Employment Law ChangesTUPERussell Brimelow and Jonathan Carr23 April 2013
What we will cover• Quick recap of TUPE• Recent case law – eroding the certainty of service provisionchanges• The Government‟s proposals for reform of TUPE – what islikely to happen and when• What practical steps should you be taking in readiness forthe changes to TUPE and in light of recent cases
Quick recap ...• The Transfer of Undertakings (Protection of Employment)Regulations 2006• Implements the Acquired Rights Directive so similar lawsexist throughout the EU (but some important differencesapply)• Main aim: ensure employment of employees assigned to aparticular business (or identifiable part) transferwhen that business is sold or taken over byanother employer.
TUPE 1981• TUPE 1981 - a single test A transfer of an economic entity (an organised grouping of resourceswhich has the objective of pursuing an economic activity) whichretains its identity (“Old TUPE”); Focused on extent to which main assets of business had transferredor been acquiredE.g. premises, clients, IP, equipment, people etc. Later cases suggested the transfer of people but littleor no other assets may be enough in labour intensiveundertakings Led to confusion and ambiguity over whether TUPEapplied in outsourcing situations – had the “identity” beenretained?
TUPE 2006• TUPE 2006 – two alternative testsOld 1981 test retained (applicable in business sales)New service provision change (SPC) test added, where“activities” carried on by an organised grouping of employeesare taken over by a third party.SPC includes :Contractor A Contractor BClient
Key points• Employees transfer with: continuity of service same terms and conditions (except pensions)• Difficult to lawfully harmonise terms and conditions with anexisting workforce BUT unlikely to be an issue if the changesoverall are no less favourable• Information and consultation obligations apply• Transferor required to provide “employee liability information”to Transferee pre transfer
Key points• Automatic unfair dismissal of employee if dismissed byreason of the transfer or for a reason connected with thetransfer that is not “an economic technical or organisationreason entailing changes in the workforce” (ETO)• Redundancy will usually be an ETO.• Sometimes difficult to identify who is assigned to theorganised grouping of resources• Transferee inherits any pre-transfer liabilities to transferringemployees and collective agreements
Service provision changes• For a service provision change to applyThere must be an organised grouping ofemployees situated in the UKthe principal purpose of the organised groupingof employees must be to carry out the activities;Activities must be services based – not wholly or mainlysupply of goods to the client; andIntention must be for transferee to carry out activities otherthan in connection with a single specific event or task of shortterm duration (2012 Olympics held out as an example of theSPC exemption)
Example Service Provision Change - NowUK plc tenders its IT contract every 5 years. A is the incumbentwith 25 people on site. B wins the bid, promising a radicallydifferent approach which will be better and cheaper – with thework being done by its existing remote teams. B doesn‟t needany of A‟s 25 people.• Is this a Service Provision Change?• Who picks up the liability for the 25 people?
Service provision changes• Until 2009/10 prevailing view that SPC was a nearcertainty in outsourcing cases.• Relatively little case law scrutiny of the SPCtest pre 2009/10• Activities need not be identical before andafter the transfer – just “fundamentally oressentially the same” (Metropolitan ResourcesLtd v Churchill Dulwich Ltd)• Case law has been unravelling the SPC testever since and it now looks set to go....
