Partner Article

TUPE: The facts and the realities...

If you have not already come across the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), you are probably wondering what it is?

Well, TUPE is there to protect employees if the business in which they are employed changes hands. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer, writes Shiva Shadi, head of employment at Davis Blank Furniss.

Businesses that have come across it will be aware of how significant TUPE can be on a business transaction.

In 2006, the government amended TUPE to provide protection to employees in the event of outsourcing and in-sourcing of work.

Therefore, if a company engages a contractor to do work on its behalf, or engages a different contractor to do that work in place of the first contractor, or subsequently decides to bring the work “in-house”, this would be deemed to be a service provision change under TUPE.

The consequences of TUPE applying are that if a company decided to engage a contractor to undertake its payroll work, all of the payroll staff at the company would automatically transfer to the contractor and become the contractor’s employees with their length of service record preserved.

If any attempt was made by the contractor to terminate their employment purely as a result of the transfer, it would be deemed to be automatic unfair dismissal, entitling them to bring a claim.

Many commentators have argued that the introduction of these service provision changes was simply ‘gold plating’ of the European Directive that required the UK government to introduce TUPE, as it went further than necessary. In response, the government commissioned a Call for Evidence:

Effectiveness of TUPE in November 2011 to address the concerns that the service provision changes were difficult to navigate and could result in unintended outcomes as some businesses do not necessarily take into account when tendering for work. Further, many businesses argued that it became an added cost and a burden that they had to incorporate when tendering for work.

The government’s consultation on TUPE concluded on 5th September 2013 and it published a response to the proposed changes. Although the government originally promised to repeal service provision changes, it reneged on this.

Its response was that there were compelling arguments against repeal from various respondents to the consultation. It has - however - proposed to amend the legislation to limit the application of service provision changes by stating that they will only apply if the activities carried on after the transfer of work are “fundamentally or essentially the same” as all activities carried on before it.

This change is not necessarily radical, as it reflects the recent existing case law which governed the position in any event.

The government’s justification for refusing to repeal this overly-complex area is that it would cause uncertainty and would make commercial transactions involving service provision changes time consuming and costly.

It also believes that the repeal may have potentially caused an increase in contract prices and would result in service providers having to take out long-term indemnities against potential redundancy costs.

Although some argue that it is unnecessary ‘gold plating’ of the European Directive; it appears that service provision changes and its effects on businesses are here to stay.

This was posted in Bdaily's Members' News section by Davis Blank Furniss .