Avoiding an Information and Consultation Calamity

Siobhan Bishop: Welcome to our TUPE Club podcast on Avoiding an Information and Consultation Calamity. In this podcast, we are going to pick up on some of the latest developments in relation to employee liability information, otherwise known as ELI, and information and consultation requirements under TUPE. These requirements are a key element for businesses, both in terms of risk management and employee relations. On a transfer, we know, especially in outsourcing scenarios, the transfer often throws up redundancy issues. For example, many outsourcings involve a relocation of the services. And there is a newsworthy reminder about one particular aspect of the collective redundancy consultation, which we'll also cover. So we're joined today by Louise Clifford, a director in our Employment & Equalities Team and Jane Fielding, a partner and Head of the Team. Firstly, Louise, thanks for joining us today. Let's start at looking at the duty to provide employee liability information in respect of all the relevant employees. What are the main risks you see in this area?

Louise Clifford: Well, I think on the face of it, the obligations are reasonably well defined, so, in principle, it ought to be relatively straight forward for companies to be complying with the obligations. There are, however, a few potential risk areas it's worth flagging. I think the first point to make is that you need to provide the information in relation to the right employees. Sounds like a fairly obvious point but you need to remember that you're not just providing information in relation to assigned employees, that's those in place who actually transfer under TUPE, whereas it's anybody who would've been an assigned employee had they not been dismissed in circumstances where that dismissal may be connected with the transfer. So, that's the first point. I think the second point is getting the information right.

Again, a fairly obvious point but sometimes it's easier said than done. You need to make sure that the information isn't actually stale. So it's got to be accurate at a date no more than 14 days before it's actually delivered to the transferee. It's also got to be updated. So you've got a fairly small window of 28 days between the latest date on which you can provide it and the date of the transfer and any changes that happen in that period need to be notified to the transferee. Sometimes you're going to have fairly limited notice of a potential transfer, so it's important that you've got your records up to date and that they're comprehensive and contain all the information that you're likely to need to give, particularly information around grievances and disciplinary procedures, that isn't always held centrally. So you may need to do some digging around for that type of information. Another potential tricky area is around information that you need to provide about claims.

Now, the issue here is that you don't need to provide information just about actual claims that have arisen, you need to provide information about any claims where the transferor has reasonable grounds to believe that they may be bought against the transferee. And we saw a recent example of this in the Leeds Tribunal, where a transferor who'd fallen into financial difficulties and have failed to pay its employees its most recent salary payments, ended up with an award of £65,500 being made against it because it didn't notify that information to the transferee. What's interesting about that case is the £65,000 was actually in excess of £20,000 more than the actual losses that the transferee was claiming to have incurred. So the figures can be quite significant if you get this wrong.

I think the final point I would make is that ELI information is often seen as very much the basic information that parties would expect to give or receive on a TUPE transfer. Very often you will see specific provisions in contracts which effectively supplement the ELI provisions under TUPE. So, if you are a transferor, you need to be ensuring that not only are you complying with the ELI provisions but you're also complying with any contractual obligations. Similarly, if you are the transferee and you have specific information that you require, then you need to be specifically seeking that in your contract, so for example, information about restrictive covenants or potentially severance terms and redundancy pay and that type of thing, that wouldn't be covered under the basic ELI provisions.

Siobhan: Thanks Louise and, of course, as we know, in many transfer cases there is also a redundancy situation. And depending on the numbers involved in that situation, there may be collective consultation duties in respect of the redundancy as well. Now, there's one aspect of this which has been hitting the headlines recently because breaches can involve criminal liability and serious consequences for individual employees, and particularly directors, who do not comply.

Louise: Yes, that's right. It's probably just worth recapping on the obligations that we're talking about here. So, we're talking about the obligations under the Trade Union legislation that require collective consultation with appropriate representatives where the employer is proposing to dismiss as redundant 20 or more employees at one establishment within a 90 day period. The part of the obligations under the legislation require the employer to notify the Secretary of State, using what's called the HR1 form, of its proposal and the number of redundancies that are anticipated. It's worth just flagging here that when we're talking about redundancies, that term has a broad meaning for the purpose of this legislation. So, it doesn't just cover redundancies in the kind of ordinary sense, if you like. It can cover situations where the employer is proposing to dismiss staff and offer reengagement in order to effect changes to terms and conditions.

Now, the issue about the HR1 form is that if the employer fails to deliver it in the requisite timescales, then that failure actually constitutes a criminal offence which can, if a prosecution is made, give rise to a level 5 fine which, since March this year, is an unlimited fine and it can also lead to personal liability on the part of directors and senior managers which can again, if prosecuted, lead to them being disqualified as directors going forward. Now, until very recently we hadn't really seen any examples of these powers being used in practice. But we've seen very recent reports of both the former chief executive of Sports Direct and also three former City Link directors, who've all been prosecuted using these powers. So, in the case of the Sports Direct situation, this involved the dismissal of 83 people at USC which is a subsidiary of Sports Direct and, according to reports, the employees were given 15 minutes' notice of impending redundancy and no HR1 was filed with the Secretary of State. So if those prosecutions are upheld, then it could lead to disqualification on the part of the directors involved.

Siobhan: Many thanks, Louise. I'd like to bring in Jane Fielding now to discuss some of the complexities in a TUPE information and consultation process. Again, this is an area with significant potential risks, even before the process really gets under way, the employer needs to make sure that they're consulting the right representatives and there've been a couple of cases on this issue recently.

