Transfer of Undertakings Regulations - Essay Example

The essay discusses the extent to which the new Transfer of Undertakings (Protection of Employment) Regulations 2006 has assisted in clarifying the law, and helped to disentangle the confusions that existed with the earlier Transfer of Undertakings (Protection of Employment) Regulations of 1981. 2006 Transfer of Undertakings Regulations Introduction The TUPE 2006 or the Transfer of Undertakings (Protection of Employment) Regulations 2006 was implemented on the sixth of April; 2006.The new regulations bring a huge change for service providers, outsourcers as well as employers. Prior to the Transfer of Undertakings Regulations of 2006, Transfer of Undertakings (Protection of Employment) Regulations 1981 was the regulation which was followed. Primarily, the TUPE 2006 would be protecting the employees during the transfer of an undertaking or business from the transferor to the transferee. There are several uncertainties which existed for the 1981 Regulations, which will be addressed as well as clarified in the 2006 regulations. Therefore, tribunals, lawyers and court require reading and checking up with the TUPE case laws in order to better understand the changes in the 2006 TUPE. There is a Guidance note which is provided by the government along with 2006 TUPE, which would be helping the lawyers to better understand the new regulations; however there will not be any legal effect of the Guidance. The Primary Changes in TUPE 2006 Since the 2006 TUPE includes several new concepts, the risks is supposed to increase, and so are the questions and queries from the employers, who already had a very tough time trying to interpret the 1981 TUPE. Some of the changes which have been included in the new Transfer of Undertakings (Protection of Employment) Regulations 2006 include: A revised definition of relevant transfer for better clarifying the existing position. An addition to the definition of relevant transfer, which will be called a Service Provision Change and clarification that the new regulations will be applicable to in-sourcing, new generation contracting as well as outsourcing. A clear demarcation of the application of 2006 TUPE, which would help to prevent the overlap of TUPE with other jurisdictions. The change to the duty of consulting and informing, which includes the shared a liability between the transferee and the transferor, for refusing to consult. A duty of the transferor to provide the transferee with a number of specific information pertaining to the transferring employees, which is also called the Employee Liability Information. A new rights which allows the change of employment terms and conditions, in situations where there is a technical, organizational or economic reason for necessitating a change in the workforce. A clarification of the right of the employee in objecting the transfer, and the right of the employee to resign in case the working conditions have been substantially changed which causes material detriment for the employee. Clarification on the issue of unfair and automatic dismissals. The new right which facilitates permitted variations in the terms and conditions of employment, in matters regarding the transfer of insolvent businesses, only if changes help in safeguarding employment opportunities. There are some key issues regarding new 2006 TUPE. The Relevant Transfer under the 2006 Regulations are different. A share sale does not equate to a relevant transfer, however the sale of assets such as the assets of an undertaking or business falls under relevant transfer. Moreover, two categories of relevant transfer will be clearly stated in the new regulations; they are namely Service Provision Changes and Business Transfers. James Holland states: ‘At common law, where the business is sold, this will operate as a termination, but the position now has to be read in the light of the transfer of undertakings (Protection of employment) regulations, so that if there is a relevant transfer under these regulations it is most likely that the contracts of employment will simply be transferred along with the sale. Consequently there’ll be no dismissal and continuity of employment gained with the old employer will be deemed to have been with the new employer. The basic idea behind the regulations is that nothing should really have changed simply because the business has been transferred.’ 1 Regulation 3(1) (a) of Transfer of Undertakings (Protection of Employment) Regulations 2006 states “A transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another employer where there is a transfer of an economic entity which retains its identity." This clarifies the doubt that a business or an undertaking is actually an economic entity. The Service Provision Change is a new kind of relevant transfer, which promises to protect more than 20,000 employees each year. Service Provision Change A service provision change is the relevant transfer wherein there are contracted-out services. The services can also be given to a new contractor. Service provision change covers organized groups of employees located in the United Kingdom, the activities which do not include the supply of goods for the client, and the activities which are not restricted to a specific event. Hence, TUPE 2006 will include contracts for the ongoing relationships with contractors; however one-off services will not be covered by the TUPE 2006. Nevertheless, the TUPE 2006 also ensures that the parties do not misuse the loopholes of the law. For example, parties are not allowed to enter into a host of one-off contracts, for avoiding the TUPE 2006. To further clarify the service provision change, an example is provided: A service provider, who provides food to a canteen of an office, actually will be sending or supplying goods for the clients use, therefore a change in the contractor will not fall under the category of service provision change. However, if the contractor owns the canteen and provides the