TUPE Tuesday: Looking ahead to 2023

Welcome, this is our final podcast in our mini-series of 'TUPE Tuesday'. If you've been listening to the previous three podcasts, we're taking a different approach today which we're going to wrap up the series with. So, instead of looking at a key case from the Employment Appeal Tribunal, we're going to look forward to what TUPE developments might be coming down the tracks in 2023, and especially in light of the Retained EU Law (Revocation and Reform) Bill 2022-23.

I'm Siobhan Bishop, a principle associate in the Employment, Labour & Equalities team here at Gowling WLG.

So, at the moment, the European Union (Withdrawal) Act 2018 effectively copied and pasted almost all EU law into UK law. The idea was that the laws would continue until they were changed by domestic legislation. This body of law is now called 'retained EU law'.

There was a review of retained EU law and Liz Truss introduced The Retained EU Law Bill to remove or replace all of this retained EU law by the end of next year. The Bill plans to automatically repeal any retained EU law on 31 December 2023, unless there is specific legislation to retain it or a government minister extends the repeal date, for example if the government needs more time to review or replace specified pieces of legislation.

The Bill also sets a long stop, so that all EU-derived rights made under secondary regulations end in 2026, at the latest. Under the Bill, the government can restate secondary retained EU law as domestic law or replace it completely.

So, what's clear is that the Bill has the potential to have a huge impact on employment law in general but we don't know which retained EU law might not be replaced or amended.

And, of course, the TUPE regulations will be covered by the Bill because they were introduced to comply with the European Acquired Rights Directive, back in 1977.

We'll remember that the aim of the Acquired Rights Directive was to approximate the laws of the Member States on safeguarding employees' rights in the event of a transfer, and to ensure that terms and conditions of employment were maintained for the affected employees. Now, these fundamental principles are included in TUPE, although, in some respects, TUPE goes further than needed to comply with the EU law. The most obvious difference is that TUPE has specific regulations covering a service provision change, that is, specifically covering outsourcing, retendering and insourcing situations.

Now, the Retained EU law Bill is not law yet and it is still progressing through Parliament. So, there is still uncertainty about the final version and there's clearly a lot of opposition to how the Bill will work.

When it was introduced to the House of Commons, on 22 September 2022, there were written ministerial statements summarising the Bill and explaining the key provisions. From the point of view of TUPE, the most important provision is the so-called "sunset" provision, which relates to the retaining of EU law.

This is the key provision that I have mentioned, where all retained EU law will expire on 31 December 2023 (which is the "sunset date"), unless the government takes action to preserve it in some other way.

So, unless the government preserves the TUPE Regulations (or some form of TUPE), TUPE will automatically expire on 31 December next year – or at least those parts of TUPE which derive from the EU would expire and, arguably, the gold-plated provisions, such as for service provision changes, would remain – which doesn't seem a workable outcome.

But even if TUPE were to remain in force after 31 December 2023, the Retained EU Law will become much more 'domesticated' than it is at present. So, by this I mean that the principle of the supremacy of EU law and the general principles of EU law will also end on 31 December 2023.

For example, in TUPE, the case law often refers to the purposive approach when interpreting the meaning of the Directive or TUPE, and the purpose of TUPE is to protect employee's rights on a transfer. So, might there be changes in this area.

The other key purpose of the Bill which is relevant to TUPE is that it allows for departures from the Retained EU Case Law. And the domestic courts will have greater discretion not to follow Retained EU case law and there will be a new court procedures for the UK to refer or intervene in cases regarding retained case law.

As I mentioned, there has been wide criticism of the Bill and not only from opposition parties.

For example, The Regulatory Policy Committee has published its opinion on the BEIS's Impact Assessment of the Bill. It concluded that the Impact Assessment was 'not fit for purpose' because it doesn't properly consider or quantify the full impacts of the Bill, especially the need for and the impact of the automatic default sunsetting provisions on 31 December next year.

According to the RPC, other areas for improvement include monitoring and evaluation of the post-implementation impact of the measures, and looking more carefully at the wider impacts of the Bill, including on trade and investment.

There have also been a number of other organisations which have called for the Bill to be withdrawn, including the Institute of Directors and The Employment Lawyers Association, which I must point out is a non-political organisation.

They have written to the Business Secretary saying the Bill could cause significant confusion and disruption for businesses, working people and environmental groups due to the sunsetting provisions of thousands of pieces of retained EU legislation. Decades of case law would also be impacted, and the interpretation of the law would become uncertain, and the UK also risks being in breach of the Trade and Co-operation Agreement with the EU – and I'll come on to discuss that in a bit more detail shortly.

Nevertheless, the Bill continues to move forward and it completed its committee stage of the House of Commons on 29 November 2022. Parliament has published a revised version of the Bill, as amended in Public Bill Committee.

The Committee did debate various non-government amendments to the Bill, including amendments to exclude specified legislation providing for workers' protections from revocation and requiring the government to set out a complete list of laws to be revoked, but none of these amendments were agreed. There were some minor government amendments agreed but they were not very significant in the scheme of things that we're talking about today.

The next parliamentary stage is report stage, and it will return to the House of Commons where it may be amended again.

So, we're still in a period of uncertainty, waiting for the final version of the Bill and what the government intends to retain or modify and what employment rights will simply, potentially, expire in 12 months' time.

