The TUPE Regulations 2006: an overview

Sue Nickson, Partner and International Head of Employment at Hammonds, begins a series of articles looking at the TUPE Regulations 2006 with an overview of the forthcoming changes.

The Government has recently issued the final version of the Transfer of Undertakings (Protection of Employment) Regulations 2006. They are due to come into force on 6 April 2006 and will apply to any transfer that takes place on or after this date. The final version of the Regulations does not differ substantially from the draft that was put out for consultation last year, with the exception of the employee liability information provisions, which have been extensively revised.

Below is a summary of the key provisions of the new Regulations.

Greater coverage of service provision changes

A great deal of uncertainty has revolved around the extent to which TUPE applies to 'service provision changes', an expression commonly used to encompass the contracting-out of in-house services, the switching of contractors and the transfer of services back in-house. This has particularly been the case with service provision changes involving labour-intensive contracting operations such as cleaning, catering and security.

The Regulations state that if there is a change in service provision (ie contracting-out, second generation contracting-out or contracting-in) and immediately prior to the change there was an organised group of employees dedicated to providing the service, there will be a TUPE transfer. Almost all outsourcing situations will be covered under the TUPE Regulations 2006. As tribunals will no longer need to focus on such matters as the intention of the parties or whether assets and/or employees transfer, this should, in theory, lead to greater certainty in this area.

There will be a few exceptions to this general rule. The Regulations will not apply:

The Government has dropped its proposal to create an exception with regard to professional business services, eg where a client engages a firm of accountants, lawyers, etc to provide it with advice on an ongoing basis but then changes accountants, lawyers, etc. Both clients and providers of professional services should be aware of the obvious inadvertent side effect of maintaining dedicated client service teams that may constitute 'an organised group of employees dedicated to providing the service'.

Transfer-related dismissals and changes to terms and conditions

The TUPE Regulations 2006 aim to clarify the circumstances where an employer can dismiss an employee in the context of a TUPE transfer.

The Regulations make it clear that a dismissal will be automatically unfair if the sole or principal reason for the dismissal is the transfer or a reason connected with the transfer that is not an economic, technical or organisational (ETO) reason entailing changes in the workforce. This would cover, for example, the situation where employees are dismissed simply because the transferee does not wish to take them on. The scope of 'entailing changes in the workforce' is not altered by the TUPE Regulations 2006 - the Regulations still require that the employer's plan in making the dismissal in question is to change the overall number or the functions of employees comprising the workforce.

If, however, an employer can provide an ETO reason, eg a redundancy situation, then the dismissal will potentially be fair (subject to the normal rules governing the fairness of a dismissal), even if the dismissal is for a reason connected with the transfer.

The Government has applied the same principles to changes in terms and conditions. Under the TUPE Regulations 2006, an employer will be able to change the transferring employees' terms and conditions if:

An employer will still not be able to change the transferring employees' terms and conditions if:

Unfortunately, the TUPE Regulations 2006 will not make it any easier to determine whether a change is connected with the transfer. Moreover, they do not assist in identifying circumstances where changes to the transferring employees' terms and conditions would also entail changes to the workforce.

Notifying the transferee of employee liability information

The TUPE Regulations 2006 introduce a requirement on a transferor to notify a transferee of the following information about the transferring employees:

As a general rule, this information should be provided in writing at least two weeks before the transfer.

The transferor will also be required to notify the transferee in writing of any changes in the information between the time of first notifying the transferee and the actual completion of the transfer. This provision is designed to prevent a transferor (especially in second generation contracting-out situations) making changes to terms and conditions or staffing up the departing contract with its 'deadwood' workers shortly before the transfer in an attempt to benefit itself or disadvantage the transferee.

If a transferor fails to comply with its obligations, the transferee will have the right to bring a claim to an employment tribunal and may receive compensation of at least £500 per employee in respect of whom the information is not supplied.

However, any failure by the transferor to meet the requirements outlined above would not affect the actual transfer of employee rights and obligations on a TUPE transfer.

This change will be of particular interest to contractors in, for example, a second generation contracting-out situation where currently the outgoing contractor is under no legal obligation to provide such information to the incoming contractor and often chooses not to do so.

Failure to inform and consult

The provisions requiring the transferor and transferee to inform and, in some circumstances, consult with appropriate representatives on a TUPE transfer will remain largely unaffected. The only significant change to be aware of is that the TUPE Regulations 2006 provide that the transferor and transferee may be held jointly liable for any award of compensation made by an employment tribunal in respect of a failure by the transferor to comply with its information and consultation obligations.

Pensions

The position with regard to occupational pension schemes will not change under the TUPE Regulations 2006; it will remain the case that any rights under or in connection with such schemes that relate to old age, invalidity or survivor benefits will not transfer on a TUPE transfer. Since 6 April 2005, however, transferees have been required to provide pension benefits for transferring employees in certain circumstances following a TUPE transfer. These changes were brought in under the Pensions Act 2004.

Public sector employees will remain largely unaffected by these changes, as the Government's policy is that former public sector employees who transfer to the private sector should continue to have pension provision made for them.

Insolvency

The TUPE Regulations 2006 contain a number of new provisions relating to insolvent businesses, the aim of which is to promote the sale of such businesses as going concerns. The Regulations provide that some of a transferor's pre-existing debts will not pass to a transferee on a relevant transfer. They also give transferees greater scope to change employees' terms and conditions after the transfer has taken place.

Conclusion

Will the TUPE Regulations 2006 make things clearer? The jury is still out on this issue. While the Regulations introduce a marginally greater degree of certainty in the field of outsourcing, they still contain a number of grey areas that will inevitably result in continued litigation in the tribunals and courts.

Next week's article will consist of a case study looking at the notification of employment liability information in transfer situations under the TUPE Regulations 2006.