accountancy services were obvious candidates to be included in the exemption, the government saw difficulties in defining which other kinds of professional services should be the subject of the exemption.
While the standard definition of a relevant transfer requires the transfer of an economic entity that "retains its identity", with regard to the extended service provision changeover definition, it is sufficient that the "activities" cease to be carried out by one person and are carried out in the future by another. This supports the government's standpoint that it is no longer desirable to exclude cases where the incoming service provider envisages carrying out the service activities in a new or innovative manner.
The reasoning behind the abandonment of the "innovative bids" exception that was floated in the 2001 consultation is that requiring the new service provider to take on all the employees should encourage the retention and retraining of those employees lacking the skills required for the new contract. If innovative bids had been excluded under the TUPE Regulations 2006, such employees would, in all likelihood, have been made redundant by the original employer. It is also hoped that treating all contractors, including those making innovative bids, on an equal footing will contribute to the key policy objective of creating a level playing field in tendering exercises, with increased certainty for all concerned in the transfer process.
Changes to terms and conditions of employment
One of the key objectives of the government's reform of TUPE was to clarify the effect of the TUPE Regulations in relation to changes to terms and conditions of employment. However, EC law has meant that there has been relatively little scope to change the law significantly in this regard.
The ability of an employer to vary employment terms before or after a TUPE transfer is heavily circumscribed, even where the employee consents to the change. Under EC law an employee may not waive rights granted to him or her under Directive 2001/23/EC. This rule against waiver is found in Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S, in which the ECJ stated that the employment relationship may be altered with regard to the transferee to the same extent that it would have been with regard to the transferor, on the understanding that the transfer of the undertaking itself can never constitute the reason for the amendment. This decision was followed in the subsequent ECJ case of Rask and Christensen v ISS Kantineservice A/Sand by the European Free Trade Area Court in Langeland v Norske Fabricomand Viggósdóttir v Íslandspóstur HF.
In addition, it is not possible to argue that a change may be permitted if, overall, the employees are no worse off. As the ECJ stated in Daddy's Dance Hall: "It follows that the workers concerned do not have the option to waive the rights conferred on them by the Directive and that it is not permissible to diminish these rights even with their consent. This interpretation is notwithstanding the fact that … the worker, to offset disadvantages arising for him from a change in his employment relationship, obtains new advantages so that he is not, overall, left in a worse position than he was before."
In the UK the Daddy's Dance Hall principle was applied by the House of Lords in Wilson and others v St Helens Borough Council(although ultimately the case was decided on other grounds), and in other cases such as Credit Suisse First Boston (Europe) Ltd v Padiachy and othersand Credit Suisse First Boston (Europe) Ltd v Lister. However, in Ralton and others v Havering College of Further & Higher Education, the EAT suggested that only those changes that are made "solely" by reason of the transfer are invalid.
The government's solution has been to provide in the TUPE Regulations 2006 that a purported variation will be void if the "sole" or "principal" reason (see Ralton above) is either the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational (ETO) reason entailing changes in the workplace (reg. 4(4)).
However, an employer and employee may agree a variation if the sole or principal reason for the variation is a reason connected with the transfer that is an ETO reason entailing changes in the workforce or a reason unconnected with the transfer (reg. 4(5)).
The problem with the first permitted variation is that Daddy's Dance Hall does not expressly allow for variations that are for an ETO reason, but appears to invalidate all variations that are "by reason" of the transfer. The government, however, regards it as illogical to permit dismissals for an ETO reason - as provided for in reg. 8(2) of the TUPE Regulations 1981 and in reg. 7 of the TUPE Regulations 2006 - but not variations of contract for an ETO reason.
In any event, the change may be more limited than it appears at first. A variation for a reason connected with the transfer may be justified by an ETO reason only if the ETO reason also "entails a change in the workforce". As interpreted in Delabole Slate Ltd v Berrimanin the context of transfer-connected dismissals, this expression means that there must be a change in the numbers of the workforce or, possibly, changes in the job functions of the constituent elements of the workforce, which, although involving no overall reduction in numbers, involve a change in the individual employees who make up the workforce. The DTI's guidance on the new Regulations states: "A functional change could involve a new requirement for an employee who held a managerial position to enter a non-managerial role or to move from a secretarial to a sales position."
This significantly limits the apparent flexibility given to employers by the new regulation, because relatively few contract changes will involve such a change in the actual composition of the workforce.
