PUBLIC
CONSULTATION DOCUMENT
TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT) REGULATIONS
1981 (TUPE)
Government proposals for reform
Introduction
1. Changes
in the ownership of businesses and in service contracting are
a normal part of business life in both the private sector and
the public. Such changes can be made easier for all concerned
if the employees know where they stand. The Transfer of Undertakings
(Protection of Employment) Regulations 1981 (as amended) – commonly
known as the TUPE Regulations – safeguard employees’ rights where
businesses change hands between employers. However, they are widely
regarded, by all groups whose interests are affected by them,
as operating less satisfactorily than they might. This can hamper
necessary change, and impose a burden on business. This consultation
document sets out proposals for the Regulations’ reform. A more
detailed background paper on the proposals, including a Regulatory
Impact Assessment, is also available.
2. Responses
should be sent by 15 December 2001 to:
Mrs Pat Wright
Employment Relations Directorate
Department of Trade and Industry
UG067
1 Victoria Street
London SW1H 0ET
or by e-mail
to pat.wright@dti.gov.uk.
Further copies
of this document, and copies of the more
detailed background paper 
(180Kb), can be obtained from the Employment Relations website
or from the DTI publications order line at EC Logistics by telephoning
0870 1502 500 or faxing 0870 1502 333.
For information
on consultation on the TUPE Regulations in Northern Ireland, please
contact William Caldwell at:
Employment
Rights and New Deal
Room 301
Adelaide House
Adelaide Street
Belfast BT2 8FD
Comments
If you would
like to comment on the way this consultation is being handled
(as opposed to the proposals it outlines), please write to the
DTI consultation co-ordinator, Andrew Dobbie, at:
Departmental
Regulatory Impact Unit,
Department of Trade and Industry
1 Victoria Street
London SW1H 0ET
Versions
of this document in Welsh or large print or on tape
A Welsh language
summary of this document is available from Mrs Pat Wright at the
address above. We can also provide large print and taped versions
of the consultation document on request – please contact Mrs Pat
Wright for these.
This consultation
complies with the criteria of the Government’s new Code of Practice
on written consultation. A list of these criteria can be found
in the Annex to this document.
Background
3. The TUPE
Regulations were originally introduced in order to implement the
EC Acquired Rights Directive (sometimes known as the Business
Transfers Directive), adopted in 1977. They are designed to safeguard
employees’ rights when the business in which they work changes
hands between employers. The Directive was revised in 1998, and
a consolidated version adopted in 2001. The main impact of the
1998 revision was to give Member States a number of new optional
flexibilities to tailor their implementing measures to national
circumstances. These flexibilities, and the extent to which the
Government proposes to take advantage of them, are described below.
Proposals
General
objectives
4. The Government
considers that the TUPE Regulations are based on a positive principle
– the coupling of flexibility for business with fairness for employees.
If made to work effectively, they should assist the smooth management
of necessary change, in both the private sector and the public,
by giving assurance to and securing the commitment of the employees
affected. The Government’s aim in reforming the Regulations is
to ensure that they operate as effectively as possible for all
those whose interests depend on them.
Scope
5. The scope
of the legislation is the most extensively debated and litigated
aspect of the current Regulations. Ideally, everyone should know
where they stand, so employers can plan effectively in a climate
of fair competition and affected employees are appropriately protected
as a matter of course. In the past, however, this has not always
been the case.
6. The revised
Directive gives for the first time an explicit definition of a
transfer of an undertaking, intended to clarify the existing legal
position without changing it. The Government proposes essentially
to adopt this definition in the new Regulations. This alone, however,
may be insufficient to address the problems that have arisen.
The Government considers that there may be a case for taking further
measures in two particular areas – transfers within public administration,
and service provision changes – that have in the past been particularly
frequent sources of confusion and dispute.