So if I look at the possible changes that might be made to TUPE it is clear that the Bill has potential to have a huge impact on employment law generally, but it's more likely that in respect of TUPE it will be retained, or at least a similar form of TUPE, will be retained. Of course, there could be some tweaks to TUPE, now or in the future and I'll come back to what those might be in a minute.

It's important to remember that the government did say that it doesn't mean to stop the European employment rights and it will preserve them and that it won't remove worker's rights.

Generally, although TUPE can be criticised, the principle that employees transfer with a business or undertaking is usually well accepted and integrated into commercial agreements.

The government, a number of years ago, had been previously concerned that TUPE gold-plated the European requirements through service provision changes and consulted about removing or amending them. But the public consultation largely supported the SPC provisions and they were retained. So, it does seem very unlikely now that they would be removed, and there doesn't seem to be much appetite on either the business or employee side to remove TUPE protection in principle, even for service provision changes, and we don't see a big push in that direction now.

However, it is possible that the government will make some small changes to TUPE to make it more business friendly. The main issue, which has been a bug-bear of government for many years, is the difficulty in harmonising terms and conditions following a TUPE transfer. The government has previously said that it wanted to allow this but it's hands were tied by European case law, so this might be the opportunity to fix that.

So, besides making it easier to change terms and conditions post transfer, the government could take a look at other parts of TUPE. For example, how the information and consultation provisions work, the timing of a redundancy dismissal and what to do when there are difficulties in replicating a benefit after transfer. We looked at a case on this in last week's podcast and there are often practical difficulties in replicating a benefit, such as a company (or group) based share incentive scheme and how to know whether that is substantially equivalent.

However, if the government does make any changes to TUPE, it may be limited by how far it can go, and this is because of the so-called "non-regression" commitment.

If any changes weaken employment protections that affects trade or investment, this could potentially lead to sanctions against the UK under the Trade and Co-operation Agreement.

That's whereby the EU and the UK both agreed not to weaken or reduce their labour and social standards below the levels that were in place at the end of the Brexit transition period in a way that would affect trade or investment between the UK and the EU.

And this non-regression agreement includes fundamental rights at work, fair working conditions, employment standards, information and consultation rights at company level and restructuring of undertakings.

This 'level-playing field' principle does not meant there can be no changes. However, it only applies where the changes affect trade or investment, which can be difficult to show. But the more significant the change, the higher the risk that the change would give a competitive advantage to the UK, and that it could impact on trade or investment. So, generally speaking, there will be a limit on how far changes can go, especially the more controversial changes, such as making changes to terms and conditions following a transfer.

Of course, at this stage, we can only speculate on possible changes, based on the problems we see in practice and the previous comments from the government. We do know that the latest indications are that there's unlikely to be a wholesale change, certainly on the TUPE front, although technically, all of TUPE could be at risk under the Bill, except for the parts which had already gone further than required by the Acquired Rights Directive.

But even if there were no changes to TUPE there is a really important point about the Retained EU law Bill. And it is this. Even if the government doesn't make any changes to TUPE, the Bill would lead to immediate uncertainty. And this is because the problem is wider than whether or not certain employment legislation is retained. As the Employment Lawyer's Association said, the Bill will affect decades of case law and the interpretation of the law becomes immediately uncertain, even if it is entirely retained.

This is because there will be no longer be supremacy of EU law and the general principles of EU law will be removed.

This would mean that much of the interpretation and understanding of the TUPE regulations and case law that derive from it will become uncertain effectively from December 2023, at least until there is new domestic case law. This will likely mean that there will be an increase in commercial risks, with more uncertainty for organisations and likely increase litigation. And, in the longer term, there might be even more changes under the new rules with case law interpretation going forward.

There are other areas of Employment Law which might be changed which could impact on TUPE transfers as well. I am particularly thinking about collective redundancy consultation, where there are 20 or more redundancies proposed at one establishment within a period of 90 days. These collective consultation duties also derive from Europe.

Of course, collective consultation rights in a redundancy situation are well established now, so a proposal to remove them appears very unlikely. And, of course, it would severely damage industrial relations and trade unions would strongly oppose removing any of those rights.

However, there might be some clarifications to the obligations, such as when is the trigger point for starting consultation and when is an employer considered to have proposed redundancies. The government may also want to look at the obligations to notify the secretary of state on form HR1 or lessen or modify the obligations in an insolvency situation where the conflict between consultation under employment law and the requirements of insolvency law is very difficult to reconcile.

Another area to watch out for is the government's proposals relating to a Statutory Code on fire and re-hire, and whether that will be relevant to TUPE transfers.

We've been waiting for some time now and on 3 November, the Parliamentary Under-Secretary of State for BEIS confirmed that the government intends to publish the draft Statutory Code of Practice in the 'near future'.

One option would be for the tribunals to take the code into account and uplift awards for compensation but we'll have to wait for more details on that and whether it might impact in a TUPE situation.

So, there are a number of strands which, bringing them together, could lead to significant change in the TUPE area. But whatever happens during this time of uncertainty, we'll be keeping a keen eye on the developments and will keep you up to date.

Thank you for joining us for our TUPE Tuesday podcast series. We hope you've found them useful and have brought you up to date and highlighted possible TUPE issues which are coming down the tracks.

Of course, if you missed any of our previous podcasts, they are available on our website and, as always, if you have any questions, please do contact one of the team. Thank you and we hope you join us next year for more from TUPE Club.