food, the terms and conditions would be met by the contractor. Entities Affected By TUPE 2006 TUPE 2006 will be applied to private undertakings as well as public undertakings, irrespective of whether they are involved in economic activities which lead to monetary gain. Transfers from public sector to private sector as well as most of the transfers pertaining to private sector would be covered by TUPE 2006. Regarding the overlap with other jurisdictions, TUPE 2006 will also bring a lot of clarity. If there is a scenario wherein the contracts of employment are being governed by foreign country laws, TUPE 2006 would be still applying, provided the transfer fits the criteria of ‘Relevant transfer’ or ‘Service Provision Change’. For example, if there is a business transfer agreement which is governed by the laws of Sweden, TUPE 2006 would still apply if the business is intended to be transferred to a place in the United Kingdom. In the same manner, TUPE 2006 will apply to employees who are working under a company of the United Kingdom; regardless of whether they are located outside the UK. If there is a London exporting house which has about 100 employees working in Asia, the TUPE 2006 would be still applied, since the transfer process for the undertaking is valid for the employees working outside the UK office. Further Clarifications of TUPE 2006 Transfer of Undertakings (Protection of Employment) Regulations 2006 and also seeks to resolve a number of confusions which was present in the last TUPE. TUPE 2006 clearly states that there are three primary categories of dismissal. These three categories are: A dismissal would be deemed to be unfair automatically in a situation where the only reason for the dismissal is the transfer or an issue which is very closely connected with the transfer. Furthermore any kind of ETO reason is absent. A dismissal would be deemed to be fair when the principal reason for dismissal is the reason connected with the transfer but it does not directly link to the transfer itself. Additionally, an ETO reason is present. Depending on the procedures that are followed, the dismissal would be fair dismissal. Unfair dismissal principles would be applied in a scenario where the dismissal is not at all connected to the transfer. James Holland quotes: ‘The meaning of dismissal is central to employment law. It ranges from being given the sack through two resignations which are deemed dismissals. The area contains technicalities which can trap the unwary solicitor, and it is for the employee to prove dismissal if the employer challenges the claims. Employees may therefore find themselves dismissed for the purposes of common law and statutory claims.’ 2 Regulations 13 – 17 of Transfer of Undertakings (Protection of Employment) Regulations 2006 clearly states that there a certain obligations of the transferor as well as the transferee, pertaining to the subject of employees affected by the process of transfer. It is the duty of the transferor to provide adequate information to the employees about the transfer process and have a detailed consultation with employees regarding the repercussions of the transfer for the employees. Likewise, the transferee has the obligation to inform the transferor about the measures or the new changes that the transferee is going to implement, in order to better accommodate the employees. Furthermore, TUPE 2006 completely clarifies the doubts and dilemmas that employees might be having of a company which is in a process of transfer. Therefore, the transferor have to conform to the new 2006 TUPE and provide the employees the proposed date and details of the transfer which is about to take place. There had been a case where there was a huge controversy and confusion created over the transfer date. The case pertained to Astley and others v Celtec Limited (2002). Hence the TUPE 2006 ensures that such confusion does not ever arise. In case the transferor or the transferee does not inform the employees about the details of the transfer or the proposed a date of transfer, the employee would be having the right to bring a claim of the actual pay, which can be thirteen weeks actual pay. In the Transfer of Undertakings (Protection of Employment) Regulations of 1981, the provision which protected the employees was only limited to the transferee and not the transferor. Therefore, the liability of making the payment was on the transferee and hence the transferor was always excluded. However the scenario has changed now and a number of confusions which arose because of this have been clarified by the new Transfer of Undertakings (Protection of Employment) Regulations 2006. In the new TUPE 2006, the liability would be jointly shared by the transferor and the transferee. In the Transfer of Undertakings (Protection of Employment) Regulations 2006, the definition of Organized Groupings is clarified even more. Unlike the 1981 TUPE, where there were several loopholes, which led to notorious cases such as the one involving a transferring cleaner and the mop (The transferring cleaner and the mop was said to have constituted a TUPE transfer), in the Transfer of Undertakings (Protection of Employment) Regulations 2006, a single employee is also included in organized grouping of employees. There is another issue which has been clarified by the TUPE 2006. The issue is regarding the subject of service provision change and that a service provision change could occur in a circumstance where the service itself has not been able to retain its identity. TUPE 2006 therefore makes it clear that for a service provision change to occur, it is necessary for the entity to retain its identity after the transfer is over. However, TUPE 2006 also states that this is not a specific requirement for service provision changes. Transferring Of Employees Regarding the transferring of employees, there has always been a problem with the old TUPE. One of the recent surveys taken in the UK revealed that over 50% of the respondents