Employment law update

Transcription

1 Employment law update May 2005 Transfer of undertakings The new TUPE regulations - how will they affect your business? This month we focus on the revised TUPE regulations published in draft by the DTI on 15 March Currently where the TUPE regulations apply to a business transfer, any transfer-related dismissal will be automatically unfair for the purposes of UK employment protection legislation and all employees in the undertaking must transfer to the new employer on the same terms and conditions of employment. Any purported change in their contractual terms, even to allow for harmonisation of terms across the new workforce, will be void. When will TUPE apply? Special new rules for service provision change Deciding whether TUPE applies to any particular situation is, as the government acknowledges in the consultation document which accompanies the draft regulations, "the most extensively debated and litigated aspect of the existing regulations". The consultation document also states that the driving force behind the proposed changes is that, "The government considers that, ideally, everyone should know where they stand when a business sale or reorganisation, or a contracting-out or similar exercise, takes place so that employers can plan effectively in a climate of fair competition and affected employees are protected as a matter of course". Contents Transfer of undertakings The new TUPE regulations 1 When will TUPE apply? 1 Who transfers? 3 Rules on transfer-related dismissals clarified 4 Transferor to supply employee liability information 4 New rules in rescue cases 5 Penalties for failure to inform and consult 5 Joint liability for employer s liability insurance 6 Pensions 6 Collective agreements and trade union recognition 7 Next steps 7 TUPE regulations - breakfast seminar 7 New reg.3 is intended to make it clear when TUPE will apply by providing new definitions. These do not, in fact, make any great change from the current position but spell out that any change of service provider should normally fall within the scope of the TUPE regulations.

2 It is proposed that the TUPE regulations will now apply where there is either: a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another employer where there is a transfer of an economic entity which retains its identity; or (and this is new wording); a service provision change, described as "a situation in which: (i) activities cease to be carried out by a person ("a client") on his own behalf and are carried out instead by another person on the client's behalf ("a contractor"), (ii) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person ("a subsequent contractor") on the client's behalf, or (iii) in which the conditions set out in paragraph (3) are satisfied. The paragraph (3) conditions are that: (a) before the service provision change: (i) there is an organised grouping of employees situated immediately before the change in the United Kingdom which has as its principal purpose the carrying out of the activities concerned on behalf of the client (ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task; and (b) the activities concerned:... do not consist wholly or mainly of the procurement or supply of goods for the client's use the new definition of a "service provision change" includes secondstage outsourcing (switching contractors) and bringing the service back in-house "service provision change" does not apply to service providers where there is no "organised grouping of employees" (such as motor cycle couriers) or more than one client (such as travel agents) in order to show where the dividing line falls, the DTI gives the example of two catering contracts. If a client engages a contractor to supply sandwiches and drinks to its canteen every day for the client to sell to its own staff, there will be no TUPE transfer if the client decides to switch to a new supplier. However, if the contract is for the contractor to run the client's staff canteen, then the reallocation of that contract will constitute a TUPE transfer as the main activities under the contract will consist of tasks such as managing the facilities and serving customers the one policy question on which the DTI still invites comment is whether there should be an express exemption for the provision of professional business services, such as accountancy, legal services and business consultancy 2

3 there is no special provision for transfers within the public sector. Existing Cabinet Office guidelines will still apply. However, it is made clear that an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities will not be a relevant transfer Who transfers? New reg.4 alters the existing definitions slightly. Automatic continuity of employment is now granted to any person employed by the transferor "and assigned to the organised grouping of resources or employees that is subject to the relevant transfer." New reg.4(3) states that this will include any person who is so employed immediately before the transfer or who would have been so employed if he had not been unfairly dismissed for a transfer-related reason. This is intended to protect employees dismissed pre-transfer by a transferor in an effort to make the business more attractive to any potential transferee. Although this is a new provision, it is not new law. As long ago as 1989, the House of Lords stated, in the case of Litster, that the TUPE regulations had to be interpreted as giving such employees protection. Otherwise, it would be too easy for the parties to a business transfer agreement to avoid their obligations under TUPE altogether. Point to note: The word "assigned" is defined in reg.2 as meaning "assigned other than on a temporary basis". This is intended to accord with the EAT decision in the case of Bademosi. The claimant was a security guard who had been temporarily transferred from his usual place of work to another site for a period of one year. The EAT said that he was not "assigned" to that site when the provision of security services there was transferred to a new contractor. He remained an employee of the transferor because his assignment was a temporary placement. Although the wording of regs 2 and 3 reflects this decision, it will not make it any easier for employers to decide when an assignment will be found to be "temporary" and when it will not. Changes to terms and conditions New draft regulation 4 replaces existing reg.5. The existing rules banning all transfer-related variations to terms and conditions are relaxed. New reg.4(5) provides that the employer and employee may agree to vary the contract if "the sole or principal reason for the variation is: a reason connected with the transfer that is an economic, technical or organisational reason ("an ETO reason") entailing changes in the workforce, or a reason unconnected with the transfer" it remains to be seen how tribunals will interpret the wording of the new exception. It is intended to mirror the exception already provided in the case of transfer-related dismissals (see below) and to encourage employers, in appropriate circumstances, to negotiate variations to existing contracts rather than effect contract change by the heavyhanded method of terminating existing contracts and issuing employees with new ones. 3

