The Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as TUPE, are designed to do exactly what they say on the tin: to protect employees from losing their jobs when the business in which they work is sold. However, from this worthy aim has sprung a whole host of case law complications. This article examines some of the most recent cases arising out of the key aspects of TUPE and assesses the potential effects of these developments on employers.
What rights transfer?
Any employee assigned wholly or mainly to the business being sold, or who forms part of an organised grouping of employees whose principal purpose is to provide the services being transferred, will be automatically moved to the buyer or new service provider, unless they object. They will retain continuity of service and will be employed on exactly the same terms and conditions as applied immediately prior to the transfer, with the exception of certain pension rights.
For obvious reasons, this principle can cause difficulties for any buyer or new service provider – even where the terms governing the transferring employees’ employment are recorded in a single document. However, particular difficulties arise where employees have collective agreements incorporated into their contracts of employment, since the terms of any such agreements will also transfer. It is often difficult to establish exactly what these terms are and the terms of such agreements can regularly change post-transfer (without the new employer being a party to the agreement). Is an employer therefore bound by the terms of a collective agreement and all subsequent amendments?
Two recent cases have sought to limit the uncertainty that can arise in these circumstances. In Parkwood Leisure Ltd v Alemo-Herron & ors [2010] the Court of Appeal confirmed that, in a TUPE situation, employers are only bound by the terms of a collective agreement that were in force at the time when the TUPE transfer took place and not by any subsequent changes to the terms of that collective agreement.
This helpful principle was further clarified by the Employment Appeal Tribunal (EAT) in Worrall & ors v Wilmott Dixon Partnership Ltd & anor [2010]. In Worrall the terms of a collective agreement applicable to a TUPE-transferred employee had been rendered invalid by legislation that came into force following the transfer. The employee sought to argue that, notwithstanding the legislative changes, under the principle in Parkwood they should continue to benefit from the terms of the collective agreement in place at the time of their TUPE transfer. However, the EAT disagreed. It was held that although an employer is not bound by any changes to a collective agreement that come into effect post-TUPE transfer, any legislative changes introduced post-TUPE transfer will affect the terms of a transferred collective agreement.
Since the aim of TUPE is to stop employees suffering a detriment as a result of a relevant transfer, it seems correct that this protection should stop short of putting an employee who is subject to such a transfer in a better position than an employee who is not. Parkwood and Worrall have certainly helped to clarify the position for employers, who can now be certain that the terms applicable to a transferring employee are those in force at the time of the transfer, unless these rights are subsequently amended by legislation.
Protection from dismissal: the meaning of eto
A key aspect of TUPE is that, pursuant to Regulation 7(1)(a), the dismissal of any employee with more than one year’s service will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself. However, if an employer carries out any dismissals for a reason connected to the transfer, Regulation 7(1)(b) provides that liability for automatic unfair dismissal can be avoided where the reason is economic, technical or organisational and entails changes to the workforce (ETO reason). So what does this mean? In Berriman v Delabole Slate Ltd [1985] the Court of Appeal gave it a restrictive definition, holding that the changes to the workforce needed to be significant and must mean changes in the numbers employed or the functions performed by employees:
‘To our minds, the word “workforce” connotes the whole body of employees as an entity: it corresponds to the “strength” or the “establishment”. Changes in the identity of the individuals who make up the workforce do not constitute changes in the workforce itself, so long as the overall numbers and functions of the employees looked at as a whole remain unchanged.’
The recent Nationwide Building Society v Benn & ors [2010] has provided welcome clarification for employers on the meaning of ‘workforce’. In Benn the EAT confirmed that, as TUPE could apply to part of an undertaking, it was not necessary for the whole workforce to be affected by the changes. The EAT held that a narrower product range amounted to an organisational reason, which entailed changes in the job function of a ‘body of’ transferring employees. There was no need for changes in the entirety of the workforce for an ETO reason to be established.
However, even where there is an ETO reason, if an employer is to avoid liability, any dismissal must also be fair according to normal unfair dismissal principles. An employer should follow an appropriate dismissal procedure in all circumstances, including, where necessary, redundancy consultation for affected employees.
Duty to consult
A further fundamental provision of TUPE is the obligation on employers to inform appropriate representatives of any affected employees of the transfer by providing the information set out in Regulation 13(2). This includes information concerning the measures that it is envisaged will be taken in relation to the affected employees, or if no such measures are envisaged, that fact.
In the event that the transferor envisages that it, or the transferee, will take measures in relation to the affected employees, Regulation 13(6) requires the transferor to consult the representatives of these employees, with a view to seeking their agreement to the measures. If the transferor fails to do so, a tribunal could award compensation of up to 13 weeks’ pay per affected employee.
Clearly, to comply with these obligations, it is essential that employers are fully aware of what constitutes a measure in relation to affected employees. Following the recent Todd v Strain & ors [2010], which considered this very point, the scope of the duty to consult has widened significantly.
In Todd an employer had known that certain administrative changes would be made to its employees’ pay arrangements following a TUPE transfer. The transferor and transferee had agreed a mechanism for apportioning their respective liabilities towards the employees, and implemented it as part of the transfer. These changes had no financial or detrimental effect on the employees. The employer did not go through a consultation process. However, the EAT found that the administrative measures were not an inevitable consequence of the transfer and had caused the employees to worry unduly. Therefore, the fact that there had been a lack of consultation about the changes was held to be a breach of Regulation 13(6).
The EAT’s view that the purpose of consultation is to reassure employees significantly shifts the perspective of the duty to inform and consult. When considering whether a change constitutes a measure for the purposes of this duty, employers will now have to focus on whether the fact that the change is proposed would cause concern to employees, rather than on the change itself. This means that a far wider range of issues than previously thought are likely to trigger the duty to consult, including administrative changes of the type in Todd, which actually have little or no detrimental effect on the employee.
Conclusion
It is clear that the law in relation to TUPE will continue to develop. While some recent cases seek to clarify and limit the obligations owed by employers in a TUPE situation, these welcome developments continue to be counteracted by cases such as Todd, which seem to have the opposite effect. Therefore, TUPE shows no signs of increasing in popularity among employers and legal advisers alike.
Prior to the last general election, the Conservative party promised to strip away the ‘gold plating’ on any legislation that is derived from European law. TUPE was one piece of legislation that it specifically referred to: in particular, the extension of the operation of TUPE in 2006 to include service provision changes. The coalition government has yet to make it clear whether it envisages making changes to TUPE. While such changes may relieve some employers of the burden of dealing with TUPE, there is also a real danger that it will increase uncertainty, and therefore litigation, in this area.
By Will Winch, solicitor, and Laura Garner, solicitor, Mishcon de Reya.
