On 15 March the DTI published the long awaited draft revised TUPE Regulations (Transfer of Undertakings (Protection of Employment) Regulations 2005) and a public consultation document. The Regulations safeguard employee's rights when the business in which they work transfers between employers.
The Government has already taken firm decisions on the policy issues underlying the reform of the Regulations following its earlier consultation. This new consultation document therefore only has limited scope, mainly seeking views on whether or not the draft revised Regulations correctly and effectively implement the Government's policy decisions on the reform of TUPE.
Following the consultation exercise (which closes on 7 June), new Regulations will be laid before Parliament at the beginning of July 2005. They are due to come into effect on 1 October 2005. Transitional provisions will be considered during the consultation period and added before the Regulations are finalised.
A key change in the revised Regulations is to bring "service provision changes", which cover contracting out and outsourcing, within its scope. The new Regulations make it clear that service provision changes will, subject to certain specific exceptions, be comprehensively covered by the legislation. Service provision changes involving professional business services may be an exception and this is one policy question on which the Government has yet to take a firm decision and on which consultation is invited. The service provision changes mean that TUPE will normally apply, even if the incoming contractor intends to carry out the service activities in a novel manner. The Government's key policy objective is to create a "level playing field" in tendering exercises and increase certainty and confidence for all concerned.
The revised Regulations state when changes to terms and conditions of employment connected with a transfer can be effective, in an effort to override conflicting case law. The Regulations state that changes for which the sole or principal reason is the transfer itself, or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (ETO), will be void and ineffective. However where the sole or principal reason for the change is not the transfer itself, but is a reason connected with the transfer that is an ETO reason, they will be effective, subject only to their being agreed in the usual way. If there are changes for which the sole or principal reason is unconnected with the transfer, the Regulations are irrelevant and have no bearing on the changes, even though they may have been made around the time of such a transfer.
The Regulations also clarify transfer–related dismissals in a similar way. Only dismissals for which the sole or principal reason is the transfer itself, or a reason connected with the transfer that is not an ETO reason, will be automatically unfair. However where the sole or principal reason for the dismissal is not the transfer itself, but is a reason connected with the transfer that is an ETO reason, such dismissals will be potentially fair, subject to the normal test of reasonableness. If there are dismissals for which the sole or principal reason is unconnected with the transfer, the Regulations are irrelevant and have no bearing on the dismissal, even though the dismissals may have been made around the time of such a transfer.
The Regulations introduce a new requirement on the old employer (transferor) to notify the new employer (transferee) of the identities of the employees, and of all the associated rights, liabilities etc, that will pass across in the transfer. This has been refined substantially from the original proposals in 2001. The provisions do formalise common legal/business practice arrangements, although there is some flexibility as notification can be made in instalments and indirectly through a third party. It is anticipated that where the transferor breaches the notification requirements the transferee will be able to present a complaint to the High Court which can impose a fine of up to £75,000. This replaces the original proposal of the transferor giving an unlimited indemnity for un-notified liabilities. Although the Employment Tribunals may not be the appropriate judicial forum to consider such cases it is unusual for the High Court to be involved in employment disputes or to impose fines. Comments are invited on this by the DTI.
There are significant changes to provide greater flexibility in the Regulations' application in certain cases where the transferor is insolvent, in line with the Government's policy to promote the "rescue culture". In particular the Regulations provide for an insolvent transferor's relevant debts not to pass to the transferee. However it is important to note that this only applies to specific types of insolvency proceedings and this does not encompass all debts, but only sums payable under the "relevant statutory schemes". Debts that either fall outside the statutory schemes or exceed the statutory upper limits on payments under those provisions will still pass to the transferee. Provided the transferor is in one of the specific types of insolvency proceedings described, the Regulations also permit changes to be made to terms and conditions of employment, even where there is no ETO reason, provided they are agreed with "appropriate representatives", and not directly with the employees themselves.
Liability for awards for failure to inform and consult has also been addressed and the new Regulations provide for the transferor and transferee to be jointly and severally liable for any award of compensation made by an Employment Tribunal for failure by the transferor to comply with TUPE information and consultation requirements. "Protective awards" made by an Employment Tribunal for failure by the transferor to comply with information and consultation requirements in relation to collective redundancies have not been addressed. However views are welcomed on this issue.
