TUPE consultation: Good news for outsourcing service providers

TUPE consultation: Good news for outsourcing service providers

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Author: Mumtaz Kynaston-Pearson

In April this year, the Department of Business Innovation and Skills launched a consultation seeking views on the Government's proposed reforms to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations).

The aim of the proposed reforms was to 'remove unnecessary gold-plating from the TUPE Regulations and remove unfair legal risks to companies carrying out transfers'.

Why were outsourcing service providers concerned?

One of the proposed changes put forward by the Government was to repeal the service provision change (SPC) rules.

A SPC includes: in-sourcing; out-sourcing; or re-sourcing (change of contractor) of a service where there is an organised group of individuals whose principal purpose is conducting the services which are transferred to a new service provider (within the UK).

Any changes to the SPC rules would be of great concern to both service providers and to any businesses that are reliant on outsourcing services due to the fact that the SPC provisions in the TUPE Regulations have offered greater legal certainty to transactions and have reduced the number of TUPE Regulation claims.

However, as the SPC provisions were not directly derived from the European Acquired Rights Directive, they were regarded by many as unnecessary 'gold plating'. The Government's position under the consultation was that repealing the amendments to the TUPE Regulations in relation to SPCs would help the UK economy by making it easier for businesses to change their service providers if and when the business so required.

If the proposed changes were to be adopted, and the SPC provisions were to be repealed, service providers would have to revert back to the position as set out in the European Acquired Rights Directive (i.e. before the introduction of the TUPE Regulations in 2006).

Unfortunately, the pre-2006 arrangement was ambiguous at best, and parties remained uncertain as to the extent the statutory test would apply in a SPC situation. This statutory uncertainty was compounded by the vagueness in case law making employers and service providers even more uncomfortable when it came to a SPC.

Consultation outcome: Government will not repeal the SPC rules

The majority of respondents to the consultation did not support the repeal of SPCs.

The general consensus was that the current TUPE Regulations brought clarity for businesses, service providers and transferring employees. Moreover, as businesses and service providers had become familiar with the current SPC rules they had in place robust processes to effectively manage service transfers.

The results of the consultation highlighted the fact that the repeal would mean returning to the pre-2006 situation and would mean a great deal of uncertainty as to whether a transfer was caught by the TUPE Regulations or not.

Many respondents considered that this uncertainty would make commercial transactions involving a change of service provider much more time consuming and expensive. This could also hinder smaller service providers from being able to participate in tenders due to the added long terms liabilities that they would end up having to take on to compensate for both the incumbent service provider's and the business' uncertainty regarding the transfer regime.

Due to the strong responses, the Government has decided that the 'SPC rules added in 2006 should remain un-amended'. This will undoubtedly come as a great relief to both businesses and service providers, as it means parties on both sides of a SPC will maintain the certainty offered under the TUPE Regulations.

A point to note

While it has been decided that the SPC provisions will not be repealed, the Government remains concerned about the case law that establishes the test as to whether a SPC has taken place.

Such concern predominantly revolves around the fact that one of the requirements of the test is that the activities of the transferred employees must remain 'fundamentally or essentially the same' as those conducted before the transfer.

Accordingly, it could be argued that the greater the difference in the activities (for example if the services are provided by the incoming service provider in a novel or innovative way), the less likely the transfer will be considered to be a change under the SPC provisions.

As such, the Government intends to make amendments to the TUPE Regulations to expressly set out the test on the degree of similarity of the activities to be undertaken by the incoming service provider.

While the exact wordings of the proposed amendments have yet to be decided, Shoosmiths will be on hand to advise businesses and service providers as to their requirements under the TUPE Regulations to make sure they do not fall foul of legislative changes made as a result of the consultation.