TUPE reform: 'Regeneration' rather than 'Extermination' for gold-plating

19 minute read
26 November 2013


TUPE reform has long been part of the government's proposals to cut red-tape, ease the regulatory burden on businesses and remove UK provisions which go further than required by Europe (so called 'gold-plating' of European Directives when they are implemented into domestic legislation).

TUPE reform has long been part of the government's proposals to cut red-tape, ease the regulatory burden on businesses and remove UK provisions which go further than required by Europe (so called 'gold-plating' of European Directives when they are implemented into domestic legislation).

The government has now published the draft regulations for TUPE reform: the draft Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2013. This cumbersome title heralds some of the problems the government has faced with implementing its proposals.

Set out below is an overview of the draft regulations and a table summarising the key amendments.

1. New SPC definition

The government now accepts that even though the service provision change (SPC) concept goes further than required by the Acquired Rights Directive (ARD), it provides certainty and is beneficial to all parties. In fact, it is 'good Regulation'.

So, the SPC concept remains but the new definition confirms that the 'activities' which transfer must be 'fundamentally' the same as the activities carried out 'previously'. The intention is to reflect the position that we had got to under recent case law. The government considered that this requirement for similarity between the 'activities' pre and post-transfer may not be generally appreciated, so it has specifically incorporated it into the SPC test.

The impact of this change is likely to be limited. That said, there have been areas of challenge to the SPC concept over the last few years, and to some extent the certainty of the concept had been eroded through case law. We may well see some innovative attempts to avoid the application of the SPC provisions and disputes over the meaning of 'previously' going forward. However, TUPE might still apply if the transfer is covered by the old 'business transfer' test.

2. Collective agreement changes

Firstly, the future applicability of terms and conditions incorporated from collective agreements can be limited post-transfer, even if the reason for the change is the transfer. However, any such changes must be more than one year post-transfer, must be agreed and the rights and obligations (when considered together) must be no less favourable overall to the employee.

It is unclear how changes to contractual terms incorporated from collective agreements can be treated more leniently than other contractual changes (see below). The provision relating to changes to collective agreements under article 3(3) ARD seems to relate to collective agreements themselves, which are rarely incorporated into employees' contracts, rather than contractual terms themselves. We may see challenges to this aspect of the new regulations in the future.

However, even if compatible with European law, the 'no less favourable' limitation could be seen as 'gold-plating' as the ARD does not require it in respect of changes to collective agreements and it will reduce the purported flexibility significantly. There will also be uncertainty over how to assess whether the changes are 'no less favourable overall' and whether this is a subjective or objective test.

Secondly, and this is more useful in practice, there will be express provision that a 'static' approach will apply to contractual terms incorporated from a collective agreement (typically for pay rises from time to time) where the transferee cannot be a party to the negotiations post-transfer.

This 'static' approach follows the decision by the Court of Justice of the European Union (CJEU) in the case of Alemo-Herron and Others v Parkwood Leisure Ltd.

3. Employee Liability Information (ELI) extension

The current ELI provisions will remain but with an extended timescale. The transferor will have to give ELI information to the transferee 28 days (rather than the current 14 days) before the transfer.

While this is a helpful minimum obligation to protect transferees, it still isn't an adequate substitute for contractual obligations and protection where possible.

4. Collective redundancy consultation

There are some key amendments to deal with the practical difficulties businesses face in a transfer which involves a redundancy situation. These issues are particularly acute in a relocation, for example an outsourcing to a new provider located elsewhere.

The current position is that the relevant employer (which will be the transferee for post-transfer redundancies) must conduct these consultations. This means consultation cannot be started until after the transfer, without risking claims for protective awards.

TULRCA will be amended to allow the transferee to elect to validly start collective redundancy consultation pre-transfer (provided both parties agree and the transferee follows a specified notification process).

The draft regulations refer to collective consultation where 20 or more dismissals are proposed 'at one establishment'. However, we don't know if the 'at one establishment' limitation will remain if the Government fails to win its appeal against the USDAW decision (USDAW v WW Realisation 1 Ltd).

