Sometimes we have no choice other than to get all formal and legal and this is one of those times. The law has changed and you need to know about it so that you will be able to decide whether it applies to you or not. If you think it does, then get some advice because it is a complex area which we are happy to help you with. There are massive text books on this subject alone so we can’t possibly cover it all in a short article but we have tried to outline what the law says, how it has changed and what to look out for so that you know what questions to ask.
Some of you will have heard about TUPE and had experience of it, but for those who haven’t it means ‘Transfer of Undertakings (Protection of Employment)’.
In broad terms the purpose of this legislation is to preserve the continuity and terms and conditions of employment for employees who transfer to a new employer when a ‘relevant transfer’ takes place.
This can happen when a business or undertaking, or part of one, is transferred from one employer to another as a going concern (often known as a ‘business transfer’) and can include situations where 2 companies cease to exist and combine to form a new 3rd company. The identity of the employer must change for this to be deemed a ‘relevant transfer’.
This law also covers situations where work is contracted out or where the contracted work is reassigned to another contractor or is brought back ‘in house’. This is called a ‘Service Provision Change’.
These 2 categories are not mutually exclusive. It often happens that a transfer is both a ‘business transfer’ and a ‘service provision change’, particularly when work is being outsourced.
For TUPE to apply the activities carried out before and after the transfer must be more or less the same and must be carried out by an ‘organised grouping of employees situated in Great Britain which has as its principle purpose the carrying out of the activities concerned on behalf of the client’. That grouping may be a small as 1 person employed by a contractor, as is often the case with cleaning small business premises.
Unfortunately there are a lot of grey areas in this legislation which means that some of the terms used in it do not have a clear definition and can only be decided by a Judge. The new law hasn’t really helped with that I’m afraid and in fact, not that much has changed in practice as most of what
is now included in the legislation was happening anyway because case law had padded out what was a very brief piece of legislation when it was first introduced.
So what has changed?
It has been clarified that where a Service Provision Change has taken place, the activities carried out before and after the change must be fundamentally the same. So, for example, if you tender for a contract that used to provide cleaning services to a block of offices, TUPE will only apply if you are contracted to provide cleaning services. You will then have to follow the procedures laid down to take on the staff and maintain their terms and conditions of employment.
It has always been the case that you could not make changes to employees’ contracts, or dismiss anyone who has TUPE’d in to you if your reasons are related to the transfer of undertaking. This has been clarified a little and now says that contracts cannot be changed if the changes are solely or principally because of the transfer. However, you can still make changes where the sole or principal reason for the change is an economical, technical or organisational reason entailing changes in the workforce. Let’s say you make a particular type of door and your main competition is in the same county and they offer to sell their business to you because it’s not their core product. You have up to date computer controlled equipment and they don’t so their process has required more staff to make fewer doors than yours does and you don’t need their staff and yours to double production. So you have to take on all their staff but you can then look at making some of the now joint workforce redundant for technical (more advanced production methods), economical (economies of scale) and organisational ( you don’t need as many people in some jobs, some jobs don’t need to be done and there are new roles too) reasons. What you can’t do is only select those who have transferred to you or that would be solely or principally because of the transfer and as such, unlawful. Remember you still need to follow a fair and legally compliant redundancy process. Changes which seek to align terms and conditions between existing staff and transferred staff would be unlawful as they are solely because of the transfer.
It may be that the transferred staff need to move to their new employers premises to continue working and so the law now says that a change to the location of the work is now covered by the phrase ‘entailing changes in the workforce’ and can be done without anyone saying it is solely because of the transfer. Of course, staff can choose not to transfer and if they do so they will be deemed to have resigned. However, if the change of location is major and makes it too difficult or expensive for an employee to transfer then they may claim constructive dismissal and if the tribunal deem that the changes constituted a ‘substantial change in working conditions’ and the employer is found to have acted unreasonably, they may win.
If more than a year has passed since the transfer and the employer needs to vary terms of the contracts of employment that were incorporated from collective agreements they can do so as long as the employees are no worse off overall.
There is a new provision that in some circumstances, rights to terms and conditions provided for in collective agreements which were entered into after the date of the transfer do not transfer. This is so that preferential changes to contracts which would have to be honoured by the new employer cannot be made to give the transferring staff an advantage that they would not have had but for the transfer. I have seen additional holiday added in, company sick pay provisions, pay rises etc. Such changes do not normally have to be matched by the new employer.
If you are what the legislation terms a ‘micro business’ with 10 or less employees you will not have to elect representatives to carry out your statutory duty to ‘inform and consult’ the staff who will be affected by the transfer but can do so directly by treating each employee as a representative for themselves. This duty to inform and consult involves making sure everyone knows what is happening ,and when, as soon as you know, along with any measures you expect the new employer to take including possible redundancies.
There is a legal requirement for the existing employer (the transferor) to provide the new employer (the transferee) with relevant information about the business and its staff. This is commonly known as NELI which stands for Notification of Employee Liability Information and includes all the details of the contracts of employment, employees details, any collective agreements, records of disciplinary action taken and grievances raised, details of any legal action taken by an employee in the 2 years prior to the transfer and any legal action that the transferor believes may subsequently arise. The deadline for providing this to the transferee used to be 14 days before the actual transfer but has now been increased to 28 days. This will give the transferee more time to check the data provided and have a better understanding of what they will be taking on should they proceed with the planned transaction. If the transferor fails to comply with this requirement and does not provide the information the transferee can take them to a Tribunal and may be awarded compensation of at least £500 per employee unless the Tribunal thinks this would be unjust if, for example, an honest mistake had been made rather than deliberately withholding information.
There has been an amendment made to the Trade Union and Labour Relations ( Consolidation) Act 1992 so that a transferee can start to consult on proposed collective redundancies (applicable where there are 20 or more staff) before the transfer takes place. The transferor must agree to this happening.
OTHER THINGS TO BE AWARE OF.
If you are tendering for a contract with the public sector the rules are much the same but be aware that there is separate specific guidance for transfers of admin functions and what to do about pension provision. We can point you to the appropriate Government documents.
It is usual for the transferee to ask for the contract to contain an indemnity to protect them from any losses which would otherwise have been incurred by any wrongdoing by the transferor such as breaches of contract or employment law.
The transferee must make sure they know in advance what their liability relating to pension provision will be as if the transferred employees already have a pension scheme then the transferee will also have to provide one and may have to match some of the provisions including the previous employers’ contributions in some circumstances. This can be a substantial cost and can affect the profitability of a new contract so make sure you look into this well in advance. If the transferee has already had to comply with auto enrolment then the new employees will also have to be enrolled when they transfer.
If the transferor is insolvent there are separate arrangements to assist a new owner who tries to rescue the business which, depending on the circumstances, may mean that not all the debts transfer and some changes to terms and conditions may be allowed if this will keep the business afloat.
Well I did warn you! I could go on-and on and on and on but that’s probably enough to be going on with. If you have any questions just give us a call.