Transfers
within public administration
7. The
Government proposes to address the issue of transfers within public
administration through:
- applying
the Cabinet Office Statement of Practice Staff Transfers
in the Public Sector (issued in January 2000); and
- where
appropriate, and subject to prior consultation with interested
parties, ensuring that TUPE-equivalent protections are afforded
to affected employees:
- in
case-specific legislation, where that is the vehicle for
effecting a particular transfer within public administration;
or
- by
regulations under section 38 of the Employment Relations
Act 1999[1] on an ad hoc
basis in other cases or classes of cases outside the Directive’s
scope.
8. Copies
of Staff Transfers in the Public Sector are obtainable
by telephone from 020 7276 1519, by e-mail request from phillip.jones@cabinet-office.x.gsi.gov.uk
or from the website http://www.cabinet-office.gov.uk.
Service
provision changes
9. There
has in the past been uncertainty over the Regulations’ application
in cases where a service is "contracted-out" or "outsourced",
or a service contract is re-let to a new contractor, or a previously
contracted-for service is taken in-house or "contracted-in".
For convenience, all these types of changes are referred to below
as "service provision changes", and the party on behalf
of whom the service activities are performed as the "client".
10. It is
well established that the Regulations can in principle apply in
relation to service provision changes. Whether or not any such
change does constitute a relevant transfer of an undertaking depends
on all the factual circumstances. The key question is whether
or not there is a transfer of (in the words of the Directive)
"an economic entity" – i.e. "an organised grouping
of resources which has the objective of pursuing an economic activity"
– that "retains its identity" in the process. The difficulty
of answering this question in service provision change cases is
the root cause of most of the problems that have arisen in this
regard in the past.
11. The
Government would welcome views on whether or not additional measures,
going beyond the requirements of the Directive, should be taken
in the Regulations in relation to service provision changes, and
if so what form these should take. Views are also invited on whether
there should be:
| a) |
separate
legislative or administrative measures introduced by individual
government departments specifically for the parts of the
public sector within their responsibility, underpinning
the policy in Staff Transfers in the Public Sector;
or
|
| b) |
a
general extension of the Regulations’ scope in relation
to service provision changes for public and private sectors
alike using the powers in section 38 of the 1999 Act. |
12. A possible
approach for taking forward the proposal at point b) is set out
and discussed in the more detailed background
paper
(180Kb) on
the Government’s proposals. (See paragraph 1 above).
Occupational
pensions
13. Rights,
powers, duties and liabilities in respect of continuing membership
of occupational pension schemes were excluded from the coverage
of the original Directive and do not transfer under TUPE. Accrued
rights in an occupational pension scheme are however covered by
the Directive and are protected in the UK under pensions regulations.
Where TUPE applies, therefore, the only rights excluded from the
otherwise automatic transfer of employees’ terms and conditions
are rights to continuing active membership of an occupational
pension scheme, where such rights existed prior to the transfer.
14. The Government’s
policy is that former public sector employees transferred to the
private sector should continue to have pension provision made
for them. The Government considers the current legal position
is not certain and that there is at present a risk of claims of
constructive dismissal where the transferor does not require the
transferee to provide broadly comparable pension rights after
the transfer. Central guidance to government departments and local
authorities lays down that the transferee employer in transfers
from such public sector bodies is generally required to offer
transferred employees occupational pension provision "broadly
comparable" to that afforded by the transferor. Whether or
not the "broadly comparable" condition is met in any
particular case is assessed according to established criteria
by the Government Actuary’s Department (GAD). The Treasury has
reaffirmed this policy in a note entitled Staff Transfers
from Central Government: A Fair Deal for Staff Pensions, and
GAD has set out its approach in a Statement of Practice entitled
Assessment of Broad Comparability of Pension Rights[2].
The legal position has never been directly tested in the courts,
however, and the risk of successful legal challenge has apparently
been widely discounted in the private sector. In this one respect
of pension terms, therefore, private sector employees, unlike
public sector employees, may still in practice find themselves
in a significantly worse position after a transfer than they were
before it.
