Member Article

Much has been written about this Bill and the potential impact that it could have on UK law.  Most of this has been directed towards the potential negative consequences, including how numerous protections provided to employees by EU law might be removed. 

If you are not already aware, the Bill, if passed in its original form, means that all law that is derived from the UKs membership of the EU will cease to have legal effect on 31 December 2023 – the sunset date. The only way to avoid a law being subject to the sunset date is for it to be reviewed and restated in new UK legislation.  Alternatively, a minister can delay the sunset date for specific pieces of EU law but only until a longstop date of 23 June 2026 – the tenth anniversary of the referendum in which the UK voted to leave the EU.

Whilst recognising the potential problems, what if instead of focusing on the negatives, we look at the opportunity this legislation gives us? In this series we do just that – we consider those pieces of law that cause employers the biggest headaches and suggest how we might make them better.  

What better place to start than TUPE?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

The original version of TUPE, added to the statue books back in 1981 when Soft Cell were crooning Tainted Love, was implemented on the back of the EEC Council Directive of 14 February 1977 which became known as the Acquired Rights Directive (ARD).

The essential purpose of the ARD and the subsequent TUPE Regulations was to safeguard the employment of employees in circumstances where the business or part of the business within which they were employed was sold or transferred to another organisation.  

TUPE was updated in 2006 to create the ‘service provision change’, a principle that is an extension of the rights originally detailed within the ARD and which is unique to the UK. Interestingly, should TUPE not be subject to renewal under the Bill, the service provision change regime would survive the sunset provision and stand alone and would presumably need separate legislation to specifically repeal it from the statute books.

All good so far but the devil, as always, is in the detail and those who come across TUPE with any regularity will be well acquainted with its limitations.

Changes to contractual terms

The protection of contractual rights is found within Regulation 4 of TUPE and directs that any variation to the terms and conditions of the contract of employment, where the reason or principal reason for that variation is the transfer itself, will be void. Contrary to popular myth, there is no longstop date to this protection – should a variation that takes place five years (or more) post transfer be seen to be connected to the transfer itself, the variation will be void.  

The only exception for an employer is to show that the sole or principal reason for the variation is an “economic, technical or organisational reason entailing changes in the workforce, provided that the employer and employee agree that variation” – the ETO defence. Employers have not always found it easy to satisfy the requirements of the ETO defence and have paid the price when failing to do so –where the ETO defence fails, the employee can essentially choose the elements of the original and new contract to which they wished to be held i.e., cherry pick the contractual terms that they want. 

This is obviously a less than ideal situation, so why not change it when we have the chance?

Wish list item

UK employment law already provides protection (through breach of contract and/or constructive unfair dismissal) to an employee who has the terms of their contract of employment varied unilaterally by their employer. With such protection in place, would it undermine the principles of TUPE if the receiving employer was able to make changes at a later date without being subject to additional risks?

On a sliding scale, we suggest that alternative options include:

• Allow harmonisation (from day 1) to the terms and conditions which apply to the majority of the transferee’s (receiving employer) workforce, or at least those terms and conditions which are the most advantageous to that workforce;
• Apply a longstop date so that only changes made to the contract within say 12 months of the transfer are void;
• Allow the parties to agree contractual variations.
• A combination of the above i.e. no changes within the first 12 months and thereafter only by agreement.

Changes to consultation obligations

Regulation 13 imposes the obligation on employers to inform and consult representatives. In the absence of a recognised trade union or an existing and authorised consultative group, representatives must be elected by their peers before consultation can commence.  

The consequences for an employer of getting the process wrong are significant, with employees able to claim a protective award of 13 weeks’ pay per affected employee. Claims do not need to be brought by each affected employee either and therefore a claim by a single affected employee could result in dozens or even hundreds of affected employees benefitting from the judgment.

There are a number of questions which are not easily determined by TUPE currently, from what should employers really be consulting about? to how long should it last? and who is an affected employee?

While the answer to many of these questions can be found in case law, it would obviously be much more straightforward for employers for TUPE to provide the answers.

Wish list items

Options for amending Regulation 13 could include:

• Apply the same collective consultation provisions as we have with redundancy situations e.g if there are fewer than 20 employees who are proposed to transfer, the collective consultation obligations do not apply;
• Clarify that where the transferee does not intend to apply any measures to the transferring employees no consultation is required;
• Provide minimum timescales for any consultation process to take place;  
• Limit consultation obligations to those who are in scope to be transferred under TUPE. 

Pensions

Regulation 10 excludes certain parts of an employers’ pension scheme from the automatic transfer provisions of Regulation 4. However, Regulation 10(2) means that any provision of the pension scheme that relates to benefits for old age, invalidity or survivors fall outside of the exemption and do transfer under TUPE.

Put simply, contractual rights that might be associated with the pension scheme such as the right to early pension in the event of a redundancy and the right to retire early therefore transfer under Regulation 4. In addition, a contractual right to receive specific contributions into the pension scheme will also transfer, even if there is no specific right for those contributions to be paid into a particular scheme.  

Wish list item

TUPE would be much more straightforward for all concerned if the provisions simply stated that the only obligation to be imposed on the transferee was to replicate the contributions that were being made into a defined contribution (i.e., not final salary) pension scheme.

Part 2 in this series will consider amendments to the Working Time Regulations and The Agency Worker Regulations.

 

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