It must be stressed that the new scope for changing terms and conditions does not allow a transferee to harmonise the terms and conditions of transferred employees with those of its existing workforce. The DTI guidance states: "According to the way the courts have interpreted the Acquired Rights Directive, the desire to achieve 'harmonisation' is by reason of the transfer itself. It cannot therefore constitute an 'ETO reason connected with the transfer entailing changes in the workforce'."
The government has confirmed that it is impossible to give guidance about a period of time after a transfer when it would be safe for the transferee to vary the transferred employees' contracts. It points out in its guidance that, although there is likely to be a time when the link with the transfer can be treated as no longer effective, this will vary from case to case and must be assessed in the light of all the relevant circumstances. It emphasises: "There is no 'rule of thumb' used by the courts or specified in the Regulations to define a period of time after which it is safe to assume that the transfer did not impact directly or indirectly on the employer's action."
Constructive dismissal
Regulation 4 of the TUPE Regulations 2006 has a nasty sting in the tail for employers. Under reg. 5(5) of the TUPE Regulations 1981 an employee might treat the employment as being at an end and claim constructive dismissal if there is a substantial change in the working conditions to his or her material detriment. In Rossiter v Pendragon plcthe Court of Appeal, reversing the EAT's decision, held that the concept of constructive dismissal does not have a wider meaning than normal when it arises in this context; a claim generated under reg. 5(5) of the TUPE Regulations 1981 still requires a fundamental breach of contract.
Regulation 4(9) of the TUPE Regulations 2006 changes this, and restores the decision of the EAT and what many view as the true meaning of the Directive. Under reg. 4(9) an employee may treat the contract as being terminated by the employer on any substantial change of working conditions to his or her detriment. This will greatly increase the prospect of employee-initiated claims arising from changes to working conditions that are short of actual breach of contract.
In these circumstances, no damages are payable by the employer in relation to a failure to pay wages in respect of the notice period if the employee has failed to work it (reg. 4(10)). The employee can, however, present a claim for constructive unfair dismissal.
The employee also retains the ability to claim constructive dismissal in relation to a right arising outside the TUPE Regulations 2006, by terminating the contract without notice in acceptance of a repudiatory breach of contract by the employer under reg. 4(11). In these circumstances the employee can claim both wrongful and unfair dismissal.
Transfer-connected dismissals
Regulation 7 of the TUPE Regulations 2006 is the result of the government's desire to clarify the existing reg. 8 of the TUPE Regulations 1981 on transfer-related dismissals.
Under reg. 7(1), where, either before or after the transfer, an employee of the transferor or the transferee is dismissed, the employee is automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer itself or a reason connected with it that is not an ETO reason entailing changes in the workforce. Where there is an ETO reason entailing changes in the workforce, reg. 7(1) ceases to apply and the dismissal is not automatically unfair (reg. 7(2)).
Meanwhile, reg. 7(3) corrects an anomaly in reg. 8 of the TUPE Regulations 1981, under which dismissals for an ETO reason entailing changes in the workforce are deemed to be for "some other substantial reason" within the meaning of unfair dismissal law. This has led to some uncertainty as to whether or not an employee who is redundant can claim to be dismissed by reason of redundancy and assert a right to a redundancy payment (see Canning v (1) Niaz (2) McLoughlin, although the EAT's decision that the applicant was not entitled to a redundancy payment was subsequently doubted in Gorictree Ltd v Jenkinson and (1) Anderson and (2) Malone v Dalkeith Engineering Ltd).
The uncertainty is overcome by reg. 7(3)(b), which provides that such dismissals may be regarded as being by reason of redundancy where the appropriate test in s.98(2)(c) of the Employment Rights Act 1996 (ERA 1996) is satisfied.
Pensions
Article 3(4)(a) of Directive 200 1/23/EC exempts from protection any rights under supplementary company or intercompany pension schemes relating to old age, invalidity or survivors' benefits, "unless member states provide otherwise".
Under reg. 10 of the TUPE Regulations 2006, provisions of an occupational pension scheme (as defined by the Pension Schemes Act 1993 or the Social Security Pensions (Northern Ireland) Order 1975) are still excluded from transfer under regs. 4 and 5, as was the case under reg. 7 of the TUPE Regulations 1981. However, it is expressly provided in reg. 10(2) that provisions other than those relating to old age, invalidity or survivors' benefits are not treated as being part of the occupational pension scheme, and are therefore liable to transfer under regs. 4 and 5.
