TUPE restyled

It is said that employment lawyers have only one joke, and I am indebted to Parliament for providing the first and only legitimate excuse to air it: TUPE or not TUPE - that is the question.



For the long-awaited replacement for TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 1981 - is now set to come into force on 6 April 2006. Cunningly restyled as the Transfer of Undertakings (Protection of Employment) Regulations 2006, the inadvertent might be forgiven for rejoicing that the headache is over. But are they premature?



The 1981 regulations caused significant difficulty from the outset for those UK lawyers involved, at any level, in advising on business transfers (the transfer of shares of itself being and remaining outside the regulations). Derived as they were from the European Acquired Rights Directive, the regulations introduced for the first time the concepts of an 'undertaking' and a 'relevant transfer'. Although we understood what amounted to a 'going concern', these new concepts were alien to UK law. All that was clear is that they were something different.


After almost 25 years, courts and tribunals have been able to clarify the position somewhat, and we are already clearer that a 'relevant transfer' will take place where an 'undertaking' amounts to an 'economic entity' prior to a transfer and where it 'retains its identity' after the transfer. But the question as to whether a simple change in service provider (for example, a change in cleaning contractor) could potentially amount to a relevant transfer had still not been adequately resolved, despite cases such as Suzen v Zenhacker [1997] IRLR 225.


The new regulations helpfully bring these concepts in from the cold and they are now incorporated firmly at regulation 3. However, while a change in service provider will now clearly be deemed to be a TUPE transfer, the wording of the new provision is still likely to cause problems. At the same time, the core of the regulations, namely the automated transfer of rights and obligations to the transferee and that of a TUPE-related dismissal being automatically regarded as an unfair dismissal - in the absence of an 'economic, technical or organisational' (ETO) reason - remain essentially unchanged.



The new regulations continue the provision for the election of representatives in respect of all 'affected employees' (as always a broader group than simply those who are to transfer), and again the wording is helpfully tidied. Equally, provision is again made to prescribe the information they should receive and to state the duty of consultation (new regulation 13). In respect of the election of representatives, the process remains unchanged.


Indeed, on a cursory comparison, practitioners could be forgiven for viewing the new regulations as a friend, a conveniently codified and updated view of this difficult area of law. And after 25 years, why not?


Sadly, this has not been the case, and practitioners will still be obliged to rely on their own latent knowledge. Take pensions, for example. As with the current regulations, some will still be misled by what will now be regulation 10, which excludes occupational pension schemes from the main impact of the regulations. At the same time, the new regulations still discretely include the oft-forgotten provision that such schemes fall within the main terms of TUPE in so far as they do not relate to benefits for old age. There also remains no cross-reference to the provisions of the Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005, which impose obligations on the transferee.


As some issues are resolved, controversy has been created in other areas, not least given the decision that employees and employers should be permitted under the regulations to agree changes to the employee's terms and conditions of employment (either before or after transfer). The provision, under new regulation 4(5), is limited to circumstances where the sole or principal reason for the variation is an ETO reason or a reason unconnected with the transfer.


Bigger changes come with new regulation 11 (the express requirement that the transferor provide the transferee with certain key information relating to the transferring employees); regulation 12 (which provides a remedy to transferees, including compensation, where they do not receive such information); and regulation 15 (compensation in the event of a failure to inform or consult).


Although this may seem welcome, there is nothing in the European directive that expressly permits this and arguably the provision contradicts the principles established by European case law, which do not permit variations for ETO reasons under the directive. There are also many subtleties in the changes made to other areas, and while the new regulations may clarify some old areas of discussion, there will remain plenty about which to argue.


While both the old and new regulations provide that the transferor/transferee should do their own informing/consulting with their affected employees, the issue of whether liability for any failings of the transferor should pass to the transferee had been the source of fierce debate under the current regime. New regulations 15(7) and 15(8) now make it clear that they are each responsible for their own sins, although to protect employees the transferor and transferee will be jointly and severally responsible for any award made on these grounds against the transferor under regulation 15(9).


Accordingly, while such provisions may do something to ease the burden when drafting business transfer agreements, the wise will still be forced to seek their own contractual provisions, not least including specific indemnities to clarify exactly who will be responsible for paying any compensation in the event of any breach. Given the potential cost, and possible joint liability, those taking over as new contractors will do well to agree indemnities with their principal in advance.


For some, the regulations have helpfully brought the statutory position up to date. For others, areas of debate have been calmed only for new areas to flare up. So, are there any real beneficiaries under the new regime? There is certainly one - insolvency.


Under new regulation 9, TUPE will allow insolvency practitioners in particular to vary the contracts of employment of transferring employees prior to the transfer taking place. This provision applies only where insolvency proceedings have been opened against the transferor, and admittedly will require agreement with the appropriate representatives. It is also limited to use where the variation is designed to 'safeguard employment opportunities' by ensuring the survival of the undertaking that is to be transferred.


Certain debts will not transfer over. If these provisions are used as 'sparingly' as other special rights enjoyed by insolvency practitioners, we may be forgiven for seeing this as an approach that could become the 'norm' in fire sales. While this may assist both transferor and transferee, the employees of businesses teetering on the edge of insolvency, watch out since only the right to object to the transfer (and the legal oblivion that follows) may be all that remains for them of TUPE.


And so TUPE is still TUPE - very much so, and that is the answer. Whether the new regulations leave us 'nobler in the mind' remains to be seen.



By Darren Clayton, Doyle Clayton, London