15. The
Government considers that the uncertain legal position is unsatisfactory,
and that in implementing the Directive legal certainty should
be achieved. There are a number of possible ways in which this
could be done. One would be simply to provide that ongoing occupational
pension rights are not transferred to the transferee, extinguishing
any arguments along the lines discussed above. The Government
is not attracted to this, however. Other possible approaches would
be:
| a) |
amending
the TUPE Regulations so as to provide that ongoing occupational
pension rights are not transferred to the transferee,
but preserving the current public sector policy by way
of separate legislative or administrative measures introduced
by individual government departments specifically for
the parts of the public sector for which they are responsible;
or
|
| b) |
amending
the TUPE Regulations to provide a degree of protection for
occupational pension rights on transfer, for public and
private sector employees alike. |
The Government
would welcome views on this issue.
16. If the
approach described at point b) above were to be taken, the Government
would aim to strike a balance between protecting transferred employees
and minimising additional burdens on private sector employers.
A number of options for meeting this objective are set out in
the more detailed background paper on the Government’s proposals.
They would of course apply only where the transferor provided
an occupational pension for the employees in question to start
with, so that the transferee would not be required to set up an
occupational pension scheme where the transferor did not provide
such a scheme. The options may be summarised as follows:
Option
1: If the transferor offered either a contracted-out salary
related scheme (COSR) or a contracted-out money purchase scheme
(COMP), then the transferee would be required to offer a scheme
of the same type meeting a certain minimum standard. If the transferor
offered a contracted-in scheme, then the transferee would be required
to offer some form of occupational pension scheme that was Revenue-approved
but with no specified form or level of benefits.
Option
1a: As for option 1, except that there would be a limit placed
on the reduction in benefits an employee could suffer.
Option
2: The transferee would still be required to offer a contracted-out
occupational pension scheme if the transferor offered one, but
could switch from COSR to COMP or vice versa. Contracted-in
schemes would be dealt with as under Option 1.
Option
2a: This would incorporate a "safety net" for employees
analogous to that suggested in Option 1a.
Option
3: The transferee would be able to choose whether to offer
a salary-related or a money purchase scheme, irrespective of the
nature or level of benefits afforded by the transferor, provided
that the scheme met a prescribed benchmark.
Option
4: There would be a requirement for the benefits under the
transferee’s scheme to be of a similar value to those under the
transferor’s scheme
The
Government would welcome views on the relative merits of these
options.
17. If
one of these options were to be pursued, the Government would
propose to provide also that transferees were permitted to pay
transferred employees adequate alternative compensation in exceptional
circumstances where it was not reasonably practicable for them
to meet the new requirements.
The
‘Frankling’ case
18.
In the Frankling case[3], the EAT
found that certain age-related payments to which an employee would
become entitled on redundancy under terms and conditions applicable
in the NHS did not pass across in a TUPE transfer because the
benefits in question:
- arose under
legislation rather than under a contractual obligation on the
employer to pay them to the employees; and
- fell within
the occupational pensions exclusion in the Directive and TUPE.
The same issues
have subsequently arisen in the Beckman case[4],
and the High Court has referred them to the ECJ for a preliminary
ruling.
19. The
Government’s policy is that, whatever ruling the ECJ makes in
the Beckman case, benefits of this kind should pass across
in a TUPE transfer. It proposes to make specific provision to
this effect in the amended Regulations.
Notification
of employee liability information
20. The
revised Directive gives Member States a new option to introduce
provisions requiring the transferor to notify the transferee of
all the rights and obligations in relation to employees that will
be transferred – so far as those rights and obligations are or
ought to be known to the transferor at the time of the transfer.