The way in which this proviso works in practice is illustrated by the ECJ cases of Beckmann v Dynamco Whicheloe MacFarlane Ltdand Martin and others v South Bank University, in which it was held that redundancy-triggered early retirement benefits in the Whitley Council terms and conditions were not "old age" benefits. As a result, liability in relation to them passed to the transferee.
While the government has not taken the option in Directive 2001/23/EC to impose wholesale transfer of pension obligations from transferor to transferee, more modest obligations on transferees to make pension provision now apply under the Transfer of Employment (Pension Protection) Regulations 2005 (SI 2005/649). The Regulations were made pursuant to the Pensions Act 2004, and have been in force since 6 April 2005.
It should also be noted that employees' occupational pension rights on public sector transfers will continue to be governed by the Cabinet Office statement of practice on staff transfers in the public sector and the annex to it, A fair deal for staff pensions, and, in local government, by the Code of practice on workforce matters in local authority service contracts.
Insolvency
The insolvency provisions in the TUPE Regulations 2006 are contained in regs. 8 and 9. There is no equivalent of reg. 4 of the TUPE Regulations 1981, which purports to enable avoidance of the Regulations on insolvency disposals through "hiving down". This was a classic example of the tendency in early legislation transposing EC law to seek to tailor obligations under it according to national self-interest.
Regulation 4 of the TUPE Regulations 1981 envisaged that, prior to the disposal of an insolvent undertaking, the insolvency practitioner created a wholly owned subsidiary to which the business to be sold was transferred. Employees were retained by the original transferor company and lent out to the subsidiary, which operated with no employees of its own. The subsidiary company (or its business) was then disposed of, seemingly free of employees. The transfer of an undertaking that would ordinarily arise was, by virtue of reg. 4, artificially postponed to allow this avoidance scheme.
This provision was clearly in breach of the aims of the original Directive 77/187/EEC and could no longer effectively operate after the House of Lords decision in Litster and others v Forth Dry Dock & Engineering Co Ltd (in receivership) and another. It was rendered invalid by the purposive decision in In the matter of Maxwell Fleet and Facilities Management Ltd (in administration), and now rightly disappears from the TUPE Regulations 2006.
Regulation 8(7) of the TUPE Regulations 2006 provides that reg. 4 (transfer of employment obligations) and reg. 7 (protection against dismissal) do not apply where the transferor is the subject of bankruptcy proceedings or any analogous proceedings that have been instituted with a view to liquidation of the transferor's assets and are under the supervision of an insolvency practitioner. In this regard the Regulations consolidate the ECJ case law in Abels v Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie. Whether a particular insolvency procedure is covered by the Regulations therefore depends on the purpose of the procedure concerned (D'Urso v Ercole Marelli Elettromeccanica Generale SpA (in special administration) and others; Spano v Fiat Geotech SpA; Europièces SA v Sanders; and Jules Dethier Équipement SA v Dassy and Sovram SPRL (in liquidation)).
The government's wording conveniently avoids a requirement to list all the kinds of insolvency procedures in England, Wales, Scotland and Northern Ireland to which the Regulations apply - and thereby avoids the need for consequential amendments in the future as a result of insolvency law reform. However, it does incorporate the inherent uncertainty of the test in D'Urso, as it will sometimes be unclear, even in an administration case, whether the purpose of the procedure is to continue the business or to liquidate the assets.
Directive 2001/23/EC offers member states the option of relaxing the provisions on insolvency proceedings covered by the Directive in two important respects: by allowing non-transfer of certain debts from the transferor to the transferee, provided that employees are adequately safeguarded (art. 5(2)(a)); and by allowing alterations to employment contracts that are agreed with employee representatives and designed to safeguard employment opportunities by ensuring the survival of the undertaking (art. 5(2)(b)).
The TUPE Regulations 2006 take up both of these options. Regulation 8(5) prevents the operation of reg. 4 with regard to unpaid sums that are due to the transferring employees, where the sums are reimbursable by the secretary of state under Chapter VI of Part XI of the ERA 1996 and Part XII of the ERA 1996, or the equivalent Northern Ireland legislation. These sums include arrears of pay, payment in lieu of notice and holiday pay.
It is important to note that other debts owed by the insolvent transferor to the transferring employees - ie debts that fall outside the categories payable under the relevant statutory schemes or those that exceed the statutory upper limits under those provisions - will still pass to the transferee. No doubt there would have been an enhanced possibility of increased rescues of insolvent businesses if transferees had been given a clean slate with regard to all pre-existing employment liabilities owed by an insolvent transferor. However, that would have given insufficient protection to employees and would be inconsistent with art. 5(2)(a).
