Forthcoming changes to the TUPE Regulations: frequently asked questions

Sarah-Marie Williams of Clyde & Co answers frequently asked questions on the forthcoming Transfer of Undertakings (Protection of Employment) Regulations 2005.

When are the Transfer of Undertakings (Protection of Employment) Regulations 2005 due to come into force?

The Regulations are expected to be laid before Parliament in autumn 2005 and brought into force in April 2006.

What will the main changes to the law be?

The revised Regulations will involve an extension of the coverage of TUPE, as they will make it clear that TUPE applies where there is a change in service provider. There will also be increased transparency in respect of information provision: the original employer, the transferor, will be required to inform the new employer, the transferee, of the identity of each transferring employee and of all related rights and liabilities that will pass across on the transfer.

In addition the Regulations will provide clarification on changing terms and conditions and transfer-related dismissals. Under the new Regulations employees will be able to agree to changes to their terms of employment for reasons connected to the transfer where there is an economic, technical or organisational reason (ETO reason) for the changes.

There will also be greater flexibility where the transferor is insolvent. Where it is subject to administration, company or individual voluntary arrangements or creditors' voluntary winding-up, the new Regulations will offer two ways of promoting the transfer of the business as a going concern, to the benefit of the purchaser.

How will the new Regulations change when TUPE applies?

The new Regulations introduce a new definition of a relevant transfer in relation to a change of service provider. This will extend the scope of TUPE to mean that, subject to limited exceptions, it will apply to the contracting out of services, the changing of a contractor and the bringing of a service back in-house. Put simply, the new Regulations state that, provided that the service activities cease by one contractor (the transferor) and are taken up by a new contractor (the transferee), and that prior to the changeover there was an organised grouping of employees whose principal purpose was to carry out the activities in question, there will be a transfer.

Will the existing definition of a TUPE transfer still be relevant?

Yes, the existing definition of a TUPE transfer will be retained. The new definition is an alternative definition to be used in relation to service provision changes. Other transactions will still be covered by the existing rules on TUPE. In addition, if a service provision change falls outside the new definition, the existing definition of a relevant transfer must then be considered.

Do the new Regulations impose any penalty on the transferor for failure to comply with the new notification requirements?

Where the transferor breaches the new obligation to notify the transferee of 'all employment liability information' the High Court may order it to pay a penalty up to a maximum of £75,000. This is payable to the transferee rather than to a government body. It has been suggested that this may prove to be an incentive to transferees to apply to the High Court to assert any breaches of this unquestionably wide obligation, which covers both express and implied duties.

Will the transferee be able to harmonise the terms and conditions of transferring employees with those of its existing workforce when the new Regulations come into force?

The new Regulations state that transfer-related changes to the terms and conditions of transferring employees are not precluded provided that they are not as a result of the transfer (but only for a reason connected to it), that they are made for an ETO reason entailing a change in the workforce and that the employees' consent is freely given. Under UK case law, however, for an ETO reason to apply the employer's plan must be to 'change the overall numbers or the functions of the employees comprising the workforce'. It therefore seems unlikely that harmonising the terms and conditions of transferring employees will amount to an ETO reason. As a result, any such changes under the new Regulations are still likely to be void if they are connected with the transfer, even if the employees' consent is given.

Next week's article will consist of a TUPE checklist.

Sarah-Marie Williams is a solicitor at Clyde & Co (sarah-marie.williams@clydeco.com)

Further information on Clyde & Co can be accessed at www.clydeco.com