Recent case law – SPCs• Several different themes in cases over last 3-4 years havesignificantly eroded the number of cases in which SPCs arefound to apply:Do the activities remain the same?Is there an organised grouping, organised by reference to theclient?Fragmentation of activities between multiple providersIs it the same client?Meaning of “single specific event or task of short termduration”• Presumption of SPC in outsourcing cases is now dangerous
Do the activities remain the same?• Metropolitan Resources (2009) - minor differences notsignificant but...• Scrutinise the nature of the activityOCS v Jones (2010) – change of food service from preparedhot food to selling packaged sandwiches. Required differenttypes of staff, different facilities etc, so not same activity eventhough at high level summary was still providing lunchtimefood service at car plantNotts Healthcare NHS Trust (2011) – residential care homesclosed, activity switched to home based care – not the same
Do the activities remain the same?• Scrutinise nature of the activity (continued)Johnson Controls (2012) – secretaries took over bookingcabs, not the same as centrally coordinated „middle-man‟service. Look at way work is done, not just tick box approachof what is doneWard Hadaway (2009) – relevant activities defined as work inprogress not expectation of future work so no activitytransferredEnterprise Management (2012) – two activities pre transfer,only one of which continued post transfer (resulted in 15%reduction of work) – held to be significant to scope of activity
Do the activities remain the same?• Still occasional cases leaning the other way:Islington v Bannon (2012) – post transfer some aspects ofactivity abandoned or neglected because of resourcing issues– fact that could not provide the service to the same standardnot material, the activities were still fundamentally the same• So difficult now to know how deeply you need to scrutinisethe activity to look for differences• Prevailing trend in the cases effectively gives clients powerto reduce likelihood of an SPC by altering the nature of theactivity. Transferees may argue doing it a different way
Organised grouping• Must be organised by reference to the clientEddie Stobart (2012) – although employees exclusivelypacked for a particular client by dint of shift pattern, there wasno deliberate planning or intent to organise them by referenceto this client. It was not their principal purpose (perhapssurprising decision on the facts)Seawell v Ceva (2012) – fact that an employee spends amajority or even all of his time on a contract is not necessarilyenough. One person can be an organised grouping but in thiscase the teams were organised by reference to outbound andinbound freight not by reference to this client.
Fragmentation• Where services are so fragmented between multipleproviders that it effectively becomes impossible to determineto which provider particular activities have transferred thenno SPC - Kimberely Housing (2007), Thomas-James vCornwall CC (2007) , Clearsprings Management (2008)• Need to be able to identify specific activities and be able totrace them to a specific transferee employer.
Other important recent cases• McCarrick v Hunter (2012) so SPC where the activitiescarried out by different contractors before and after thechange are not for the same client• Liddell’s Coaches v Cook (2012) – a contract for a singlespecific event need not necessarily be of short term duration.One year contract to decant children temporarily to analternative school was a single specific event• Spaceright Europe Ltd v Baillavoine (2011) A pre-transferdismissal can be "connected with the transfer“ regardless ofwhether the identity of the transferee was known at the time
Govt AnnouncesTUPE ReformsKey ThemesRemoving “gold plating”where we go further thanEuropean Directive requires -SPCGreater flexibility foremployers (timing of TUPErelated redundancies, andgreater freedom aroundchanges to terms andconditions)Addressing case lawanomalies (ability to claimautomatic unfair dismissal ona detrimental change oflocation)Deregulation andsimplification (electingemployee representatives,employer liability information)Timeline•“Call for evidence” beganNovember 2011•Consultation on proposedchanges began January 2013(just closed)•Confirmation on detail of thereforms awaited (summer2013)•Most changes expected tocome into force in October2013 but SPC abolition maybe delayedThe Daily TUPEgraph- Since 1981
Proposed reforms - SPCs• SPCs – the big changeSPCs to be abolished – so back to the old 1981 testMay cause uncertainty in the short term in outsourcing casesbut not much certainty under current case law anyway!Will be winners and losers – main losers will be incumbentemployers who may be left with staff or big redundancy billswhen they lose contractsImplementation of this change may be delayed a few years forthis reasonGovernment considering over-ruling ECM v Cox (TUPEdeemed will still apply if transferee avoids taking on staff to tryto circumvent TUPE)
Example Service Provision Change –After SPC‟s are abolishedUK plc tenders its IT contract every 5 years. A is the incumbentwith 25 people on site. B wins the bid, promising a radicallydifferent approach which will be better and cheaper – with thework being done by its existing remote teams. B doesn‟t needany of A‟s 25 people• Is this covered by TUPE?• Who picks up the liability for the 25 people?