Meanwhile, reg. 9 allows the transferor or transferee (or an insolvency practitioner) to agree certain permitted variations to employment contracts via "appropriate employee representatives". Appropriate representatives are, in keeping with other employment legislation, recognised trade union representatives or, where this is not applicable, elected or appointed employee representatives. These representatives enjoy rights to time off and protection against victimisation.
Regulation 9(5) establishes additional safeguards applicable in cases where the employees are represented by non-union representatives. Any agreement recording a permitted variation must be in writing and signed by each of the representatives who made it, or, where that is not reasonably practicable, by their authorised agents. The employer must, before the agreement is made available for signature, provide all employees to whom it will apply with copies of the text of the agreement and such "guidance as [they] might reasonably require to understand it fully".
Notification of employee liability information
During the UK presidency of the EC in the first half of 1998, amendments facilitating the promulgation of the revised amending Directive 98/50/EC were agreed. One provision of some practical importance to the UK - given the heated debate on the practical problems of outsourcing in this country at the time - was negotiated.
Article 3(2) of what is now Directive 2001/23/EC says: "Member states may adopt appropriate measures to ensure that the transferor notifies the transferee of all the rights and obligations which will be transferred to the transferee under this article, so far as those rights and obligations are, or ought to have been, known to the transferor at the time of the transfer. A failure by the transferor to notify the transferee of any such right or obligation shall not affect the transfer of that right or obligation and the rights of any employees against the transferee and/or transferor in respect of that right or obligation."
This option has now been taken up through reg. 11 of the TUPE Regulations 2006. Under reg. 11 the transferor is required to notify to the transferee the "employee liability information" of any person employed by it who is assigned to the organised grouping of resources or employees that is the subject of a relevant transfer.
"Employee liability information" means:
the identity and age of the employee;
the written employment particulars required to be given to the employee under s.1 of the ERA 1996;
information on any disciplinary procedure taken in relation to the employee or grievance procedure taken by the employee within the previous two years in relation to which the statutory dispute resolution procedures apply;
information on any court or tribunal case, claim or action brought by the employee against the transferor within the previous two years, or any court or tribunal case, claim or action arising out of the employee's employment with it that the transferor has reasonable grounds to believe that the employee may bring against the new employer; and
information about any collective agreement that will have effect after the transfer in relation to the employee.
The employee liability information must include that of any person who would have been employed by the transferor and assigned into the organised grouping of resources or employees to be transferred if the individual had not been dismissed because of the transfer itself or for a non-ETO reason connected with the transfer, ie in circumstances where the dismissal is automatically unfair.
The information has to be in writing or made available to the transferee in a readily accessible form, which might include electronically by email or via computer data files. The information has to be correct at a specified date not more than 14 days before the date on which it is notified to the transferee. Once it has provided the employee liability information, the transferor is required to notify the transferee in writing of any change to it.
Notification of the employee liability information must occur no later than 14 days before the relevant transfer, or, if special circumstances mean this is not reasonably practicable, as soon as is reasonably practicable afterwards. A situation where special circumstances might make timely notification not reasonably practicable would be where negotiations for the transfer take place over a very short period of time, eg a period of less than 14 days. Otherwise, the tribunals are likely to construe the special circumstances defence very narrowly, as they have done where the expression appears in other employment legislation.
Notification of the employee liability information may be given in more than one instalment, and may be given indirectly through a third party.
Remedy for failure to notify employee liability information
If a transferor fails to comply with the employee liability information requirement under reg. 11, the transferee can present a complaint to an employment tribunal. The complaint must be brought within three months of the date of the relevant transfer, or within such further period as the tribunal considers reasonable in a case where it is satisfied that this was not reasonably practicable.
If the tribunal finds the complaint well founded it must make a declaration to that effect and may make an award of compensation to be paid by the transferor to the transferee. The amount of compensation will be what the tribunal considers just and equitable in all the circumstances, subject to a minimum of £500 per employee in respect of whom the transferor has failed to comply (unless the tribunal considers it appropriate to award a lesser sum).
In calculating the amount of the overall compensation the tribunal has to have particular regard to:
any loss sustained by the transferee that is attributable to the matters complained of; and
the terms of any transfer-related contract between the two parties under which the transferor may be liable to pay a sum to the transferee in respect of a failure to notify it of any employee liability information.
