What is the practical impact of January’s changes to TUPE, asks Jeffrey Jupp.
Where Are We Now?
It is three months since the majority of the changes to the legislation protecting employees’ terms and conditions on the transfer of an undertaking came into force. Employers and their advisers are now starting to focus on what the changes mean in practice. This article considers the main changes and some of the practical issues being thrown up.
Service Provision Changes
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) have been amended to introduce a new regulation 3(2A). This provides that for there to be a service provision change transfer, the activities carried out post-transfer must be ‘activities which are fundamentally the same as the activities’ carried out pre-transfer. This merely reflects the way in which the regulations had been interpreted before the amendment (see Metropolitan Resources Ltd v Churchill Dulwich Ltd (In liquidation) ). Nevertheless, for employers who are taking over a service, it has brought into sharper focus that to avoid a service provision change transfer, the activity which forms the service after the transfer must not be fundamentally the same as that before the transfer. In assessing whether the activity is fundamentally the same, the employment tribunals will ignore minor changes to the service. For example, a change in the location from which the service is provided or the fact that a relatively small additional service is added will not render the activity fundamentally different.
In many cases, the employer taking over the service will have little influence over the nature of the service being transferred, particularly where a client is transferring the service from one contractor to another. However, where the client is bringing the service back in-house, there is considerable opportunity to redesign it or combine it with another service to ensure that it is not fundamentally the same as the service provided before the transfer.
In other cases, the client may, for budgetary or other reasons, significantly change the nature of the service following the transfer, which may give the transferee scope to avoid a service provision change transfer. Even if it does so, however, the transferring staff may still be able to argue that there is an ‘old style’, Regulation 3(1)(a) transfer.
Variations & Dismissals Because Of The Transfer
The regulations have been amended to remove from their protection cases where the reason or principal reason for a variation to an employee’s terms and conditions or for an employee’s dismissal is ‘a reason connected with the transfer’ and not ‘the transfer itself’. The aim was to bring the regulations in line with Article 4(1) of the Acquired Rights Directive and the European Court of Justice (ECJ) case law (in particular Foreningen af Arbejdsledere I Danmark v Daddy’s Dance Hall A/S ).
However, the ECJ case law is not entirely consistent on this point, with a passage in Martin v South Bank University  suggesting that the Directive does apply to those cases where the variation is for a reason connected to the transfer (see paragraphs 44 and 45). Indeed, in that case, the ECJ appeared to suggest that whether the reason was ‘the transfer itself’ or a reason ‘connected to the transfer’ amounted to the same thing. This gives transferees significant scope to argue that the reason for the particular variation or the dismissal (as the case may be) was merely connected to the transfer.
Where the transferee wishes to harmonise terms and conditions for reasons not directly connected with the transfer, it would, nevertheless, be well advised to wait for some time before it implements any changes. Putting some distance between the date of the transfer and the variation will weaken the link between the two, making it less likely that the reason for any change will be held to be the transfer itself.
ETO Defence & Change Of Workplace Location
An economic, technical or organisational (ETO) reason is a permissible reason for varying contracts or dismissing employees. An ETO reason now expressly includes a change in workplace location, and this defence may be used even if the numbers and functions of the transferred employees remain the same. While transferees will take some comfort from this, there is an argument that such a change is inconsistent with the Directive and is therefore likely to be challenged at some point. In any event, the usual redundancy process will have to be followed to ensure that any dismissal is fair on ordinary principles.
Collective Redundancy Consultation
A new s198A has been inserted into the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which entitles a transferee to elect to carry out collective consultation for redundancy before the transfer takes place. The transferee will only be able to do so if it has the consent of, and has given written notice to, the transferor.
There are a number of practical details that any transferee will have to consider before embarking on pre-transfer redundancy consultation. For example, cooperation with the transferor will be important because the transferee will need to acquire a great deal of information about the roles, responsibilities and skills of the affected employees if the consultation is to be effective and adequate. The difficulty for the transferee is that there is no obligation on transferors to assist in this process. So unless the matter can be covered by contractual indemnities between the two parties, the transferee will have no leverage to force the transferor to help.
There are two changes regarding collective agreements. First, regulation 4(5B) of TUPE permits the transferee to vary the terms derived from a collective agreement where that variation will:
This latter requirement could cause difficulty if an employee initially agrees to a variation but has second thoughts and tries to argue that the new terms leave them worse off. If that argument succeeds, then the varied terms will not be binding.
It is also important to note that this provision does not affect any rule of law on whether the contract is effectively varied. For example, under s145B TULRCA, an employer cannot negotiate individually with an employee to vary their terms of employment if:
Section 145E(4) TULRCA provides that if the acceptance of the employer’s offer results in the employee agreeing to vary their contract, the employer cannot enforce that agreement unless it has already taken effect. This means that, in some circumstances, an employer might not be able to vary terms without falling foul of s145B and, in some cases, the variation may not be binding. Transferees will therefore have to be very careful if they negotiate directly with employees over variations to terms incorporated by collective agreements where there is a collective bargaining process in place.
The second significant change is the codification of the ECJ decision in Parkwood Leisure Ltd v Alemo Herron . This held that the Acquired Rights Directive requires a ‘static’ and not a ‘dynamic’ interpretation of collective agreements. Therefore if, following the transfer, changes are made to a collective agreement, then this will not be binding on the transferee unless it has participated in the collective bargaining process which led to that change. In those circumstances, any employee’s contract is to be read as if the new provision was not incorporated (see Regulation 4A(2) of TUPE).
Before the transfer, transferees should seek to establish the scope of any collective agreements and make it clear whether they will or will not participate in the collective bargaining arrangements that are in force between the transferor and the employees. In some cases, the transferee will not be permitted to participate in the collective process and in others it will not wish to do so.
In summary, whilst the changes to TUPE are not nearly as radical as first proposed, transferee employers, in particular, will have to consider very carefully whether they wish to engage with some of the new provisions such as those that deal with pre-transfer redundancy consultations and varying terms and conditions derived from collective agreements as these could give rise to a number of difficulties.
The article first appeared in the May 2014 issue of Employment Law Journal, published by Legalease.