4 the DTI have not taken the opportunity to clarify exactly what the phrase "entailing changes in the workforce" in reg.4(5)(a) means. When dealing with a transferrelated dismissal, where the employer in the case of Berriman tried to argue that the dismissal was for an ETO reason and therefore not unfair, the Court of Appeal held that, "entailing changes in the workforce" meant that there had to be a change in the overall numbers or job functions for the exception to apply. If so, then the "ETO reason" exception will not be enough to enable transferee employers to vary employee contract terms to harmonise terms on which employees carry out their existing job functions. Rules on transfer-related dismissals clarified Draft reg.7 replaces existing reg.8 and clarifies the existing rules on transferrelated dismissals. A dismissal will be automatically unfair if the sole or principal reason for the dismissal is: (a) the transfer itself, or (b) a reason connected with the transfer which is not an ETO reason entailing changes in the workforce However, draft reg. 7(3) now states that where the dismissal is for an ETO reason entailing changes in the workforce of either the transferor or the transferee after a relevant transfer, then, subject to the usual statutory tests, the dismissal may be regarded as a fair dismissal for the purposes of the Employment Rights Act 1996, being either on grounds of redundancy or for a substantial reason of a kind such as to justify dismissal. Transferor to supply "employee liability information" New draft regs 11 and 12 introduce a new requirement for the old employer (the transferor) to notify the new employer (the transferee) in writing of the identities of every employee "who is assigned to the organised grouping of resources or employees that is the subject of the relevant transfer" and of all associated rights and liabilities. what is referred to here is "information which is or ought to be known to the transferor". Ignorance is no defence the information may be given in more than one instalment and indirectly, through a third party, e.g. the client under new reg.11, the information only has to be provided "in good time before the relevant transfer", i.e. when a transfer is already under negotiation. Most contractors already require such information in advance before they will tender for a service contract the transferee's remedy for any failure to comply with new reg.11 will be to apply to the High Court for compensation from the transferor (referred to as a "penalty" and thus not necessarily limited to the amount of any actual loss) up to a maximum of 75,000 4

5 New rules in "rescue" cases Draft regs 8 and 9 are completely new and relax the application of the TUPE regulations in certain insolvency situations. In the past, the application of TUPE has made it difficult for receivers appointed under the Insolvency Act 1986 to sell off viable businesses (or parts of businesses). The relevant EU Directive gave Member States the option of deciding whether or not the Directive should apply in any insolvency situation. The UK government has decided on a twopronged approach: TUPE will not apply at all where the transferor is subject to bankruptcy or corporate insolvency proceedings instituted with a view to liquidating its assets (reg.8(6)); but in all other insolvency proceedings ("rescue" cases) which are "opened in relation to the transferor not with a view to the liquidation of assets", i.e. administration, voluntary arrangements, receivership etc, a modified version of the TUPE regulations will apply. For the purposes of the "relevant statutory schemes", the transferor's employees will be treated not as having automatic continuity of employment under TUPE but as having their contracts terminated at the date of transfer. The "relevant statutory schemes" are those provided by the DTI to ensure that such employees receive their statutory redundancy payments and arrears of pay from the DTI. This means that liability for such payments will not pass under TUPE to any transferee, who might be considering a "rescue" of the business but would be deterred by taking on liability for what might well be substantial redundancy payments and other arrears due to employees reg.9 also allows for "permitted variation" of contractual terms in "rescue" cases. To be valid, a permitted variation must be negotiated with an appropriate representative, recorded in writing, and copied to all affected employees before it is signed. It is only a permitted variation under reg.9 if it is for a transfer-related reason which is not an ETO reason entailing changes in the workforce and it is designed to safeguard employment opportunities by ensuring the survival of the business in a "rescue" case, the transferee will still take on responsibility for liabilities owed by the transferor to an employee that are not covered by the "relevant statutory schemes" (for instance, liability for a preexisting personal injury claim) reg.9 does not cover contract variations that are for a transferrelated reason that is an ETO reason entailing changes in the workforce because such a variation can now be made under new reg.4 without any need to comply with the conditions attached to contract variation by reg.9 Penalties for failure to inform and consult New regs mirror old regs 10 and 11 on the employer's duty to inform and consult representatives of affected employees about the transfer. This burden usually falls on the transferor, being the pre-transfer employer. There has been conflicting case law on whether liability for the transferor's failure to consult should pass automatically, if somewhat unfairly, under TUPE to the transferee. 5

