Before the General Election in May 2010, Conservatives dropped strong hints that if elected, they would “rein in” the potentially devastating impact of TUPE rules on service providers such as ad/marketing agencies when accounts change hands. Jenny Wotherspoon and Nicola Doran ask where we are now on this.
Who: UK Coalition Government
When: December 2010
Law stated as at: November 2010
We often report on developments in relation to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (or "TUPE") and the significant impact these provisions can have on businesses in the advertising and marketing sectors. Prior to the UK General Election in May 2010, the Conservatives stated that they would look to reduce the impact of the TUPE provisions – where do we stand now?
Background – What is TUPE?
TUPE has always applied to a business sale or transfer, however, in 2006 the definition was extended to include a "service provision change", which occurs where services are brought in-house, outsourced or transferred from one service provider (or agency) to another.
Many employers in the marketing and advertising sectors lobbied against this change and sought an exemption for their businesses. However, such concerns were not addressed in the legislation. This means that TUPE will potentially apply every time a client account is won or lost, with the consequence that all employees assigned to the account will transfer to the new agency on their existing terms and conditions of employment.
If an employee is dismissed (either before or after the transfer) because of the transfer of services, this dismissal will be automatically unfair unless the reason for the dismissal is an economic, technical or organisational reason entailing a change in the workforce (an "ETO reason"), such as redundancy. Liability for any dismissal arising from the transfer will pass to the incoming agency. It is not possible to contract out of TUPE, although parties can agree who picks up the liability.
What has happened?
Prior to the 2010 election, Lord Hunt of the Conservative party (as shadow business secretary) stated that a Conservative Government would seek to "rein in" the effect of the TUPE provisions relating to service provision changes where they went beyond what was required under the relevant European directive.
The Liberal Democrats said nothing specific on this issue, but did make a general commitment to "review employment and workplace laws, for employers and employees, to ensure they maximise flexibility for both parties whilst protecting fairness and providing the competitive environment required for enterprises to thrive".
Where do we stand now?
In contrast to its pre-election position, Ed Davey, Minister at the Department of Business, Innovation and Skills, told Parliament this month that the coalition Government has no current plans to revise TUPE – although a review is underway in relation to the voluntary and charitable sectors.
It is disappointing for employers, particularly in the marketing and advertising sectors, that the Government has declined to take this opportunity to revisit the effect of TUPE, particularly as the initial intention of the legislation was to protect employees where a business was sold or acquired as opposed to on the tender or retender of services.
This means that employers still need to be mindful of the potential application of TUPE every time an account is won or lost. Accordingly, employers should take early advice in each situation so as to minimise their potential liabilities and manage the TUPE process.