21. The
Government proposes to take advantage of this by providing that:
- the
transferor in a prospective transfer of an undertaking is required
to give the transferee written notification of all the rights
and obligations in relation to employees that are to be transferred;
- if any
of the rights or obligations in question change between the
time that such notification of them is given and the completion
of the transfer, the transferor is required to give the transferee
written notification of the change;
- both
these types of notification may be given in more than one instalment,
but every instalment must be given:
- in
good time before the completion of the transfer; or
- if
special circumstances make this not reasonably practicable,
as soon as is reasonably practicable and in any case no
later than completion of the transfer.
22. The
question of possible remedies for breach of this new requirement
is discussed in the more detailed background
paper
(180Kb) on the Government’s proposals.
Dismissal
by reason of a transfer of an undertaking
23. Regulation
8(1) of the current TUPE Regulations makes a dismissal automatically
unfair under the unfair dismissal provisions of the Employment
Rights Act 1996 (subject to the normal qualifying conditions,
including one year’s continuous employment) where "the transfer
or a reason connected with it is the reason or principal reason"
for the dismissal. Regulation 8(2) then provides an exception
from this general rule in those cases where "an economic,
technical or organisational reason entailing changes in the workforce..."
– generally referred to as an ETO reason – is "the reason
or principal reason" for the dismissal. In such cases the
dismissal may be fair or unfair, depending on whether or not the
employer has acted reasonably in treating that reason as sufficient
to justify it.
24. The
Government recognises that uncertainty has arisen about the interpretation
of Regulation 8, leading to cases before the employment tribunals
and the higher courts. A particular issue has arisen as to whether
dismissals for a reason connected with the transfer – Regulation
8(1) – and dismissals for an ETO reason – Regulation 8(2) – are
two mutually exclusive categories or whether the latter are a
subset of the former. The
Government aims to improve the drafting of these provisions in
the amended Regulations, in particular by making clear that ETO
reasons are a subset of reasons connected with the transfer.
Changes
to the terms and conditions of employment of affected employees
25. There
has also been some uncertainty as to the circumstances in which
a change in the terms and conditions of employees affected by
a transfer can be validly made. The Government
proposes to improve the operation of the Regulations by making
clear that they do not preclude transfer-related changes to terms
and conditions that are made for an ETO reason – that is, an "economic,
technical or organisational reason entailing changes in the workforce".
The lawfulness of such changes will then
clearly depend only on the normal considerations that would apply
irrespective of a transfer.
Application
of the legislation in relation to insolvency proceedings
26. Reflecting
the position previously established in ECJ case law, the revised
Directive provides that, unless Member States provide otherwise
(which the Government does not propose to do), the normal safeguards
for employees against transfer-related changes to terms and conditions
and transfer-related dismissals do not apply where "the transferor
is the subject of bankruptcy proceedings or any analogous insolvency
proceedings which have been instituted with a view to the liquidation
of the assets of the transferor and are under the supervision
of a competent public authority (which may be an insolvency practitioner
authorised by a competent public authority)." Procedures
for which the Insolvency Act 1986 provides that fall within this
description in the UK[5] include in particular
compulsory winding-up and bankruptcy, and possibly also creditors’
voluntary winding-up.
27. The
revised Directive also gives Member States two new options in
cases where its requirements apply in relation to "insolvency
proceedings ... under the supervision of a competent public authority
(which may be an insolvency practitioner determined by national
law)". Procedures that fall within this description in the
UK include in particular administration, company and individual
voluntary arrangements and creditors’ voluntary winding-up, but
not administrative receivership or any other receivership or members’
voluntary winding-up.
28. The
two new options are to provide that:
- in cases
giving rise to protection for employees at least equivalent
to that provided for in situations covered by the EC Insolvency
Protection Directive (implemented in the UK by the insolvency
payments provisions of the Employment Rights Act 1996), the
transferor’s pre-existing debts toward the employees do not
pass to the transferee; and/or
- employers
and employee representatives may, exceptionally, agree changes
to terms and conditions of employment by reason of the transfer
itself, provided that this is in accordance with national law
and practice and with a view to ensuring the survival of the
business and thereby preserving jobs.
