Legal view on TUPE

by Mark Rowe

Claudia Gerrard gives an update on TUPE in the security industry.

It has been some time since we last looked at the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly known as TUPE. The original TUPE regulations came into force in 1981 in an attempt to clarify the position when there is a sale or transfer of business. This was later replaced by the 2006 Regulations. This made it clear that TUPE would apply where there was a service provision change. This has caused some confusion over the years, resulting in numerous cases and conflicting decisions.

Essentially, however, a service provision change covers three instances. Firstly, the situation where services are carried out in-house and are then outsourced for the first time. This is known as a first generation outsourcing Secondly, the situation where services have already been outsourced and those services are then transferred from one supplier to another, generally where one contractor is appointed in place of another contractor. Thirdly, the situation where outsourced services are then taken back in-house. However, it is now proposed that TUPE is overhauled again. To that end, in April, consultation ended on proposed changes to the 2006 Regulations. The responses are now being reviewed and it is expected that any changes will come into force in October. The proposed changes could have a significant impact on the security industry.

Two key factors of TUPE 2006 were, firstly, that any employees who transferred under TUPE gained from special protection from dismissal and retained their contractual terms and conditions. Secondly, incoming contractors were entitled to receive details of any employees if those employees were due to be transferred to the incoming contractor under TUPE. Now all this seems set to change.

The proposals would affect the basic premise of TUPE, by removing the automatic transfer principle. This principle states that any employees involved in an activity for the majority of their time, would transfer if the services transferred to a third party. Therefore, it may be a question of fact whether staff do in fact transfer. The key reason behind this proposal seems to be to facilitate outsourcing in the public sector, which has notoriously been problematical. Public sector outsourcing is sometimes viewed as riskier because transferring employees often have terms which incoming contractors don’t want to replicate. Employees involved in the services may lose the benefit of being transferred and face redundancy instead. However, the proposals go much further and the impact may be even greater.

In this respect, it is proposed that the incoming contractor may have the opportunity to change the terms and conditions of transferring employees. This is prohibited unless there is an economic, technical or organisational reason for the change. The current regime has caused concern for incoming contractors who need to be cautious when harmonising the employment terms of transferred employees. This has been heavily disputed in tribunal cases and the law is still unclear, as it depends on the facts in any given case. Combined with this is the proposal that transferring employees cannot automatically claim constructive dismissal if the business is relocated. The employees could be made redundant and have no right to claim they have been dismissed. This could however assist the incoming contractor who needs to make changes following a transfer.

What isn’t so clear is how transfers will be affected by another proposal. Currently, the outgoing contractor must provide the incoming contractor with prescribed information on transferring employees. This allows the incoming contractor to ascertain the financial liabilities attached to the contract, for pricing and administration purposes. Complaints are often levied at the extent and complexity of the information required and the extra time added to the transfer process. The proposal is that the requirement to provide what is called ‘employee liability information’ should be relaxed. It is proposed that the incoming contractor should only receive such information as is needed to allow the parties to inform and consult. There may be ramifications for all transfers within the industry. Take, for example, an outgoing contractor. They took on the job a few years previously, at a time when TUPE clearly applied. A number of staff were transferred to them, including staff such as concierges, receptionists and other personnel who were not SIA-licensed. However, they were wholly or mainly involved in the activity and transferred under TUPE.

If TUPE no longer applies, those staff might not transfer to the incoming contractor. So, unexpectedly the outgoing contractor will be liable for redundancy costs if he is unable to redeploy those staff – something which may be difficult if the staff don’t hold SIA licences. However, those staff will have transferred on their previous terms and conditions. And they will have continuity of employment from a previous employer. Inevitably the redundancy costs might be much higher as a result. The outgoing contractor, in our scenario, could not have anticipated those costs and certainly is unlikely to have priced the work on that basis. However, he must bear the redundancy costs. Conversely, an incoming contractor may be forced to take staff on if TUPE does apply. However, without sufficient employee liability information, how can he tender for the job? Without sufficient information, he could under-price the job. Or, he could act cautiously, overprice the work and lose out on the contract. It’s potentially a no win situation. At this stage, it is difficult to gauge how the changes may impact the industry. We will have to wait until the final regulations are announced before the impact can be assessed. However, one thing seems likely: the security industry, like many others, may be facing a period of ambiguity and uncertainty.

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