had major confusion in issues relating to the transfer of employees. TUPE 2006 is said to have resolved this. One of the provisions in TUPE 2006 has been to ensure that the transferors notified the employees at least fourteen days before of the commencement of the transfer, about the transfer process so as to make the transfer-related confusions get reduced to the minimum. Wyn Derbyshire et al states: ‘Regulations 10(3) of the tape regulations 1981 requires the transferee to notify the transferor of any measures envisaged taking effect after the transfer, so as to enable this information to be given to the affected employees. Though, the transferee is not obliged to consult prior to transfer with those affected by the transfer. It is important that these changes under the 1999 regulations have much influence have much influenced the redrafting of the TUPE regulations 2006. Since the transferor first should consider the following practical implications to ensure proper involving consulting is taking place.’ 3 It is the Business Transfer Agreement which would specify the obligation of the parties for providing information. Moreover, TUPE 2006 provides extra protection to the contractors of the second generation, by making it legal for the contractors to obtain information from the outgoing contractor about the transferring employees. TUPE 2006 clarifies the employee liabilities by making it mandatory for the transferors for supplying the following points: The age and the identity of the transferring employees The provisions which specifies the particulars of employment under the Employment Rights Act 1996. The specifications are set out in the offer letter or the contract of employment of the employee. The exact details of the disciplinary action which has been taken against certain employees, or the grievance which has been raised by as certain employees in the last year or two. A grievance as well as disciplinary action would fall under the statutory dispute resolution processes. The details of tribunal cases or court actions that the employee had brought against the transferor. Even the details of potential claims or actions which may be brought by certain employees against the transferor in the near future, needs to be informed to the transferee. Details of the collective agreement which apply to the transferring employee. The information which the transferors need to supply to the transferee needs to be in a form which is easily accessible, preferably in a readable form. The Transfer of Undertakings (Protection of Employment) Regulations 2006 also allows the supply the information over computer data files or allow the transferee to have access over the transferors’ computer data containing those information. Alternatively, stuff and books, sample contracts as well as collective agreements can also be supplied by the transferor. If there is a case where only a small amount of information needs to be sent, the transferor can even send it by telephone. The information can also be transferred through a legal adviser or a third party like an accountant. What’s more, the information can also be sent in instalments. If in case, the transfer has provided wrong information to the transferee, the transferee would have the right to bring the claim within three months of the transfer date, in an employment tribunal. If the claim is considered to be a successful one, the transferor needs to pay an equitable sum of money to the transferee. TUPE 2006 also makes it clear that the minimum amount of the overall award must be at least £500 for employee who has got affected. The award can drop below £500, only if the tribunal feels that it is just to give an award below £500. Changes in Terms and Conditions Post Transfer After a TUPE transfer, it was increasingly difficult for the employers in harmonizing with the conditions and terms laid down by TUPE. TUPE 2006 however clarifies the terms and conditions to a great extent. TUPE 2006’s Regulations 4(4) and 4(5) states that there is one exception which involves economic organizational or technical reason for changing the work force. This reason is also called an ETO reason, which was interpreted to be a change in the workforce numbers by the courts. A change such as this may include the requirement of the employees in re-qualifying post transfer. The provision under The Transfer of Undertakings (Protection of Employment) Regulations 2006 would therefore include: All those changes which do not have any connection with the transfer will be considered to be valid, if only the former employer had the right to make these changes. All the changes in transfer which have been made pertaining to ETO, will be considered valid, when the consent is provided by the employee. The government however suggests that making changes for ETO reason, must give the employer the right in negotiating the changes in terms of conditions and as a result, make improvements in the efficiency of the business. In reality however, making the changes is not as easy as the government of the UK believes it to be. Since the change of terms and conditions is not always welcomed by the employees. Moreover, making changes in the TUPE transfer would be quite difficult in the future as well. James Holland quotes: ‘With a large group of companies, reorganizations of company’s structure are common, and in some cases frequent. There may be tax advantages of some administrative benefit from shifting responsibilities from a parent company to a subsidiary or vice versa, or between subsidiaries. Sometimes the companies are organized into divisions or different establishments of the same limited company. There is no legal significance at all in the shift of administrative responsibility within one limited company, but technically a transfer of employees from one limited company to another is probably covered by TUPE 2006, even if the companies are associated.’ 