29. The
underlying aim of these options is to allow Member States to promote
the sale of insolvent businesses as going concerns. This is in
line with the "rescue culture" which the Government
wishes to promote.
30. The
benefits of exercising the first option are expected to outweigh
the relatively modest additional "deadweight" costs
in insolvency payments from the National Insurance Fund (which
would in any event be offset by other savings). The Government
therefore proposes to provide that where insolvency proceedings
within the new derogation have been opened in respect of a transferor,
any outstanding debts toward employees either:
- fall
to be met from the National Insurance Fund, if they are within
the categories and statutory upper limits on amounts guaranteed
under the insolvency payments provisions of the Employment Rights
Act 1996; or
- pass
to the transferee, as at present, if they are not.
31. The
Government also proposes to take up the second option and provide
that where insolvency proceedings falling within the new derogation
have been opened in respect of a transferor, changes by reason
of the transfer itself (i.e. changes for which there is no ETO
reason that would render them potentially valid in any event)
may be lawfully made to the terms and conditions of employment
of affected employees if:
- they
are agreed between either the transferor or the transferee and
appropriate representatives of those employees;
- they
are designed to safeguard employment opportunities by ensuring
the survival of the undertaking or business or part of the undertaking
or business; and
- they
are not otherwise contrary to UK law (e.g. the National Minimum
Wage Act).
32. The
definition of "appropriate representatives" used for
these purposes would be consistent with that used for information
and consultation purposes (Regulation 10 of the current TUPE Regulations).
In cases involving non-union representatives, in order for the
agreement to be effective in varying the contracts of employment
of the individual employees represented, it would have to be in
writing and the employer would have to have given the employees
in question the text of it in advance of it coming into effect,
along with such guidance as they might reasonably require in order
to understand it fully[6]. Representatives
for the purposes of agreeing changes to terms and conditions would
be given rights equivalent to those enjoyed by representatives
for information and consultation purposes. Those who participate
in the election of such representatives would also be given equivalent
rights.
Hiving
down
33. The
Government believes that in the light of case law developments,
and of its proposal to take advantage of the new derogations in
the Directive, the existing provision in Regulation 4 of TUPE
relating to "hiving down" no longer serves any useful
purpose. It therefore proposes to remove that provision.
Continuity
of employee representation
34. The
revised Directive contains a requirement relating to continuity
of employee representation in cases where a transferred undertaking
retains its autonomy. To make explicit
that UK legislation is fully in line with this requirement, the
Government proposes to provide expressly that the effect of union
recognition declarations made by the Central Arbitration Committee
(CAC) under the provisions introduced by the Employment Relations
Act 1999 is appropriately preserved across a transfer.
35. The
revised Directive also contains a new provision relating to continuity
of employee representation in a case where a transferred undertaking
does not retain its autonomy. Such a situation might arise where,
for instance, a small, independently managed business became –
following a transfer – a department of a larger business with
its own existing management structure. If the transferor and transferee
had different employee representation arrangements – for instance,
if the transferor recognised a union but the transferee did not
– there might be a period of time following the transfer when
the employees would lose their representation.
The Government would welcome views as to whether or not any new
measures might usefully be introduced in the UK in the light of
this new provision; and, if so, what form they might take.
Information
and consultation of employee representatives
36. The
provisions on information and consultation of employee representatives
in the revised Directive differ from those in the original Directive
in three relatively minor respects. The
Government proposes to amend the Regulations to remove any possible
doubt that they comply fully with the Directive’s requirements
in this regard.
Employers’
liability compulsory insurance
37. Private
sector employers carrying on any business in the UK are legally
obliged to insure themselves against liabilities to employees
for bodily injury or disease arising from their employment. It
has been established in case law that such liabilities automatically
pass from the transferor to the transferee in a TUPE transfer.