Regulation 12(6) makes it clear that there is a duty on the transferee to mitigate any loss. Finally, reg. 12(7) incorporates s.18 of the Employment Tribunals Act 1996, allowing for claims to be conciliated.
Joint and several liability
Article 3(1) of Directive 200 1/23/EC gives member states the option of providing for joint and several liability in respect of obligations that would otherwise fall exclusively on the transferee. The government has decided to take advantage of this option in two areas: liability for failure to inform and consult and liability for personal injury.
Whether or not liability in respect of the transferor's failure to inform or consult prior to the transfer passes to the transferee has been the source of some confusion, with the EAT holding in both Alamo Group (Europe) Ltd v Tucker and anotherand Kerry Foods Ltd v Creber and othersthat the right under reg. 10 of the TUPE Regulations 1981 to information and consultation is "in connection" with the employment contract and therefore subject to the principle of automatic transfer to the transferee. Regulation 15(9) of the TUPE Regulations 2006 now provides that, where the transferor has failed to inform or consult, the transferee will be jointly and severally liable with the transferor.
Where a transferor employer is exempted from carrying employers' liability insurance by s.3 of the Employers' Liability (Compulsory Insurance) Act 1969, the transferee is unable to take advantage of insurance cover - an advantage ordinarily accorded by virtue of the decision in Bernadone v Pall Mall Services Group and othersthat the right to an indemnity under an insurance policy in respect of liability to employees is transferred to the transferee. Regulation 17(2) now holds that the transferor and transferee will be held jointly and severally liable in respect of personal injury liability arising from an employee's employment with the transferor. Liability between those jointly liable will be apportioned in line with the provisions of the Civil Liability (Contribution) Act 1978. This is not the same as the transferee having an indemnity against pre-transfer liability, but it is an improvement on the previous position.
Areas not subject to change
It is important to stress that there are substantial areas of the law on employee rights on the transfer of an undertaking that will not change as a result of the TUPE Regulations 2006. The question, for example, of just who is assigned to a business or part of a business being transferred will continue to be covered by case law, particularly ECJ case law and the key case of Botzen v Rotterdamsche Droogdok Maatschappij BV.
The effect of a relevant transfer on contracts of employment is unchanged, with all the transferor's rights, powers, duties and liabilities under or in connection with the contract, together with liability for any act or omission before the transfer is completed, transferring.
In essence, the rules on transfer of collective agreements, the effect of a transfer on trade union recognition and the rules on information and consultation with appropriate employee representatives are unchanged.
Summary
After 6 April 2006 the law on the transfer of undertakings in the context of outsourcing will be much clearer than it is under the TUPE Regulations 1981. Employers will also welcome the new provisions on notification of employee liability information, while the new insolvency provisions will be of some comfort to potential purchasers of insolvent businesses.
On the other hand, the government has promised much and delivered little of any value with regard to employers' ability to change terms and conditions after a transfer. Ironically, in some ways the position is worsened by the express provision for a constructive dismissal claim where there is a substantial change in an employee's working conditions to his or her detriment.
Finally, the new TUPE Regulations 2006 do not deal with an issue of growing importance - the application of the Regulations to transnational transfers of undertakings and offshoring. The position is so uncertain in this regard that the EC is currently considering amendments to Directive 200 1/23/EC to make it clearer what happens when an undertaking or part of an undertaking is transferred from one member state to another.
This feature
was written by Dr John McMullen ,partner and head of
employment law at Watson Burton LLP and professor of labour law at the
University of Leeds (john.mcmullen@watsonburton.com).