4 TUPE 2006 and Insolvent Businesses One of the most important changes in TUPE 2006 has been the insolvency provisions. It was found that almost 70% of insolvencies finally lead to the breakup of the company or the loss of jobs. The new provisions laid down in the 2006 TUPE would allow in increasing business preservation to almost 2-3 %. Fundamentally, there are two new types of protection which is given by the 2006 TUPE. The first type is the relief of certain debts for the transferee. Some kinds of liabilities such as a six weeks holiday pay, eight weeks back pay or statutory notice pay will not be transferred to the transferee anymore. However, other employment liabilities such as notice above the capped amount would still be given to the transferee. The second type of relief that is facilitated by the TUPE 2006 is that the transferee of a business which is insolvent, has the right to make changes to the terms and conditions of employment, however the transferee can make these changes only in certain conditions. The issue of changes or variations to terms and conditions is also made very clear by the 2006 regulations. All these changes needs to be made keeping in mind the employment opportunities that such changes would create. It should also be shown by the transferee that such changes in terms and conditions would eventually help the business to survive. Furthermore, it is also clarified that the permitted variations has to be rendered by negotiating with certain employee representatives. All the transferring employees would be given a written agreement which clearly states that date when the changes will take place. It also is necessary that the agreement is be signed by employee representatives who are representing the affected employees. In one of the polls conducted in the UK, it was revealed that 60% of people believe that the new Transfer of Undertakings (Protection of Employment) Regulations 2006 would help in ensuring the survival of businesses which are insolvent. The government also believes that new changes would save the number of businesses more than £10 million in redundancy payments each year in the UK. On February 07, 2006, the Transfer of Undertakings (Protection of Employment) Regulations legislation was published and the TUPE came into effect in April of that year. Some of the main changes that have been integrated in the Transfer of Undertakings (Protection of Employment) Regulations 2006, which will help in clarifying the law to large extent are as follows: TUPE now has a much wider definition, which allows service provision changes such as contracted-out to be covered by the new TUPE. This would eventually help in achieving more transparency and greatly reduce disputes in litigation as well as greatly reduce costs of transaction. The repercussions of the regulations has been clarified from the perspective of transfer-related dismissals, thereby greatly reducing the confusions on the issue of lawyers changing the terms and conditions of employment. The requirement of the transferor to give a prior notice to the transferee regarding the employee identities, and the various liabilities and rights, is now properly clarified and made mandatory by the TUPE 2006. The flexibility in the application of the regulations has also been integrated in the new TUPE. There are a number of cases in which the transferor is insolvent, and the greater degree of flexibility allows the confusion to get further reduced. Conclusion The original Transfer of Undertakings (Protection of Employment) Regulations was a system for almost 25 years, and hence it will take a lot of time for the employers, lawyers and the employees to come to terms with the new regulations of TUPE 2006. Wyn Derbyshire et al states: ‘As we have already observed, prior to the ARD, UK common law provided and less sophisticated legal framework and one which was largely based on the freedom of contract. At common law, a business transfer bringing about change in ownership resulted in the automatic termination of a contract of employment giving rise to a dismissal which entitled employees to claim wrongful dismissal, a redundancy payment or compensation for unfair dismissal. As lord Atkin commented Nokes, notwithstanding all of the common law’s shortcomings in relation to business transfers, meaning that freedom of contract has retained in the employment relationship.’ 5 Transfer of Undertakings (Protection of Employment) Regulations 2006 will apply to businesses which are situated in Great Britain and Northern Ireland, and a number of amendments to existing legislations to the TUPE Regulations 1981 will be made, thereby helping to clarify the law to a greater degree. The number of recent TUPE polls point to the fact that most of the clients who have been covered by TUPE and TUPE transfers, had a number of uncertainties as well as problems using the earlier regulations, which they are not having with the new regulations implemented in 2006. Although it is certain that a majority of people agreed that TUPE 2006 have helped considerably in clarifying the law, there are still some people who are yet to be convinced of the benefits of the Transfer of Undertakings (Protection of Employment) Regulations 2006. Furthermore, a number of lawyers and businesses have addressed some concerns over the regulations of TUPE 2006. Hence, no doubt that TUPE 2006 is not hundred percent perfect, nonetheless TUPE 2006 has so far been successful in drastically reducing the number of related litigations which had troubled TUPE since it was introduced in the United Kingdom in 1981, and thus the 2006 Transfer of Undertakings Regulations has most definitely clarified the law. Bibliography Deakin, S & Morris, G. Labour Law (3rd Edition, Butterworth London 2003) Derbyshire, W., Hardy S.T. & Maffey, S. TUPE: Law and Practice: An Overview (Spiramus Press, London 2006) Holland, J & Burnett, S. Employment Law 2008 (Oxford University Press, Oxford 2008) Vettori, S. The Employment Contract and the Changed World of Work (Ashgate Pub Co, Williston, 2007) Read More