Jane Fielding: That's right Siobhan. So, one of the basic requirements that an employer needs to be sure of is that the representative that it is consulting with actually represent the 'affected' employees. And 'affected' is obviously wider than just those people who are in scope to transfer. So, what TUPE actually says is, it is people who may be affected by the transfer or by measures taken in connection with it and, as you said, there have been a couple of cases looking at this. So, just taking each of those in turn. There was a case involving a company called iLab Facilities, which was in the sort of film production business, and it got into financial difficulties and, initially, it was looking at potentially selling both parts of its business. So it had two parts, which were run quite separately, one having recently been acquired by the business (obviously not a particularly successful acquisition because both parts of the business were in trouble). But, eventually, the liquidator that was appointed decided only to transfer part of the business and then close down the remaining part and the workforce was separated between the two, there wasn't any real overlap.

So, the question and issue here was that those employees who were in the part that closed down were not consulted with, they didn't have representatives in place and there was no information and consultation exercise with them. So they were challenging that saying, well, you know, this transfer has happened, we've lost our jobs, the two must be connected and you should have consulted with us. And the decision there actually, perhaps, seems a little bit harsh on them because the judgment says that, although their part of the business did close down and it was shortly after the transfer, it wasn't sufficiently related to the transfer for them to count as 'affected' employees.

I think, perhaps, if they'd lost part of their jobs as a result of the part that transferred out, that might have been different. But because they were running effectively separately, they weren't sufficiently 'affected'. It was too indirect, so they got no award. The second case involved two councils in the south west of England setting up a joint venture with a private sector company. And several staff in a number of directorates were going to transfer out into this joint venture company and there was a big issue around how new vacancies in that JV would be assigned and who could apply for them. And there was a lot of debate about it but, eventually, very close to the actual transfer date, it was decided on a method of recruitment that meant that priority was given to those staff who had been in scope to transfer over, because most of them were seconded, they kind of went over by secondment, even though they were in scope to transfer.

But other council employees, outside of scope, were not given that priority. And so the issue was that those people who were not given that priority said that they were 'affected' by this decision, this measure around how recruitment was going to be done, and that they should have been consulted with. And again they failed, just like in the iLab one. And the decision said, well, it's clearly the case that you're 'affected' if you will be transferred and you may be transferred or if your job is in jeopardy because of the transfer because you may have lost part of your role, for example, or, in this case, because it was all around how you applied for vacancies, if you actually had a job application pending for one of those roles at the time of the transfer. But if you were not in those categories and you were just a council employee who might, in the future, fancy going for a promotion in one of those roles, that again was not sufficiently connected for you to fall within an 'affected' group. So, they failed too, unfortunately for them.

Siobhan: Another question that employers often wonder about is whether they have to comply with the duty to inform and consult in every transfer case. For example, are there ways for employers to avoid going through the process at all?

Jane: Well, the first thing is that the duty to inform and the duty to consult; they are distinct duties. There's only one award covering both types of failure. But they are distinct duties and in every transfer case the employer has to inform its affected employees via their appropriate representatives. There is only a duty to consult if the employer envisages taking measures in respect of its workforce. But, having said that, there is a very established body of case law now that says even if there are no measures the employer has to leave enough time in between informing and the actual transfer date to allow for voluntary consultation.

So, to allow the reps to, kind of, air any questions or comments the employees might have even if no measures are actually contemplated. And it's also worth mentioning that 'measures' is a pretty low threshold. So, it could be anything like changing the payroll date, if that has an impact on the employees, which often it will, it might slightly change their tax position, for example, and it might affect them in terms of their financial planning, even if it's only a slight change. So, in terms of the penalty for this and why it's worth getting it right, the liability for failure to comply is a maximum of 13 weeks' gross pay per employee. So, a good shorthand way to think about it is it's a quarter of the annual wage bill for affected employees. So you can see that if there are large numbers of people involved here, it could be quite significant sums.

The actual award which the Tribunal has to decide on is what is just and equitable in the circumstances. So that 13 weeks' is a maximum. But the award is a penalty; it's not about compensating the employees for, you know, the position they might have been in had consultation been done properly. It's about the level of default by the employer and the seriousness of that. You asked earlier if there are any ways to avoid going through the process. There is one very limited defence, called the special circumstances defence, but it is really of very narrow application and it's difficult to bring yourself within that special situation. There was a case fairly recently where somebody tried to argue that they couldn't do a full information and consultation process because had they carried on for the length of time that would have involved they would actually have been trading illegally. And, even in that situation, the decision of the Tribunal was that that isn't enough to bring yourself within special circumstances. It was enough to reduce the award from the maximum down to a lower one, but it wasn't enough to just to, kind of, take you outside the consultation completely.

Now that was a redundancy case, but the principles do read across into a TUPE situation. So, you can see how narrow a defence it is when even a concern to be trading illegally doesn't get you within it. Just two more things to mention on this probably. One is not going to be a very wide application but I mention it just in case. If you're a micro-business, so fewer than ten employees, then you are released from the obligation to consult with appropriate representatives. But you still have to inform and consult directly with the relevant staff which, I guess, you can see makes sense when you've only a relative handful of people anyway. So that doesn't let you off the hook completely but it makes it slightly less onerous. And the last thing to mention is that the Government has acknowledged that in insolvency situations, in particular, the requirements to inform and consult can cause real difficulties in the timetables that are often being worked to in an insolvency situation. So, if you're an administrator or a liquidator trying to salvage a business, or at least make the most of the assets, the timescales are really very tight often. So, the insolvency services is currently considering a call for evidence for suggestions as to how that might be addressed and for more information and evidence about the challenges that people face in those insolvency situations. So we should see some more information coming out about that, probably sometime next year.

Siobhan: Thank you very much to Jane and to Louise for your insights today. Clearly there are some significant financial and legal issues which arise from these obligations which are going to impact on the commercial issues, the planning and the timetable in these deals. And they're tricky to get right. So, if you have any queries on TUPE at all please do feel free to contact either Jane Fielding or Louise Clifford and they will be delighted to help you. Thank you.