Service provision changes – Reg 3(1)

A Practitioner’s view of TUPE
Alistair Smith
Transfer of Undertakings (Protection of Employment) Regulations
2006 (“TUPE”)
• Protect employees’ rights on business transfers
• Apply to “relevant transfers”
• Business transfers
• Service provision changes
• Transaction may satisfy both definitions
Business transfers – Reg 3(1)(a)
“Transfer of an undertaking, business or part of an undertaking or
business situated immediately before the transfer in the United
Kingdom to another person where there is a transfer of an economic
entity which retains its identity”
Economic entity = “an organised grouping of resources which has
the objective of pursuing an economic activity, whether or not that
activity is central or ancillary”
Service provision changes – Reg 3(1)(b)
(i) outsourcing - 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”);
(i) change of contractor - 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 on the client's behalf, or
(i) insourcing - activities cease to be carried out by a contractor or a
subsequent 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 the client on his own behalf.
Service provision changes - conditions
• immediately before transfer:
- there is an organised grouping of employees situated in Great
Britain which has as its principal purpose the carrying out of the
activities concerned on the client’s behalf;
- the client intends that the activities will, following the SPC, be
carried out by the transferee other than in connection with a single
specific event or task of short-term duration.
• the activities concerned do not consist wholly or mainly of the supply
of goods for the client's use.
Identify what transfers
• All the transferor's rights, powers, duties and liabilities under or in
connection with employment contracts of transferring employees,
which can include:- terms expressly contained in contracts of employment
- implied terms
- continuity of employment
- liability for past breaches of contract
- collective agreements
• Includes liability for all pre-transfer acts and omissions of or in
relation to the transferor in respect of transferring employees or their
contracts of employment
• Terms that cannot be replicated – equivalent terms
Identify who transfers – reg 4
• All employees employed by the transferor and assigned to the
transferred undertaking immediately before the transfer whose
employment would otherwise have been terminated by the transfer
• Definition of employee under TUPE is wider than under ERA 1996
• Any employee employed under a contract of service
• Independent contractors and self-employed do not transfer
• Right to object
Transferor’s Steps
• Elections?
• Inform and where necessary consult (in good time, with a view to
reaching agreement)
• Keep detailed notes of consultation meetings
• Ask the transferee about “measures” (no definition – need not be
detrimental - any action, step or arrangement inc. administrative
• Inform union/employee reps of own measures and transferee’s
measures in writing
• Employee liability information - in writing or other ‘readily accessible’
form - at least 2 weeks prior to completion or as soon as reasonably
practicable if special circumstances exist making that not possible
Transferee’s Steps
• Inform & consult own affected employees where necessary
• Write to transferor with information about measures it envisages
taking in connection with the transfer at such a time as will enable
the transferor to comply with its information requirements
• Due diligence
• Ask transferor for details of any assurances given
• Notify each transferring employee in writing no later than one month
after transfer of the identity of the new employer, date of
commencement of employment with new employer, date continuous
employment began, any other changes (improvements)
Note: no requirement to return disclosure information if the transaction
does not go ahead
To be provided by transferor and transferee of any affected
• fact and proposed date of the transfer
• reasons for the transfer
• legal, economic and social implications of the transfer for the
affected employees
• any measures which the relevant employer envisages taking in
relation to employees or, if there are none, that fact
• the number of agency workers working temporarily for and under the
supervision and direction of the employer , the parts of the
employer's undertaking in which those agency workers are working,
the type of work those agency workers are carrying out
Information (continued)
Transferor only:
• any measures it envisages the transferee will take in relation to any
such employees who will transfer to the transferee
• If the transferor envisages that no such measures will be taken by
the transferee, it must inform the representatives of that fact
• Duty to consult only applies if the transferor/transferee envisages
taking measures in relation to its employees
• Transferor obliged to inform but not consult about measures
envisaged by the transferee
Penalty for failure to inform and consult = just and equitable - up to
13 weeks’ pay per employee (actual pay, no cap) – joint and several
Duty to inform and consult applies to any employer with employees
who may be affected by the transfer or measures connected with it
(including any non-transferring employees who may be affected by
the transfer)
• No set timetable – depends on the circumstances
• No legal requirement to start the process immediately after a
transfer is proposed
• Must be early enough for the process to be completed before the
• Leave enough time for consultation – cut off point for consultation is
date of transfer
Automatically unfair if the sole or principal reason is:-
(a) the transfer itself; or
(b) a reason connected with the transfer that is not an economic,
technical or organisational reason entailing changes in the
workforce (“ETO” reason)
• Transferor cannot rely on transferee’s ETO reason to defend unfair
dismissal claim
• No time limit after which dismissal is safe
• Dismissal still has to be fair – s.98(4)
ETO reason
• Economic - the profitability or market performance of the new
employer’s business;
• Technical - the nature of the equipment or production processes
which the new employer operates; and
• Organisational - the management or organisational structure of the
new employer’s business
Changing Terms & Conditions
Only effective if the sole or principal reason for the variation is:(a) unconnected with the transfer; or
(b) connected with the transfer but is an ETO reason entailing changes
in the workforce
• Resign and treat themselves as constructively dismissed
• No provision in TUPE for a post-transfer period after which agreed
contractual changes can be made – always look at the reason for
the change
• Restrictions in harmonising terms and conditions
• More flexibility where transferring business is insolvent
Note: check for flexibility in contract – may not amount to a contractual
When else might it be possible to
implement consensual changes to t+c?
