Topic: TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006)
Who: UK Government
Law stated as at: February 2013
TUPE applies where there is a ‘relevant transfer’. Under TUPE 2006, a relevant transfer will occur either on the sale of a business or on a ‘service provision change’. A service provision change (“SPC”) occurs where services are brought in-house, are outsourced or are transferred from one service provider (or agency) to another. For businesses in the marketing and advertising sector, this means TUPE will potentially apply every time a client account is won or lost.
The effect of TUPE is that all employees assigned to the services will automatically transfer to the new agency on their existing terms and conditions of employment. Any dismissal of employees for a reason connected to the transfer will be automatically unfair (except in limited circumstances) and liability for such dismissals is likely to transfer to the incoming agency.
TUPE derives from an EU Directive, which does not expressly mention the concept of SPC. The directive is in fact only stated to apply to “a transfer of an economic entity which retains its identity” and not all SPCs fall within the scope of this.
Many employers therefore felt that, when it was introduced in its current form, TUPE went further than was necessary and was “gold-plating” the directive.
As part of the Government’s ongoing Employment Law reform agenda, it has published a consultation paper on proposed changes to TUPE. This follows the government’s call for evidence on TUPE which concluded in September 2012. Amongst a number of proposals, the government is considering repealing the SPC provisions.
What does this mean?
The application of TUPE to re-tendering exercises through the concept of SPCs has been a thorn in the side of many employers in the marketing and advertising sector for some time.
Inheriting a team of employees on fixed terms and conditions often makes it difficult to introduce efficiencies which can be passed on to the client. Similarly, from the client’s perspective, TUPE often defeats the purpose of trying to leave a service they are unhappy with and seeking a new team with fresh skills and ideas.
The proposal of repeal is therefore likely to be seen as cause for celebration in the first instance.
However, it should not be assumed that repeal will mean the end of TUPE for agencies. Changes of accounts prior to the SPC regime did often trigger TUPE, but the position simply wasn’t as clear.
Under the previous incarnation of TUPE, there were often lengthy discussions about whether a particular SPC would attract TUPE protection. Introducing the concept in black and white was aimed at giving greater certainly, ending exposure to changes through case law, creating a more level playing field and reducing legal costs during the pitch process. A repeal of specific provisions could see a return to ambiguity.
In any event, agencies may have become used to relying on TUPE in a climate of more challenging economic conditions, in particular as the outgoing service provider. It can be useful to raise TUPE to avoid paying redundancy costs after loss of a large account. Similarly, employees have become wise to the concept of TUPE and the protection it affords, and are likely to continue to seek recourse against their employers where they find themselves out of work.
A complete removal of the SPC regime may not be all it’s cracked up to be, and clarification of the current law or additional guidance may prove more useful. In any case, these proposals are still under consultation, and SPCs will be around for a while yet. Any repeal would also almost certainly include transitional provisions allowing commercial agreements based of the current regime to run their course.
The consultation sets out a number of other potentially helpful reform proposals, including changes to the dismissal rules applicable on a TUPE transfer, scope for micro-businesses to consult directly with
employees rather than through representatives and provisions allowing TUPE consultation also to satisfy the requirements for consultation on collective redundancies.