A consultation on removing the service change provisions from TUPE has been launched.
As predicted, the Government has announced it is proposing to make some significant changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), including removing the provision that deals with service provision changes (i.e. in-sourcing, outsourcing or re-sourcing).
History of the law
The concept of a "TUPE transfer" was originally introduced into UK law in 1981 when Regulations were brought into force to implement the European Acquired Rights Directive (the Directive). The aim was to protect an individual's employment when the business in which they were working transferred to a new owner.
The 1981 Regulations applied only where there was a transfer of an undertaking or part of an undertaking.
There was however much uncertainty (both in the UK and other European jurisdictions) as to the extent of the legislation and, in particular, whether it applied where there was a change of contractor providing services to a client, for example, following a competitive tendering exercise.
Following much case law from the European Court of Justice, the Directive itself was amended and the 1981 Regulations were replaced by new regulations which came into force in the UK in 2006.
At that time, the Government took the opportunity to further develop the law in the UK by expressly providing that TUPE would also apply where there was a service provision change. Broadly this covers:
- re-sourcing (change of contractor)
although, there must be an organised group of individuals in Great Britain whose principal purpose is carrying out activities which are transferred to a new provider.
This was seen at the time as helpful clarification which would deliver much needed certainty for clients, contractors and employees about when TUPE applied. However, it was not something which the UK was compelled to do by European law. Subsequently, it has come to be regarded as unnecessary "gold plating" of the Directive.
If the proposals are adopted, what would the law in the UK be in relation to service provision changes?
If the service provision change references are removed from TUPE and no further clarification is provided, the position will return to that which existed prior to 2006; parties will be left looking up old case law to assess whether TUPE applies to their situation or not.
What effect would the proposed changes have on businesses?
As the question of whether TUPE applies is highly fact specific in every case and the employment tribunal is the final arbiter of the fact it will be very hard, in borderline cases, for businesses to know for sure whether or not TUPE will apply to their transaction. This will affect questions such as whether redundancy payments will be due and whether informing and consultation is needed. Contractors are likely to price accordingly, ultimately the client will pay for the uncertainty. It will also be hard for lawyers to advise definitively leaving space for debate and challenge. This is likely to result in more litigation and lengthy delays as cases make their way through the Courts.
What happens next?
The consultation is open until 11 April 2013 and the Government will publish its response within 12 weeks of the consultation closing. If the consultation supports change to the TUPE, it will seek to introduce changes to the legislation in October 2013.
However, the Government recognises that service providers may have entered into existing contracts on the assumption that TUPE will apply at the end of the contract. The Government also notes that the outsourcing process, from planning for a tender until eventual transfer, can be a long period, and for larger and more complex services could take a year or longer.
In light of these factors, the Government recognises that a lead-in period prior to any repeal or other change taking effect would be important to allow those providing services and the recipients of them, to plan for the change in the law.