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Transfer of Undertakings (Protection of Employment) Regulations 2006 3 A relevant transfer (1) These Regulations apply to - (a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity; (b) a service provision change, that is a situation in which - (i) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("a contractor"); (ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person ("a subsequent contractor") on the client's behalf; or (iii) activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf, and in which the conditions set out in paragraph (3) are satisfied. (2) In this regulation "economic entity" means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary. (3) The conditions referred to in paragraph (1 )(b) are that - (a) immediately before the service provision change - (i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of activities concerned on behalf of the client; (ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and (b) the activities concerned do not consist wholly or mainly of the supply of goods for the client's use. (4) Subject to paragraph (1), these Regulations apply to - (a) public and private undertakings engaged in economic activities whether or not they are operating for gain; (b) a transfer or service provision change howsoever effected notwithstanding - (i) that the transfer of an undertaking, business or part of an undertaking or business is governed or effected by the law of a country or territory outside the United Kingdom or that the service provision change is governed or effected by the law of a country or territory outside Great Britain; (ii) that the employment of persons employed in the undertaking, business or part transferred or, in the case of a service provision change, persons employed in the organised grouping of employees, is governed by any such law; (c) a transfer of an undertaking, business or part of an undertaking or business (which may also be a service provision change) where persons employed in the undertaking, business or part transferred ordinarily work outside the United Kingdom. (5) An administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities is not a relevant transfer. (6) A relevant transfer - (a) may be effected by a series of two or more transactions; and (b) may take place whether or not any
property is transferred to the transferee by the transferor. |
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Transfer of Undertakings (Protection of Employment) Regulations 2006 4 Effect of relevant transfer on contracts of employment (1) …a relevant transfer shall not operate so as to terminate the contract of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee. … (4) Subject to regulation 9, in respect of a contract of employment that is, or will be, transferred by paragraph (1), any purported variation of contract shall be void if the sole or principal reason for the variation is - (a) the transfer itself; or (b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce. (5) Paragraph (4) shall not prevent the employer and his employee, whose contract of employment is, or will be, transferred by paragraph (1), from agreeing a variation of that contract if the sole or principal reason for the variation is - (a) a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce; or (b) a reason unconnected with the transfer. … (9) Subject to regulation 9, where a relevant transfer involves or would involve a substantial change in working conditions to the material detriment of a person whose contract of employment is or would be transferred under paragraph (1), such an employee may treat the contract of employment as having been terminated, and the employee shall be treated for any purpose as having been dismissed by the employer. (10) No damages shall be payable by an employer as a result of a dismissal falling within paragraph (9) in respect of any failure by the employer to pay wages to an employee in respect of a notice period which the employee has failed to work. … 7 Dismissal of employee because of relevant transfer (1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the 1996 Act (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is - (a) the transfer itself; or (b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce. (2) This paragraph applies where the sole or principal reason for the dismissal is a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer. (3) Where paragraph (2) applies - (a) paragraph (1) shall
not apply; |
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Transfer of Undertakings (Protection of Employment) Regulations 2006 11 Notification of employee liability information (1) The transferor shall notify to the transferee the employee liability information of any person employed by him who is assigned to the organised grouping of resources or employees that is the subject of a relevant transfer - (a) in writing; or (b) by making it available to him in a readily accessible form. (2) In this regulation … "employee liability information" means - (a) the identity and age of the employee; (b) those particulars of employment that an employer is obliged to give to an employee pursuant to section 1 of the 1996 Act; (c) information of any - (i) disciplinary procedure taken against an employee; (ii) grievance procedure taken by an employee, within the previous two years, in circumstances where the Employment Act 2002 (Dispute Resolution) Regulations 2004 apply; (d) information of any court or tribunal case, claim or action - (i) brought by an employee against the transferor, within the previous two years; (ii) that the transferor has reasonable grounds to believe that an employee may bring against the transferee, arising out of the employee's employment with the transferor; and (e) information of any collective agreement which will have effect after the transfer, in its application in relation to the employee, pursuant to regulation 5(a). (3) Employee liability information shall contain information as at a specified date not more than 14 days before the date on which the information is notified to the transferee. (4) The duty to provide employee liability information in paragraph (1) shall include a duty to provide employee liability information of any person who would have been employed by the transferor and assigned to the organised grouping of resources or employees that is the subject of a relevant transfer immediately before the transfer if he had not been dismissed in the circumstances described in regulation 7(1), including, where the transfer is effected by a series of two or more transactions, a person so employed and assigned or who would have been so employed and assigned immediately before any of those transactions. (5) Following notification of the employee liability information in accordance with this regulation, the transferor shall notify the transferee in writing of any change in the employee liability information. (6) A notification under this regulation shall be given not less than 14 days before the relevant transfer or, if special circumstances make this not reasonably practicable, as soon as reasonably practicable thereafter. (7) A notification under this regulation may be given - (a) in more than one
instalment; |
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Abels v
Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] ECR 469 |
1www.opsi.gov.uk/si/si2006/20060246.htm.
2It should be noted that reg. 3(1)(b) categorising a service provision change as a relevant transfer does not apply to Northern Ireland.
3www.dti.gov.uk/er/individual/tupeguide2006regs.pdf (PDF format, 163K).
4www.dti.gov.uk/er/tupe_govtresponse_feb06.pdf (PDF format, 108K).