The EAT in that case ruled that the words 'at one establishment' should be deleted from section 188 TULRCA. The effect of deleting these words is that the duty to collectively consult is significantly wider and arises when there are 20 or more redundancy dismissals proposed, anywhere in the business (within a period of 90 days).The Secretary for State has now been granted permission to appeal and the case is likely to be heard in early 2014.

Strangely, although the transferor must agree to 'pre-transfer consultation', there is no specific obligation on it to co-operate with the transferee in the process. Equally, the transferor's failure to co-operate will not amount to a 'special circumstances' defence to a protective award claim.

However, the transferee can 'cancel' the pre-transfer consultation at any time and any consultation undertaken so far will be void. There is also the potential for the transferee to re-elect to start pre-transfer consultation (and cancel it again) at any time. Additionally, there are notification requirements with cancelling (and restarting) pre-transfer consultation. This is quite cumbersome and potentially disruptive for employees. Also, transferees will need an appropriate paper trail to prove compliance with the requirements.

The option of re-electing to start pre-transfer consultation (and cancelling it again) at any time is currently in square brackets in the draft regulations, so this is one key area to watch to see if this option is included in the final regulations.

Hopefully, the new guidance will address some of the practical issues around managing the process, including the difficult question of when notice of dismissal can be served.

In any event, this is an area where the parties are likely to want to agree co-operation and indemnity provisions, if possible.

5. Dismissals and changes to terms

Firstly, the restrictions in Regulation 4 (changes to terms) and Regulation 7 (protection against dismissal) have been amended in an attempt to "more closely reflect the wording of the Directive". The aim is to reduce the risk of TUPE being interpreted more widely than required by the ARD.

Ironically, there is now a risk that the amended wording is so awkward it is unclear and that it is too restrictive in some respects (and so not compatible with the ARD and European case law).

A 'new test' is introduced for both changes to terms and dismissals, making these void or automatically unfair (as appropriate) where 'the reason' for them is 'the transfer'.

References to acts 'in connection with the transfer' will be deleted from TUPE and so these are no longer void or automatically unfair dismissal (as appropriate). However, it is likely that the 'in connection with the transfer' part of the old test is subsumed into the new test to a large extent, meaning this change it not as significant as it first seems.

There is also an ETO exception for both changes to terms and dismissals making them not void or automatically unfair. But the drafting makes it unclear exactly how this 'exception' works in practice. Again, another likely area for future dispute.

Depending on how the ETO exceptions work, the provisions relating to changes to terms and conditions may not comply with the principle in Foreningen af Arbejdsledere i Danmark v Daddy's Dance Hall A/S (ECJ). The Daddy's Dance Hall case confirms that variations by reason of the transfer are not permitted under the ARD.

Overall, it is unlikely that these changes will bring much more flexibility for employers but the new test will inevitably lead to (at least) short term uncertainty. Also, post-transfer 'harmonisation' of terms will remain void.

Secondly, the draft regulations confirm that unilateral changes which are allowed in an employee's contract can be made, provided such a change would be permitted if there had not been a transfer (e.g. a mobility clause). Again, the current drafting risks going further than permitted in Daddy's Dance Hall.

Thirdly, the definition of ETO will be amended to include the test for redundancy under the Employment Rights Act 1996. Currently there is a risk of automatically unfair dismissal claims in a relocation, unless there are also 'changes in the workforce'.

Of course, proposed relocations may still amount to an unfair dismissal under normal principles and/or a 'substantial change in working conditions to the material detriment of the employee'. Additionally, the proposed change will not affect the operation of mobility clauses or normal contractual principles, so relocating on a transfer is still not risk free.

Lastly, the transferor will still not be able to rely on the transferee's ETO reason in respect of pre-transfer dismissals of employees. This means any dismissal made by the transferor pre-transfer because of the transferee's ETO reason will remain automatically unfair.

The courts have interpreted the ETO exception as being available only to the dismissing employer (i.e. if the transferor dismissed the employee for reasons concerning its business or if the transferee dismisses the employee for reasons concerning its business). So transferees' scope to implement business changes ahead of transfers will still be limited.