It has also been established that the benefit of the insurance
cover bought by the transferor in compliance with the legal requirements
similarly passes across in a transfer, so that the transferee
is able to call on that cover to meet any such liabilities incurred
while the business was in the hands of the transferor. The Government
considers that this position is satisfactory as far as transfers
between private sector employers are concerned. There remains
however a problem as far as transfers from public sector employers
to private sector employers are concerned: public sector employers
are generally exempted from the requirement to effect insurance
cover and, other than in exceptional cases where they have insured
themselves on a voluntary basis, there is no cover to transfer.
38. The
Government therefore proposes to introduce provision for the transferor
and transferee to be jointly and severally liable for liabilities
to employees for injury or disease arising from their pre-transfer
employment in those cases where the transferor was a public sector
employer exempt from the legal insurance requirement.
Territorial
extent etc
39. The
Government proposes to:
- remove
the current limitation of rights under the TUPE Regulations
to employees who ordinarily work in the UK; but
- retain
the effect of the current provision restricting seafarers’ ability
to qualify to cases where the ship on which they are employed
is registered as belonging to a port in the UK, they are ordinarily
resident in the UK and the work is not wholly outside the UK.
40. This
would bring the position into line with that under other aspects
of the employment rights legislation, in relation to which similar
amendments were made by the Employment Relations Act 1999. In
future, whether or not an individual working outside the UK could
potentially qualify for rights under the Regulations would depend
(except in the case of seafarers) on the normal operation of international
law.
Ships
41. Regulation
2(2) excludes "the transfer of a ship without more"
from the Regulations’ coverage. "Ship" has been interpreted
in case law as meaning a ship and its crew. The Government considers
that where there is a transfer between employers of a ship and
its crew as part of a business, the Regulations do in principle
apply. As some uncertainty has arisen over
this point, the Government proposes to amend the Regulations to
make their intended meaning clear.
ANNEX
Below are
the consultation criteria outlined in the Government’s new Code
of Practice on consultation. These criteria have been followed
in this document.
1. Timing
of consultation should be built into the planning process for
a policy (including legislation) or service from the start, so
that it has the best prospect of improving the proposals concerned,
and so that sufficient time is left for it at each stage.
2. It should
be clear who is being consulted, about what questions, in what
timescale and for what purpose.
3. A consultation
document should be as simple and concise as possible. It should
include a summary, in two pages at most, of the main questions
it seeks views on. It should make it as easy as possible for readers
to respond, make contact or complain.
4. Documents
should be made widely available, with the fullest use of electronic
means (though not to the exclusion of others) and effectively
drawn to the attention of all interested groups and individuals.
5. Sufficient
time should be allowed for considered responses from all groups
with an interest. Twelve weeks should be the standard minimum
period for a consultation.
6. Responses
should be carefully and open-mindedly analysed, and the results
made widely available, with an account of the views expressed,
and the reasons for decisions finally taken.
7. Departments
should monitor and evaluate consultations, designating a consultation
co-ordinator who will ensure the lessons are disseminated.
EMPLOYMENT
RELATIONS DIRECTORATE
DEPARTMENT
OF TRADE AND INDUSTRY
SEPTEMBER
2001
URN 01/1133
1
Section 38 empowers the Secretary of State to make provision by
statutory instrument, subject to the negative resolution procedure,
for employees to be given the same or similar treatment in circumstances
falling outside the scope of the Acquired Rights Directive as
they are given under the UK's implementing legislation in circumstances
falling within the scope of that Directive.
2
Both of these documents are reproduced as annexes to the Cabinet
Office Statement of Practice Staff Transfers in the Public
Sector.
3
Frankling -v- BPS Limited.
4
Beckman -v- Dynamco Whicheloe.
5 England and Wales, Scotland and Northern Ireland have different
insolvency regimes; the types of procedures referred to in this
section are those in England and Wales, but analogous types exist
in Scotland and Northern Ireland.
6 This is consistent with provisions relating to workforce agreements
in the Working Time Regulations 1998.
Summary
of proposals in English
and Welsh
(134Kb)
More
detailed background paper
(180Kb)
|
