New, more widely drawn transfer of undertakings employment regulations could become a major factor when advertising accounts change hands. Could the new agency really be forced to employ the outgoing agency’s account team?
New undertaking transfer rules threaten account moves
On 6 April 2006, the new Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) came into force, raising potentially serious implications for advertising agencies.
The new TUPE regulations replace and clarify the old 1981 Regulations and are designed to provide protection for employees where there is a transfer of a business or undertaking from one person or company to another. As of 6 April, there is a stronger argument that such a transfer could include all or part of a client's advertising business from one agency to another with the introduction of the "service provision change". In effect this means that an agency winning an account currently run by a dedicated team could potentially be obliged to take over all the members of that team along with the new account.
The new "service provision change" provides that where there is an organised grouping of employees that has the principal purpose of carrying out the relevant activities on behalf of the client, that group of employees will transfer to the new provider of the service. All liabilities in relation to such employees will also transfer, so in addition to the employees' terms and conditions of employment, the new agency could become liable for an employee's grievances or discrimination claims, and significantly all liabilities for terminating those employees' employment, for example.
The Institute of Practitioners in Advertising (IPA) lobbied the Government to exempt agencies and professional service providers from TUPE and has argued that many, particularly smaller, agencies will be wary or unable to pitch for new business because of the potential implications of taking on a previous agency's staff and liabilities. It is asserted that this type of regulation runs counter to the competitive environment of the industry. However, the Department of Trade and Industry maintains that "the regulations should encourage individuals to work for the smaller agency on what might otherwise have been a risky short-term assignment." How this will actually work in practice will become only too apparent over the coming months.
This is where lawyers can help! Particularly before a test case has clarified the extent to which TUPE will apply to advertising businesses, all agencies are advised to take a cautious approach to pitches and seek legal advice throughout. Setting out the post-transfer position between the parties can effectively circumvent the effects of TUPE, for example, protecting the outgoing agency from losing key employees. Suitable warranties and indemnities in the agreement in respect of transferring employees and their associated liabilities are integral to any transfer agreement.
However, in a competitive market when an account is lost, such agreements are unlikely to be made. The basic requirement is an awareness of TUPE obligations, for example informing and consulting, and the provision of certain employee information to the new agency, and more importantly following a certain approach in order to retain key employees.
The government anticipates that the new TUPE regulations will affect up to 880 additional business each year. As a proportion of these are likely to be advertising agencies, it is vital that TUPE is kept in mind when dealing with won and lost pitches from now on.