6 However, new reg.15(9) provides that the transferor and transferee shall be jointly and severally liable for any failure to consult. This means that an employee seeking redress will be able to choose whether to claim against the transferor or the transferee or both. In practice, the employee will probably choose which party is best able to pay. The only other significant change here is that new reg. 13(12) now states that the duty to inform and consult applies "irrespective of whether the decision resulting in the relevant transfer is taken by the employer or a person controlling the employer" and new reg.15(6) states that a failure on the part of a person controlling (directly or indirectly) the employer shall not constitute special circumstances rendering it not reasonably practicable for the employer to comply with the duty (that is to say, giving the employer a defence for failure to comply). parties to a business transfer or service provision change agreement subject to TUPE should review any indemnity clauses to ensure that they accurately reflect the new joint and several liability for failure to consult in its consultation document, the DTI says that there is a similar argument for making the transferor and transferee jointly and severally liable for the "protective award" for failure to comply with the information and consultation in relation to collective redundancies under the provisions of the Trade Union & Labour Relations Act 1992 where redundancies are made for a transfer-related reason. At this stage, this proposal is only under consideration by the DTI Joint liability for employer's liability insurance New reg.16 makes new provision for joint liability of transferor and transferee in respect of employer's liability insurance. This will only apply where the transferor is exempt from insuring against liability to employees for bodily injury and disease arising from their employment under the Employers' Liability (Compulsory Insurance) Act In practice, this provision will only apply where there is a public sector transferor with no insurance cover. The Court of Appeal has settled, in the joined cases of Bernadone and Martin, that, where there is cover, the benefit of any such cover effected by the transferor in compliance with statutory requirements will pass under TUPE to the transferee. Pensions There is no material change to the wording of the TUPE provisions on pensions - new reg.10 replaces old reg.7 and states that contract terms relating to occupational pension schemes do not transfer. However, in practice, the Government, as a matter of policy (set out in the Cabinet Office Statement of Practice Staff Transfers in the Public Sector) continues to give public sector employees a guarantee of a "broadly comparable" pension entitlement on transfer to a private sector employer. In the private sector, the position changed when sections 257 and 258 (2) (c) (ii) and (7) of the Pensions Act 2004 and the Transfer of Undertakings (Pension Protection) Regulations 2005 (SI 2005/649) came into force on 6 April Employees who were members of an occupational pension scheme prior to a TUPE transfer must now be provided 6

7 by the transferee employer with a pension scheme. It does not have to match the previous scheme and can be a money purchase, final salary or stakeholder scheme. The employer is required to make contributions to the scheme up to 6% of pensionable pay. Collective agreements and trade union recognition No changes are made as to the effect of a transfer on collective agreements or trade union recognition. New regs 5 and 6 mirror old regs 6 and 9. Collective agreements will automatically transfer but, as such agreements are not legally binding contracts, the transferee may terminate the agreement and derecognise any recognised trade union, at any time after transfer. Point to note: These regulations deal with voluntary trade union recognition agreements. Employers should appreciate that trade union recognition achieved as a result of the statutory compulsory recognition procedure by application to the CAC under the provisions of the Employment Relations Act 2004 will be preserved on a TUPE transfer and can only be reversed by applying the procedures set out under that Act. Next steps The DTI is keen that the draft regulations should become law on 1 October At present, the draft regulations contain no transitional provisions but the DTI indicates that it may include some in the final version to allow time for businesses to come to terms with the changes that the draft regulations make to the current legal regime. TUPE regulations - breakfast seminar Take the discussion further and let us address particular issues affecting you - the Employment Group at Bird & Bird will be holding a breakfast seminar on the new TUPE regulations from 9am to 10.30am on 22 September You will be receiving an invitation in due course and we look forward to seeing you there. 7

8 Beijing Brussels Düsseldorf The Hague Hong Kong 3614, China World Trade Centre, Tower 1 1 Jianguomenwai Dajie Chaoyang District Beijing PRC Tel: Fax: Avenue d'auderghem Brussels Belgium Tel: +32 (0) Fax: +32 (0) Karl-Theodor-Strasse Düsseldorf Germany Tel: +49 (0) Fax: +49 (0) Parkstraat JD The Hague P.O. Box GH The Hague The Netherlands Tel: +31 (0) Fax: +31 (0) /F ICBC Tower Citibank Plaza 3 Garden Road Hong Kong Tel: Fax: London Milan Munich Paris Stockholm 90 Fetter Lane London EC4A 1JP UK Tel: +44 (0) Fax: +44 (0) Via Montenapoleone, Milan Italy Tel: Fax: Pacellistrasse Munich Germany Tel: +49 (0) Fax: +49 (0) Centre d Affaires Edouard VII 3 square Edouard VII Paris France Tel: +33 (0) Fax: +33 (0) Norrlandsgatan 15 Box 7714 SE Stockholm Sweden Tel: +46 (0) Fax: +46 (0)