By now most businesses in the advertising and marketing sector are aware of the potential ramifications for employers of account moves under the infamous TUPE legislation. Ad industry bodies are pressing for a special exemption but in the meantime Naomi Flynn offers a quick reminder of the basics.
Law stated as at: 25 March 2008
TUPE is the acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006. If there is a "relevant transfer" all employees engaged in the provision of the services will transfer to the new service provider on the same terms and conditions of employment. It is not possible to contract out of TUPE, although parties can agree who picks up the liability.
What is TUPE and how can it affect my business?
There are two types of "relevant transfer"; a business transfer and a service provision change. The two definitions are not mutually exclusive and there could be a business transfer and/or a service provision change. Due to the constantly changing nature of the clients of businesses in the advertising and marketing sector, this article will focus on the "service provision change", as TUPE will apply when a contract or account is awarded to a new supplier or agency if it constitutes a service provision change.
A service provision change can take place if: –
- activities cease to be carried out by a client on its own behalf and are carried out instead by an agency on the client's behalf, i.e. a client appoints an agency for the first time;
- activities cease to be carried out by one agency on a client's behalf and are carried out instead by another agency ("a subsequent agency") on the client's behalf; or
- activities cease to be carried out by the original agency or a subsequent agency on the client's behalf and are carried out instead by the client on his own behalf.
If the loss/win of a client contract falls within one of the scenarios above, TUPE will apply where there is: –
(a) an organised grouping of employees situated in Great Britain. This can be just one employee; and
(b) that organised grouping of employees has as its principal purpose the carrying out of the activities concerned on behalf of the client. In summary, this means the employees are "essentially dedicated" to the provision of the services for the client. A recent case held that an employee was "essentially dedicated" for this purpose where the employee spent 70% or more of her working time on the provision of the services.
Why this matters:
Is there any exception to this?
Fortunately for many businesses, there is an exemption to TUPE if the service in question is a single specific event or task of short-term duration. How this will be interpreted will be determined by the Tribunal. To date there is limited guidance on what this means in practice. An example of a service that is likely to fall within this exemption would be an appointment of an Agency for a one off campaign, e.g. the Woolworth's Christmas advert.
In addition TUPE will not apply where the activities consist wholly or mainly of the supply of goods for the client's use. Given the service driven nature of businesses in the advertising and marketing sector, this exemption is unlikely to apply to such organisations.
Can't we just dismiss the employees concerned?
Unfortunately not. If an employee is dismissed (either before or after the transfer) because of the transfer 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 person who takes over the provision of the services (unless otherwise agreed between the parties).
Are there any practical steps we can take to manage the risks?
In practice the following steps will assist in managing the risk to your business:
- Seek early advice on whether TUPE will apply to the contract. This can affect pricing and timing.
- Consider whether the services fall within an exemption under TUPE, for example if they are of a one-off nature for a short term duration.
- Allow time for consultation with affected employees and seek advice on timing of consultation and any dismissals.
- Consider whether you want to cherry pick good employees by incentivising them to remain with you and/or whether you want to redeploy all of your employees.
- If you are a new provider carry out early due diligence on the employees who will transfer under TUPE and see if you can freeze changes in terms and conditions of employment and movement of employees in and out of scope, and input on hiring decisions until the contract is signed.
- Where other EU jurisdictions are involved, consider obtaining local advice. Whilst in theory, all EU countries apply the same principles, in practice the detail will differ.