Known as TUPE, The Transfer of Undertakings (Protection of Employment) Regulations 2006 is a law which aims to protect employees should a business in which they work change hands.
However, it adds substantial complications to a business’s sale and generally works against commercial interests in such transactions. It is a law that seems particularly out of place in the current economic climate and is in need of an overhaul, and the Government has recently published a report making controversial proposals changes to it.
There is a case to argue that TUPE is unnecessary and should be abolished in its entirety. Other jurisdictions manage to buy and sell businesses and retain important employees without TUPE (or an equivalent). For example, in the US, business transfers take place with little employment regulation. What regulation there is consists mostly of limited obligations to give employees, unions and local and state authorities notice of the transaction and its effects.
Of course, we know this is not possible in light of the UK’s EU obligations, including continuing to implement the terms of the Acquired Rights Directive. However, the Government has been consulting on planned changes to TUPE in order to lighten the burden on employers in complying with its requirements.
The main issue with many of these changes will be the extent to which legal uncertainty will result – and how this acts as an obstacle for those who wish to buy and sell businesses.
Abolition of the service provision change provisions
This is the most radical proposed change to the current TUPE regime. These provisions were introduced in 2006 and extended the reach of TUPE to all contracting in, and contracting out situations in return for providing increased legal certainty. The service provision change provisions themselves gave rise to case law which undermined this search for certainty. However, it remains to be seen whether the abolition will cause more confusion around the flow of business transfers.
Repeal of the liability information provisions
These provisions were designed to ensure a minimum level of disclosure to the buyer. However, parties often disclosed the minimum information required at the latest point permitted under TUPE (14 days prior to the transfer). This is likely to have minimal effect as disclosure of meaningful information in a timely fashion has, in most transactions, been a matter for commercial negotiation between the parties.
Increasing the ability of employers to harmonise terms and conditions post-transfer
This is important as it will allow changes to terms, unless (i) the changes are made by reason of the transfer itself; and (ii) there are no economic, technical or organisational reasons entailing changes in the workforce. However, changes to terms for reasons connected with the transfer will be allowed, and will changes employees would have agreed in the absence of a TUPE transfer. These will give businesses much-needed flexibility in managing the post-transfer workforce.
Other proposed changes include:
- Changes to provisions regarding transfer-related dismissals. The proposal is to make the same changes here as are proposed in connection with contract harmonisations.
- Allowing workplace redundancies arising on a change of workplace to be treated as normal redundancy situations.
- Permitting pre-transfer consultation by the transferee regarding redundancies to count towards collective redundancy obligations.
- Allowing small businesses of fewer than 10 employees to consult directly with employees, rather than requiring the election of employee representatives.
- Allowing the transferor to rely on the transferee’s economic, technical or organisational reason to dismiss pre-transfer.
No one can tell whether the Government’s proposals will change substantially following the final round of consultation, which has just closed. It does seem highly likely, however, that there will be significant changes to TUPE in October 2013.
Those businesses considering acquisitions should keep a careful eye on the timetable for reform and should at least prepare for a swift review of internal processes and practices once the final proposals are published.
The article above is published courtesy of HR magazine and was written by Daniel Peyton, a partner and employment lawyer at international law firm McGuire Woods.