TUPE - The Date of Transfer

The Department of Trade and Industry (DTI) has issued guidance on the new laws, which protect employees when the undertaking in which they work is transferred. This will apply once TUPE 2006 comes into force

The scope of the law has been widened. Situations where services are outsourced, insourced or assigned by a client to a new contractor (all know as “service provision changes”) are now expressly covered. TUPE 2006 will apply unless certain conditions are not met or the service provision is on a one off basis or of short-term duration. Importantly, TUPE 2006 could apply to changes by clients of providers of professional services e.g. lawyers or accountants if one or more employees are dedicated to servicing that particular client.

There is a new statutory duty on the transferor employer to provide information to the transferee about employees who will transfer. This information must be provided at least 2 weeks before completion of the transfer and includes: 

• The identity and the age of the employees who will transfer;
• The information contained in their written particulars of employment;
• Information on any collective agreements affecting those employees which will still have effect after the transfer;
• Details of any disciplinary proceedings or grievances in the previous two years;
• Details of any actual or potential legal actions brought by an employee in the previous two years.   

If this information is not provided, the transferee can make a complaint to an Employment Tribunal who may award compensation for any loss which the transferee has incurred. The level of compensation must be no less than £500.00 per employee in respect of whom the duty is owed unless it is unjust to award this default minimum payment.  The parties cannot contract out of this obligation which will benefit, primarily, second generation contractors.

It will be easier to transfer insolvent businesses where the transferor is subject to insolvency proceedings which are under the supervision of an insolvency practitioner and are not with view to the liquidation of the assets of the business (e.g. an administration, voluntary arrangement or creditors voluntary winding-up). The transferor or transferee will be able to agree variations to the employees’ contracts and some of the existing debts to the employees will be met by the Secretary of State under the National Insurance fund rather than passing to the transferee.

The transferor or transferee will now be able to agree variations to contracts of employment which are connected with the transfer if there is an economic, technical or organisational reason entailing changes in the workforce (“an ETO reason”). Previously any changes connected to a transfer were void.

It is now clear that neither the transferor nor the transferee will be able to fairly dismiss an employee because of the transfer itself or for a reason connected with the transfer unless that reason is an ETO reason entailing changes in the workforce. If there is an ETO reason and it is the main cause of the dismissal, the dismissal will be fair if an Employment Tribunal decides so on the usual unfair dismissal test.

The transferor and transferee will now be jointly and severally liable for compensation payable to transferring employees due to a failure to inform and consult, except where the failure is because the transferee did not provide the required information on measures, in which case the transferee will be solely responsible for the liability. Liability for non-transferring employees of either the transferor or the transferee rests with the relevant employer.

Finally, there is a new right under which an employee may resign and claim constructive dismissal if the transfer involves a substantial change in working conditions which are to the employee’s material detriment even if there is no repudiatory (fundamental) breach of contract. In those circumstances, the transferee will be treated as having dismissed the employee with notice.

 What should employers do?

The new rules, designed to clarify this complex area of the law, will no doubt create uncertainty of their own. We recommend clients take advice on TUPE 2006 when undertaking business acquisitions, disposals and outsourcing. They should also revisit all standard transfer documents so as to ensure that they incorporate the new law and review the provisions of any current outsourcing contracts to see how they fit into the new law.

The new legislation will apply to transfers occurring on or after 6^th April 2006 with the obligation on transferors to provide employee liability information applying to transfers occurring on or after 19^th April 2006.

For a more detailed assessment of how this new law may effect you, please contact Suzanne Brookes at Peter Peter and Wright 109 Boutport Barnstaple Devon EX31 1TA on 01271 324 273 or by email at suzannebrookes@ppwbar.co.uk.