New TUPE regulations have been postponed yet again. New regulations were expected in July to come into force on 1 October but have been delayed until the Autumn to come into force on 1 April 2005. However, we have heard that before!
We were told by the Government when the current draft regulations were issued in the Spring that virtually all policy decisions had been decided. Consultation was supposed to be confined to the question whether the draft regulations implemented policy effectively. The overwhelming response to the consultation leading to the latest delay suggests a resounding "no". However, the current draft regulations should give a strong hint to what the final regulations will implement.
The Government acknowledges, with gentle understatement, that the Regulations "are working less effectively than they might". Laudable objectives include improving clarity so that "everyone should know where they stand" and even making certain provisions more user-friendly.
The principal changes in the draft regulations are to:
- extend the application of TUPE to "service provision changes" ie contracting out situations
- clarify when employers can lawfully dismiss or vary terms and conditions for transfer connected reasons
- require transferors to notify transferees of the employment liabilities which the transferee will inherit
- make both the transferor and the transferee jointly and severally liable for any failure to inform and consult about a TUPE transfer – addressing the problem that the transferee is currently liable for the transferor's breach of collective consultation obligations
- promote a 'rescue culture' to save jobs where the transferor is insolvent by allowing flexibility to agree changes to terms and conditions and by protecting the transferee from liability for statutory insolvency payments which will remain with the Secretary of State.
The Government estimates that the application of TUPE is uncertain in 25% of cases, but that the revised TUPE will reduce this to 5-10%. The standard definition of a transfer is updated to reflect case law and a further 'extended' definition (which will apply as well as, and not instead of, the standard definition) is designed to cover service provision changes – on first generation outsourcing, the changeover of contractors and taking services back in-house. The extended definition therefore goes further than is necessary to comply with the Acquired Rights Directive – a price worth paying for greater certainty – but does not cover the supply of goods or (subject to the outcome of the consultation process) possibly the supply of professional services. Decent people will be simply aghast at the prospect that, for example, lawyers could be treated as second class citizens for TUPE purposes.
It is unlikely that it will be easier for transferees to vary terms and conditions. Harmonisation will still be unlawful. Transferees will have to show that the sole or principal reason for any change is either unconnected to the transfer or is for an economic, technical or organisational reason entailing changes in the workforce (ETO) – which requires a change in the numbers or the functions and individuals comprising the workforce.
The revised TUPE clarifies that an employee who is dismissed for an ETO reason and who is redundant, will be entitled to claim a redundancy payment - rather than be deemed to have been dismissed exclusively for "some other substantial reason" under unfair dismissal law.
The requirement for transferors to provide and update written "employment liability information" to transferees "in good time before the transfer" is sensible, but may be inadequate to help contractors trying to price bids on tenders. Breach is punishable with a penalty of up to £75,000 in the High Court payable to the transferee.
The Transfer of Employment (Pension Protection) Regulations 2005 were introduced in April 2005 to require transferees to contribute to a money purchase or stakeholder scheme in order to match an employee's contribution of up to 6% of salary. Whilst transferees are not required to set up a scheme comparable to the transferor's scheme, employees now enjoy rights to occupational pension benefits post transfer.
The fact that we face yet more delay as the draft regulations are to be amended again suggests there remains plenty of scope for confusion and litigation.
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