Government’s response to the consultation on reform of TUPE

The Government has published its response to the consultation on reform of the TUPE Regulations 2006.

This article explains the key changes to be made to TUPE in 2014 that will affect independent sector health organisations pursuing contracts for NHS services or other corporate manoeuvres involving a transfer of a business or service and therefore a potential transfer of employees.

Service provision changes are here to stay

Key for employers is that service provision change transfers (SPC) will not be abolished as originally proposed. SPC applies to outsourcing, change of contractors or when a service is brought back in house.

The Government had previously stated that it was not clear about the benefits of the SPC provisions, and considered that the provisions may actually have anti-competitive effects. However, 67 per cent of respondents to the consultation did not support the repeal of the SPC provisions and the Government will retain the provisions accordingly.

One small change is proposed - the SPC definition will be modified to make clear that it only applies if the services carried out by the new provider are "fundamentally or essentially the same" as those before the alleged transfer. This reflects existing case law so will make no practical difference to the application of SPC by the courts.

Employee Liability Information also survives the consultation

The Government had also proposed to abolish the obligation on a transferor to provide Employee Liability Information (ELI) to a transferee. This was opposed by 75 per cent of respondents to the consultation and the obligation will not now be abolished. Instead, ELI will need to be provided to the transferee at least 28 days before the transfer, giving transferees more notice of the likely liabilities that they will inherit.

The Government will not, however, be amending TUPE so as to allow a transferor to rely on a transferee’s economic, technical or organisational reasons to dismiss an employee prior to a transfer. This means that if a transferor makes transferring employees redundant before a transfer in reliance on the transferee’s need for fewer employees, for example, those dismissals will be automatically unfair and the liability of the transferee (albeit that no doubt transferees will be making submissions as to whether the employees have suffered any loss).

Collective agreements

There has been a lot of litigation recently about the effect of collective agreements post-transfer. As a result of the consultation, the Government proposes the following two changes: 

• One year post transfer, the restriction on variations to contracts will no longer apply in respect of changes to terms derived from, or incorporating, provisions of collective agreements, provided that any change (which is by reason of the transfer) is no less favourable overall. The restriction will remain in respect of other terms and conditions, (ie, those neither derived from collective agreements, nor the individual term incorporating them). 
• A static approach to the transfer of terms derived from collective agreements will be adopted, ie, only those in existence at the date of the transfer will be binding on the transferee and not subsequent agreements where the transferee is neither a party to those subsequent collective agreements nor to the bargaining process for them. For example, where pay is collectively agreed before a transfer, that agreement about pay will transfer. However, any subsequent re-negotiations between the transferor and the unions that affect the transferor’s workforce will not apply to employees who have already transferred out where the transferee has not been a party to the collective bargaining or the collective agreement.

Post transfer changes and dismissals

At present, dismissals for a reason connected with the transfer will be automatically unfair and variations to contracts will be void, unless in either case the reason for the dismissal or contract variation is an “economic, technical or organisational reasons entailing changes in the workforce” (ETO reason). At present, a change in location does not, by itself, entail “changes in the workforce” within the meaning of TUPE, and therefore dismissals on this basis are automatically unfair. It is proposed to amend TUPE so as to include changes to the workforce's location within the scope of an ETO reason. The welcome change will prevent genuine place of work redundancies from being automatically unfair.

The Government have also considered the responses on collective consultation under the Trade Union and Labour Relations (Consolidation) Act 1992, which requires collective consultation where it is proposed to dismiss 20 or more employees by reason of redundancy (including for this purpose changing terms and conditions) within a 90 day period, and how this applies in TUPE situations.

The Government now proposes to amend the 1992 Act to make clear that consultation by the transferee that begins pre-transfer will count for the purposes of complying with the collective redundancy rules, provided that the transferor and transferee can agree and where the transferee has carried out meaningful consultation. Currently, if the transferee is looking to make collective redundancies post-transfer, unless consultation commences after the transfer, the transferee risks a finding that they have failed to consult within the meaning of the 1992 Act, which in turn risks a penalty of up to 90 days’ pay per affected employee. This causes delay in the process, and increases costs on business.

The legislation making these changes is likely to come into force in 2014.

The response to the consultation can be viewed here.