Transfer of Undertakings (Protection of Employment) Regulations 2006

From Wikipedia, the free encyclopedia

Tupe is also the name of a place in Peru, in the "provincia de Yauyos", "departamento de Lima".

The Transfer of Undertakings (Protection of Employment) Regulations 2006, or "TUPE", pronounced like "2p", (SI 2006/246) are the United Kingdom's implementation of the European Community's new "Acquired Rights Directive" (2001/23/EC). It is an important part of UK labour law, protecting employees whose business is being transferred to another business. The 2006 regulations replace the old 1981 regulations (SI 1981/1794) which implemented the original Directive (77/187/EEC).

The regulations' main aims are to ensure that,

  • just because of the transfer, employees are not dismissed before or after (unless there is an 'economic, technical or organisational' reason, r.7(1)(b))
  • employees most important terms and conditions of contracts are not worsened before or after the transfer (unless there is an 'economic, technical or organisational' reason, r.4(4)(b))
  • affected employees are informed and consulted through representatives

This does not apply to transfers which go merely through the sale of a company's shares. When that happens, because the company is still the same company, all contractual obligations stay the same. The Directive and Regulations apply to other forms of transfer, through sale of physical assets and leases. The regulations also apply in some cases for work transferred to contractors. This protected contract terms for workers include hours of work, pay, length of service and so on, but pension entitlement is excluded.

Contents

[edit] Example

Imagine a company that has in-house cleaners. The company decides that they want to tender-out the contract for cleaning services. The new company that takes over the work may employ the same cleaners. If it does so, TUPE will make it likely that the new employer will have to employ the cleaners subject to the same terms and conditions as they had under the original employer.

If any staff are dismissed by either employer for a reason connected with the new arrangement this will automatically be deemed an unfair dismissal and the new employer will be liable for any statutory claims arising as a result.

This is also the case where a target business (as distinct from shares in a company) is bought from company A by company B (often much larger) and integrated with the business of company B.

[edit] Benefits

The benefits to individual workers is clear; TUPE prevents the possibility of everybody in the firm losing their jobs, just because the company providing the service changes. This gives employees increased certainty.

[edit] Criticism

A side-effect of the new regulations could prove unfortunate for some employers. This has been particularly highlighted in connection with law firms.

According to the Law Society's magazine, The Law Gazette, law firms might be forced to employ teams of lawyers when taking over contracts[1].

Under the new rules, if a client decides to source their legal work from a different provider, the legal team from the old provider would be entitled to transfer to the new provider under the same terms and conditions as before; if the new provider were to object, the new employees would be entitled to sue for unfair dismissal.

Dr John McMullen, an expert on TUPE, is quoted as saying: "If you had an organised grouping of solicitors at a law firm devoted to one client, and that client said 'I do not want this law firm, I will appoint law firm X', then TUPE 2006 could apply so that—contrary to what the client is expecting or wanting—it may find that the lawyers would have the right to turn up at the newly appointed law firm. The definition of 'organised group' can be just one person."

Objections to the new regulations had been raised during consultation[2]. An exemption for professional services firms had apparently been mooted by the government but was eventually ruled out.

There are potential problems for employees as well. An employee might not want to transfer to the new employer. But they have no option to seek redundancy from their current employer, even though their post is being effectively being deleted. They must either transfer against their will, or resign their employment.

[edit] Anomalies

When the new company takes over the work of its predecessor, it must take on the staff with the same terms and conditions that they enjoyed before. This can create the situation where a worker whose old contract gave her five weeks' holiday is working alongside an employee of the new company, doing the same work, and being of the same rank getting only two weeks' holiday.

Given that the basic purpose of TUPE is to provide protection to employees it is somewhat bizarre that this first reported use of the new "service provider" rules should be by an employer. An advertising agency is reported to be using TUPE 2006 in an attempt to off-load its responsibilities to staff after an important client, Boots Healthcare, transferred its business to a different agency. The first agency argues that the staff servicing the account were an "organised grouping of employees" and that therefore under the regulations their employment transferred automatically to the other agency when the client moved its account to the other agency. If the case goes to trial, it is likely to be of great interest as a first test of the consequences of the government's decision not to include a "professional firm exemption" from the service transfer part of new TUPE.

[edit] Legal summary

[edit] 2001 Directive

Chapter I - Scope and definitions

Article 1 This says the directive applies to legal transfers and mergers of an undertaking. The point to note is that it excludes transfers of company control through a simple purchase of shares, which is the most common way to effect a change in the market for corporate control.

Article 2 This gives definitions of transferor, transferee and the like.

Chapter II - Safeguarding of employees' rights

Article 3 This states the principle that the transferee is bound to the contractual and employment law obligations of the transferor. The transferor has to state what these are beforehand.

