TUPE round up
Our pick of the most important recent developments in the sector.

Updated August 2011

Review of TUPE

On 11 May 2011 the Government announced that it would "look in detail" at the case for reforming TUPE. It will consider whether TUPE goes further than is required under the European law which it is intended to implement (so called "gold-plating"), and also whether it is overly bureaucratic. Much of TUPE simply enacts European law, and therefore can’t be altered without a re-negotiation of the Acquired Rights Directive. However one aspect that arguably goes further than European law is the concept of the "service provision change", which was introduced in 2006. Ironically the service provision change was intended to promote greater certainty as to whether TUPE applied, which at least some businesses were keen to see.

There is no timescale for any changes other than that the review will start "this year".

Union agreed terms - key legal decision awaited

A possible example of "gold plating" in UK law (albeit one deriving from the decisions of UK courts rather than the wording of TUPE) is the treatment of union agreed terms. Many former public sector workers have terms which are governed (either expressly or by custom and practice) by arrangements between the unions and national employer groupings (usually public sector based), such as the NJC. This has the potential effect under UK contract law of requiring private sector employers not just to honour existing terms/pay rates following transfer, but also to implement pay deals agreed post transfer. This would be despite the fact that as private sector employers they would have no control or influence over the relevant negotiations. Following the ECJ decision of Werhof, the UK Court of Appeal in Alemo Herron held in 2010 that while employers must still abide by terms and pay scales in place at the time of transfer, employers would not have to honour new deals agreed post transfer by the NJC (or similar) in the future. This would be likely to mean that as and when deals "expired", the private sector employer would regain control of future pay increases.

However the case was appealed to the Supreme Court, which has now referred it to the ECJ. The Supreme Court indicated that under UK contract law the employees would be entitled to future pay increases. The issue, according to the Supreme Court, is whether the UK must abide by the narrower interpretation apparently favoured by the ECJ in previous decisions. The tenor of the decision is that the Supreme Court believes the Court of Appeal was wrong, and the more "employee friendly" UK rules should apply.

For now UK employers can either follow the Court of Appeal decision, which arguably remains good law, and hope it is upheld by the ECJ, or proceed cautiously in case new pay rises are eventually held to be binding, and seek to mitigate the effect with negotiated indemnities or pricing mechanisms which adjust automatically if salary costs increase.

What measures must be notified to employee representatives, and when must you consult?

TUPE requires the notification to employee representatives of employment measures that will be taken in connection with the transfer. In some circumstances measures may also trigger an obligation to consult.

Todd v Strain (2011) has confirmed that even apparently minor and non detrimental changes in relation to transferring employees may need to be disclosed and subject to consultation. In this case the payment of three days' wages in advance, and a minor payment of holiday pay which was then to be reclaimed by the new employer, were held to be "measures" under TUPE. Given that a court previously held that "inevitable administrative consequences" did not count as measures, there is a fine balance to be struck and the prudent approach may be, if in doubt, disclose.

Although consultation by both incoming and outgoing employers will often be undertaken as a practical way of assisting with the transition, or as a customer requirement, don’t forget that the strict obligations under TUPE are quite narrow. Although the wording isn’t as clear as it might be, the likely position is:

• If there are no measures, there is no obligation to consult
• The outgoing employer has to inform the representatives of its employees about measures to be taken in respect of them by either employer
• Actual consultation is only required by an employer in relation to measures it intends to take in relation to its own employees.

To put it another way, if the only measures to be taken in relation to the transferring employees are to be taken by the new employer after the transfer, there will be no obligation to consult those employees under TUPE pre transfer.

Two Tier Workforce

In case you missed it, the obligation to include two tier workforce restrictions in respect of new contracts was removed for central government departments in December 2010. As a result the March 2005 Code of Practice on Workforce Matters has been withdrawn. A similar announcement in respect of new local government contracts was made on 23 March 2011. Restrictions already in place in existing contracts remain in force, subject to agreement with the relevant government department/local authority.

Fair Deal

Separately, on 3 March 2011 the Government announced a consultation process on the future of the "Fair Deal" policy. Since 1999 Fair Deal has provided public sector employees transferring to the private sector with substantial (and costly) pension protection, including the right to accrue future pension benefits in either a public sector scheme or a contractor's scheme which provides "broadly comparable" benefits.
The Government has put forward three options for how these matters could be dealt with in the future:

• No change to Fair Deal - but concern was raised that this would not tackle the current barriers to widening of public service provision (for example, to charities and the wider private sector).
• Reforming Fair Deal eg as to the type of pension scheme to be provided, the level of employee and employer contributions payable and the basis upon which future benefits shall accrue.
• Abolishing Fair Deal completely - Future outsourcing agreements would simply be subject to TUPE, which prescribes certain minimum requirements for employer contributions (generally much more affordable and limited than providing broadly comparable benefits to a public sector scheme). This approach would have a significant impact on the value of future pension benefits for transferring public sector employees but would consequently reduce costs for private sector contractors.

It is likely that any contractual obligations which would require the current Fair Deal requirements to continue on a retendering will, it seems, survive any revision to Fair Deal.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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