Tupe (the Transfer of Undertakings (Protection of Employment) Regulations) was introduced in the UK in 1981 to implement a European Directive that was designed to protect employees’ rights when their employer changes on the acquisition of the business or organisation in which they work.
The rise in popularity of outsourcing in the latter part of the 1990s created uncertainty as it was unclear whether Tupe would apply. This created difficulties for contractors and predictably resulted in litigation. To combat this uncertainty Tupe was expanded in 2006 so that it now explicitly includes situations where work is outsourced, brought back in-house or the service provider changes.
This is not a paywall. Registration allows us to enhance your experience across Construction Management and ensure we deliver you quality editorial content.
Registering also means you can manage your own CPDs, comments, newsletter sign-ups and privacy settings.
This therefore created two kinds of Tupe transfer: one that applies to acquisitions and is commonly referred to as a business transfer; and one that applies to outsourcing, commonly known as a service provision change (SPC).
When Tupe applies, the affected employees’ employment transfers to the incoming employer, their terms and conditions of employment and continuity of service are protected, they receive additional protection from dismissal, and there is a duty to inform and consult with affected employees about the transfer.
Tupe is regarded by many as overly bureaucratic, commercially restrictive and fraught with practical problems. As a result, UK industry has called for reform for many years. The government is also committed to removing what it refers to as “gold plating” of European legislation (ie going above and beyond what is required as a minimum under EU legislation), which Tupe 2006 has elements of, making it ripe for reform.
Removing the SPC
The concept of a SPC is specific to the UK and is not required by the European legislation that underpins Tupe. In addition, while the introduction of the SPC provisions in 2006 did initially provide certainty in outsourcing scenarios, case law over the last two years has eroded this. As such the government proposes to remove the SPC provisions.
This means there would no longer be an automatic assumption that a new contractor must take on an outgoing contractor’s staff. Tupe may still apply to an SPC under the pre-2006 test, but this would reintroduce the uncertainty that existed prior to the introduction of the SPC provisions in 2006. This could result in a rise in disputes between outgoing and incoming contractors.
“Tupe is regarded by many as overly bureaucratic, commercially restrictive and fraught with practical problems. UK industry has called for reform for many years.”
Where Tupe does not apply, an incoming contractor does not need to take on existing staff, who would remain with the outgoing contractor. The outgoing contractor would then need to either redeploy them or make them redundant. This could have significant implications for construction and facilities management businesses that may have entered into contracts on the assumption that Tupe would apply at the end of those contracts. Instead, they could face huge redundancy costs which have not been factored in to the pricing of the contract.
While this is still only a proposal at this stage, and the government has made it clear there would be a “lead-in” period before the removal of the SPC provisions, the scope of the changes are such that companies are already starting to take action to mitigate any negative effects. This is especially important for businesses with long-term contracts which would likely span this lead-in period. This can be done by revisiting employees’ contracts of employment with a view to changing certain terms and conditions, or by restructuring their workforces in advance. Furthermore, anyone entering into contracts now should attempt to future proof them as far as possible.
Other changes
While any change to the SPC provisions will have a long lead-in time the government is still planning to introduce other proposed changes later this year.
Currently, outgoing employers are required to provide incoming employers with information about the transferring employees’ terms and conditions of employment at least 14 days before the transfer. The government proposes to remove this requirement. Where there is a commercial contract between the parties, this is unlikely to make much difference because the contract may contain provisions dealing with the provision of information.
However, this is not the case where work moves between two competing contractors, as it often does in the construction industry, who may not cooperate voluntarily. Here, the client should ensure it incorporates suitable contractual provisions to ensure that it can obtain the information it needs to efficiently re-tender the work and ensure a smooth transfer of the same.
The government also proposes to make a number of other changes to Tupe to lessen the burden on employers and make the process more efficient. These include greater certainty over collaboration between the outgoing and incoming contractors with regards to collective redundancy consultation; removing risks that currently exist in terms of the fairness of any post-transfer business relocation; allowing greater freedom for transferee employers to change terms and conditions after a transfer and making the information and consultation process less formal for micro businesses.
The government also proposes to reform the law relating to pre-transfer dismissals to allow outgoing employers to lawfully dismiss staff based on reasons which reflect the incoming employer’s future plans for the transferring business.
Neil Black is an employment partner at Pinsent Masons