Article 4 This provides the idea that dismissals should not take place just because there is a transfer. But dismissals can be made for 'any economic, technical and organisational reason'.

Article 5 Member states can derogate from Art. 3 and 4 where the company is insolvent.

Article 6 This states that employee representatives positions should not change where the undertaking retains autonomy through the transfer. It is talking mainly about unions.

Chapter III - Information and consultation

Article 7 This provides that employers thinking of transfers must consult with the workforce before hand, through employee representatives.

Chapter IV - Final provisions

Article 8-14 These articles are addressed to the Member States, and talk about implementation maps, and notifications to the Commission of opinions or changes.

[edit] 2006 Regulations

1. Citation, commencement and extent
2. Interpretation
3. A relevant transfer
  • this takes on the Spijkers language of whether an entity retains its identity, r.3(1)(a)
  • the definition of economic entity as an 'organised grouping of resources' comes from Suzen too, r.3(2).
  • it also now applies explicitly to a 'service provision change', i.e. contracting out services. An example of this case is RCO Support Services, r.3(1)(b)
  • the reg's make clear that a service which is merely performing a 'single specified task' does not fall within TUPE, r.3(3)(a)(ii)
  • the definition of an undertaking, to which the regulations apply as something engaged in economic activities, whether public or private, comes from an EC competition law case called Hofner & Elser v. Macrotron GmbH, r.3(4)(a)
  • a new exception is that an 'administrative reorganisation of public administrative authorities' will fall outside TUPE's scope is still unknown in its effect, r.3(5)
4. Effect of relevant transfer on contracts of employment
  • the core of this law, r.4(1) provides that employment contracts 'shall have effect after the transfer as if originally made between the person so employed and the transferee'. So new business buyers cannot escape the old business' obligations to its workforce
  • it also points out that to fall within the protection of TUPE, you had to have an employment contract "immediately before the transfer", r.4(3). This was the issue in Litster v. Forth Dry Dock [1989] ICR 341, where a relaxed and purposive interpretation was given. So, "immediately" can really mean a while, with wiggle room.
  • in r.4(4) it says that variations of employment terms 'shall be void' if the main reason is the transfer itself or 'a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.' In r.4(5) it is emphasised that employees and employers can agree to change terms where this is not the case. The normal rule is that even consensual agreements are void.
  • where an employee objects to the change in the identity of the employer, then r.4(7) states he will not become one. He is to be treated as if his contract terminated when the transfer takes place, but that he is not dismissed (unless of course the employer actually does dismiss him), r.4(8). This issue came up in Wilson v. St Helens Borough Council [1999] 2 AC 52
  • where the contract is varied detrimentally on transfer, employees can treat themselves as dismissed by the employer
5. Effect of relevant transfer on collective agreements
6. Effect of relevant transfer on trade union recognition
7. Dismissal of employee because of relevant transfer
  • states that employees will be considered dismissed unfairly, if they are dismissed without the employer showing an economic, technical or organisational reason for dismissal. What is certainly not included in this concept is dismissals simply to improve the price of the company before its sale.[3]
  • where there is an economic, technical or organisational reason for dismissals, these are considered 'substantial reasons' (i.e. justified reasons) under the fair dismissal provisions of the Employment Rights Act 1996 (s.98(2)(c)). The result for the employee is that he is considered redundnant, and thereby should receive a compensation payment if they have been an employee for more than two years under s.135 ERA 1996.
  • importantly, an employee dismissed by the seller of the business is deemed to have been dismissed by the purchaser too. This means an unfair dismissal claim can be brought against either party.
8. Insolvency
9. Variations of contract where transferors are subject to relevant insolvency proceedings
10. Pensions
11. Notification of Employee Liability Information
12. Remedy for failure to notify employee liability information
13. Duty to inform and consult representatives
14. Election of employee representatives
15. Failure to inform or consult
16. Failure to inform or consult, supplemental
17. Employers' Liability Compulsory Insurance
18. Restriction on contracting out

[edit] Cases

[edit] See also

Law outside the UK

[edit] Notes

  1. ^ Rothwell, Rachel. "TUPE changes 'force' legal teams on firms", The Law Gazette, Law Society, 2006-03-09. 
  2. ^ Rohan, Paula. "TUPE could force lawyer moves", The Law Gazette, Law Society, 2005-05-26. 
  3. ^ Whitehouse v. Charles A Blatchford & Son Ltd [2000] ICR 542, says the reason would have to be one connected with the business' future prospects. This indicates that dismissals by the transferor will probably always be automatically unfair (because they will not be there in future!)

[edit] External links