From 6 April 2006, the Transfer of Undertakings (Protection of Employment) Regulations 2006 will come into force. These will replace the well-known 1981 TUPE Regulations. These are the Regulations which make provision for protection of employees where a business is transferred from one entity to another.
Key Changes include
- extending the TUPE provisions to cover service provision changes, that is, where services are outsourced, “insourced” or assigned to a new contractor. However, the supply of goods and “one-off buying-in of services” are excluded;
- requiring the transferor to provide the transferee with certain information about the transferring employees, including their identity;
- making it easier to transfer insolvent businesses to new employers;
- enabling employers and employees to agree changes to the terms of employment in certain circumstances where there is a transfer;
- clarifying when it is unfair for employers to dismiss employees for reasons connected to a transfer;
- making the transferor and transferee jointly and severally liable for any failure to inform and consult with the transferring employees.
As with TUPE 1981, any employees employed in the business immediately before the transfer will be transferred to the transferee; however, TUPE 2006 also transfers any liabilities relating to employees who were dismissed before the transfer for a reason connected with it (regulation 4(3)).
TUPE 2006 will also transfer any collective agreements made with recognised trade unions and any recognition agreements where the business retains a distinct identity following the transfer.
Under TUPE 2006, employees can:
- object to the transfer;
- resign and claim unfair dismissal (but not pay in lieu of notice) if the transfer involves a substantial change in their working conditions to their material detriment.
TUPE 2006 extends the TUPE Regulations to cover situations where a business engages a contractor to do work on its behalf, or changes the contractor or brings the work “in-house” (a service provision change) (regulation 3(1)(b)). However, TUPE cannot apply where:
- the contract is mainly for the supply of goods to the business, for example, the provision of stationery for the business; and where
- the services provided are a one-off event or of a short duration, for example, a plumber brought in to effect repairs; or
- the activities are carried out in connection with a single specific event or a task of short-term duration, for example, a catering company paid for a one-off event (regulation 3(3)(a)(ii)).
The transferor will be required to provide certain information to the transferee before the transfer, namely:
- the identity and age of the employees who will transfer;
- information contained in the employees’ written particulars of employment under section 1 of the Employment Rights Act 1996;
- information on any collective agreements affecting the employees that will apply after the transfer;
- any disciplinary proceedings taken against the employees or grievances brought by them in the last two years; and
- any claims brought by the employees against the transferor in the last two years, and any claims that the transferor reasonably believes might be brought.
The information should be given not less than 14 days before the transfer or as soon as is reasonably practicable (regulation 11(6)). Once the relevant information has been provided, the transferor must provide written notification of any changes (regulation 11(5)).
If the transferor does not provide this information then an employment tribunal can award such amount as it considers just and equitable (having regard to the transferee’s loss and any contractual terms between the transferee and transferor) and:
- at least £500 for each employee in respect of whom the information was not provided (or was defective); or
- a lesser sum if the tribunal considers that it would be unjust or inequitable to award this minimum payment.
TUPE 2006 contains provisions which apply where the transferor is subject to insolvency proceedings and is under the supervision of an insolvency practitioner who is seeking to sell on the business as a going concern.
Some of the existing debts to the employees will be paid by the National Insurance Fund, rather than pass to the potential purchaser (regulation 8). In addition, there will be greater scope to vary employment terms subject to certain provisos (regulation 9).
Under TUPE 1981, any changes to employees’ terms for a reason connected to the transfer were void.
Under TUPE 2006, it will be possible to change employment terms before or after a transfer where the sole or principal reason for the change:
- is unconnected with the transfer; or
- connected with the transfer, but for an economic, technical or organisational reason, entailing changes in the work force (an "ETO reason").
Under TUPE 1981, dismissals are automatically unfair if they are connected to the transfer and there is no ETO reason. TUPE 2006 identifies three categories:
- dismissals where the sole or principal reason is the transfer itself, or is a reason connected with the transfer and there is no ETO reason. These are automatically unfair (regulation 7(1));
- dismissals where the sole or principal reason is not the transfer itself but a reason connected with it and there is an ETO reason. These are potentially fair dismissals, depending on the circumstances (regulation 7(2)); and
- dismissals unconnected to the transfer, where the usual unfair dismissal principles will apply.
Under TUPE 2006 the transferor and transferee will be jointly and severally liable for any failure to comply with the TUPE obligations to inform and consult.
If there is a claim against the transferor for failing to comply with its obligations to inform and consult, the transferor may argue that the transferee’s failure to provide information on its proposed measures in time caused the transferor’s breach. If so, the transferor must tell the transferee that it intends to use this argument and the transferee will become a party to the proceedings (regulation 15(5)).
TUPE 2006 applies to any relevant transfer or service provision change that takes place on or after 6 April 2006 (regulation 21). Any steps taken by the transferor or transferee to inform and consult or to elect employee representatives before 6 April will be treated as discharging their obligations under TUPE 2006. However:
- the employee information does not need to be provided if the transfer takes place before 19 April 2006; and
- there will be no obligation to inform and consult, or elect employee representatives, in relation to service provision changes (that are not also a relevant transfer) that take place on or before 4 May 2006.
The above is a short commentary on the main aspects of TUPE 2006. Further detailed advice should be sought on any particular aspect of the new Regulations if required.