Proposed reforms – ELI• Requirement to provide employee liability information to bescrapped• Transferor and transferee left to sort out and agree whatinformation to be given, under threat of potential informationand consultation liabilities if they don‟t act sensibly. Fine forbusiness sales where parties have a contracting relationshipbut will be a lottery with many outsourcing cases (wherecompetitors out to make life difficult for each other)
Proposed reforms – changing terms• Government‟s hands are partly tied by EU law but reformswill mirror continental approach of giving most freedompermitted by the Directive• TUPE 2006 went too far (probably by mistake) so this iswidely welcomed• Variations by reason of the transfer will still be void (unlessthe employer has an ETO) but not those for a reasonconnected with the transfer• Unlikely to make a massive difference in practice but manybusinesses already adept at tip-toeing round this problem
Proposed reforms – location changes• Technical problem currently exists that a change ofworkplace location on a transfer:May be a material detriment under 4(9)Current lawOften won‟t have a valid ETO defence because does not entail“changes in the workforce”So in theory can amount to an automatic unfair dismissalwithout the transferee doing anything other than being basedin a different location• Government will overrule this so a change in workplacelocation in the context of a TUPE transfer is treatedconsistently with an ordinary redundancy and on merit
Other Proposals for reform• Rectifying case law anomalies:Permitting consultation by the transferee with employeerepresentatives of the transferring employees before thetransfer date to count towards any collective redundancyconsultation obligationstransferor employers should be able to fairly dismissemployees before the transfer date, relying on the transferee‟sETO reason• Allowing small employers (<10 employees) to inform andconsult with employees directly and dispense with electingrepresentatives
The practical stuff....• There will be winners and losers from the demise of SPCs• The impact may partly depend on whether the Governmentopts for a long lead in time before SPCs are abolished• A long lead in time will allow for many contracts to expirenaturally under the current regime or at least give the partiestime to adjust their planning• Given case law has eroded the application of SPCs anywayand the Government is keen to be seen to help businessesin the current climate, it may opt to make the change sooner
Are you an incumbent service provider?• You probably entered many of your current client contracts inthe belief that assigned employees would transfer on at theend of each contract. Now they may notThink about whether you meet the test for an “organisedgroup” and can evidence they are organised by reference tothe clientWill you have a TUPE 1981 (old test) argument to fall backon? Is the service labour intensive? Will a new providerrequire some employees for continuity?Review your contract terms – do any operate independently ofTUPE to share redundancy costs or protect you in other ways?
Are you an incumbent service provider?Think about a contingency budget for redundancy costsCan you redeploy staff in the latter stages of the contract ornot replace natural attrition to minimise potential redundancycosts?Consider now whether any applicable redundancy terms maybecome prohibitively expensive if TUPE doesn‟t apply and youare forced to make many more redundanciesIs there merit in having a proactive discussion with the client toextend the contract to defer the issue and give longer termcertainty – exercise care until the date for SPC abolition isconfirmed
Are you a client?• Do you want to alter the activities/services in some way toreduce the likelihood of employees transferring back to youor to a successor provider under the current regime?• An outgoing service provider will soon not be required toprovide any employee liability information – make sure youhave a contractual right to require this in good time and canshare it with bidders and the eventual replacement• You may be expecting the service provider‟s staff to transferat the end of the contract to you or a new provider. If theydon‟t is that a continuity problem?
Are you a prospective service provider?• Factor into pricing the likelihood that staff will probably nottransfer on expiry/termination or negotiate some contributionto any necessary future redundancy costs• Ensure the contract addresses both possibilities of TUPEapplying and not applying at the end• Scrutinise extra carefully any contractual redundancy termsor long notice terms which apply to staff that will transfer toyou on the commencement of the services. This maymaterially affect your costs on exit
Are you a prospective service provider?• Don‟t accept that SPC will apply at the moment withoutanalysing whether the incumbent has an organised groupingof employees organised by reference to the client andwhether the activities are essentially the same• Ideally, ensure you have some contractual flexibility toredeploy staff in the latter stages of a contract• If the changes mean you are likely to carry staff or operate abench arrangement between contracts, look at employmentand remuneration structures to reduce unnecessaryoverheads