6. Micro-businesses

Micro-businesses will be able to consult under TUPE directly with employees, rather than through representatives, where no union or existing employee representatives are in place. This amendment will come into force 6 months after the new regulations come in.

Updated legislation

Here are copies of the legislation to be amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2013 showing the changes.

In the marked-up TUPE Regulations 2006, the black print is the regulations as they currently stand with the red print indicating the proposed changes.

In the marked-up TULRCA 1992 Part IV Chapter II section, again the black print is the regulations as they currently stand with the red print indicating the proposed changes. In addition, the new section 198B modifies section 188, 189, 192, 193 and 196 but only when the transferee and transferor agree to pre-transfer collective consultation under the new section 198A. Those modifications are indicated in blue print, as they only come into play when the new section 198A applies.

We will keep an eye out for any further amendments made to the regulations before they are implemented and for the Guidance expected from the Department for Business, Innovation and Skills to support 'new TUPE'. All amendments (with the exception of ELI and Micro Businesses) are to come into force on the commencement date of the new regulations (which is expected to be in January 2014).

TUPE Reform - [Draft Regulations]

Current Regulation Provision dealing with TUPE 2006 Draft Amendment Regulations

Reg 3(1)

Relevant transfer

Business transfer & Service provision change

Business transfer & Service provision change (amended definition - activities 'fundamentally' the same pre and post transfer)

No Transitional provision

Reg 11

Employee Liability Information

14 days before transfer

28 days before transfer

Transitional provision - 3 months after the commencement date

Reg 4(4)

Restrictions on changing terms

Sole/principal reason:

  1. transfer itself - void
  2. a reason connected with the transfer unless ETO

New Test: If 'the reason' for the variation is 'the transfer' = void

ETO exception

Changes permitted under the contract are not void

No Transitional provision

Reg 5

Collective Agreements


Contractual changes for terms incorporated from a collective agreement permitted after 1 year if:

The rights/obligations under the employment contract, when taken together, are no less favourable to the employee

Normal legal requirements for variation still apply

'Static' approach

No Transitional provision

Reg 7

Protection against dismissal

Sole/principal reason:

  1. transfer itself -automatically unfair
  2. a reason connected with the transfer - automatically unfair unless ETO

New Test: Where 'the reason' for the dismissal is 'the transfer' = automatically unfair

ETO exception

No Transitional provision

Reg 4 and
Reg 7

ETO (entailing changes in the workforce)

Case law limits ETO entailing changes in workforce (usually numbers or functions)

ETO extended to include 'redundancy' (s.139 Employment Rights Act 1996)

No Transitional provision

TUPE Reform [Draft Regulations] - Redundancy

Current Section Provision dealing with TULRCA 1992 Draft Amendment Regulations


Collective consultation for redundancy

Pre-transfer consultation does not count

Pre-transfer consultation by the transferee can count if:

  1. transferor agrees; and
  2. transferee gives written notice to the transferor

Transferee can 'cancel' pre-transfer consultation on written notice to the transferor and notice to other relevant parties (representatives, employees, Secretary of State as appropriate)

Transferee may be able to re-start (and subsequently cancel) pre-transfer consultation - by complying with the requirements again.

No Transitional provision

TUPE Reform - No change

Current Regulation Provision dealing with TUPE 2006 Draft Amendment Regulations

Reg 4(9)

Substantial change in working conditions to the material detriment of an employee

Fairness of the dismissal determined by Reg 7

No change

Reg 7

Dismissal based on future conduct of the transferee

Automatically unfair dismissal

Case law prevents a transferor relying on the transferee's ETO reason to fairly dismiss pre-transfer

No change

Reg 13 and Reg 14

Duty to inform and consult appropriate representatives

Election and information/consultation requirements

No change (except that micro businesses can consult with employees directly if there are no 'appropriate representatives' in place and the employer has not invited any of the affected employees to elect employee representatives).

Transitional provision - 6 months after commencement date.

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