• Likely to be no issue where beneficial changes
Note: can’t defend detrimental changes by arguing better overall
package – beware of cherry picking
• Post-transfer re-organisation of the whole business
• Offer of new t+c’s where beneficial terms are clearly expressed to
be subject to detrimental changes
• Dismissal & re-engagement (compromise agreement)
• Employees agree to object to transfer & then re-engaged
Service provision change – potential
No contractual link between the outgoing/incoming contractors
• Reluctance of outgoing contractor to cooperate
• Outgoing contractor may try to increase benefits pre-transfer
• Potential for outgoing contractor to replace good staff with poor staff
before the transfer
• Clients may want control over who can access their premises
• Contractors may want some flexibility as to who works on the
contract to deal with fluctuating business demands
• Problems with mirror indemnities - no contract between outgoing
and incoming contractor
Practical considerations for clients in
service provision changes
• Include entry/exit provisions in contract between client and
contractor to help regulate the handover process
• Agree with contractor for employee liability information to be
provided at the end of the contract
• Warranties
• Include provision in contract preventing the contractor from subcontracting or assigning - must do the work itself
• Include provision in contract allowing the client to control the t+c of
the contractor’s employees employed on the client’s contract and to
control the number/quality of the employees carrying out the work on
the contract
Practical considerations for clients in
service provision changes (continued)
• Contractor’s staff to comply with policies/procedures while working
on the client’s premises
• Right to require contractor to remove staff who breach policies
• Standstill provisions – prevent outgoing contractor from changing
t+c between notice and expiry of contract
• Indemnities – each contractor indemnifies the client and any
predecessor or successor to the contract against all employment
liabilities relating to the period where they operated the contract
Other considerations
• Restrictive covenants
• Bonus schemes
• Pensions – general rule is that occupational pension schemes do
not transfer
• Level of transferee’s access to transferring employees pre-transfer –
transferor needs measures in place to protect itself from pre-transfer
dismissals – vet communications etc – negotiate indemnities
Contractual assurances
If false/inaccurate representations are made –can sue for damages
No right to rescind the contract for breach of warranty
Transferees want extensive warranties, transferors want limited
• Minimum liability floor? Only sums in excess of minimum will trigger
indemnity payment
• Time period within which period the party must be notified of any
intended claims for breach of warranty?
• Clause waiving any claims which do not reach or exceed a specified
Examples of common warranties
• Only the employees listed will transfer and no other employees
• The appropriate representatives have been informed and consulted
• No outstanding tribunal/civil claims or facts that could give rise to
such claims
• All PAYE etc. are paid up to the transfer date
• Transferee has informed transferor of all measures the transferee
will take in relation to the transferred employees
• No threatened or impending industrial dispute
• A promise to reimburse the other party if a particular type of liability
Examples of common indemnities
• Generally an indemnity for the transferor to indemnify the transferee
for all acts/omissions prior to the transfer and vice versa – “mirror
• General indemnity against acts or omissions
• Specific indemnity for redundancy and unfair dismissal claims
• Specific indemnity for protected awards
• Indemnity for specific employment claims
Compromise Agreements
• Can a transferee rely on a compromise agreement made
between a transferor and employee when faced with an unfair
dismissal claim by an employee dismissed by the transferor?
Yes (as long as the compromise agreement is concluded before the
date of transfer)
• If not entered into before the transfer - transferee must be a party
• Tripartite compromise agreements
• If the benefit does pass to transferee - transferor potentially without
protection so could seek to negotiate indemnities against the
Note: cannot compromise TUPE claims relating to employee liability
information or the duty to inform and consult
Any Questions?