Outsourcing & Business Transfers

Despite the TUPE 2006 Regulations aspiring to make outsourcing and second generation contracting more straightforward, practical difficulties remain with implementation.

Ideally, the use of well drafted outsourcing agreements can prevent most of the subsequent problems that tend to arise on termination of a contract particularly if a subsequent contractor is involved. Whether one is the outsourcing organisation, or the incoming contractor, it is important that the parties’ obligations and liabilities are sensibly apportioned so as to give the business relationship commercial efficacy, and to make sure that there is a contractual mechanism for dealing with the termination of the relationship.

Quite often there tends to be no underlying contract that the parties can rely on and disputes over the application of TUPE are made all the more difficult - none more so than between the incoming and outgoing contractors.

Common problems include:

Being told by the client that a contract has been lost and then discovering that the work has already been assigned to new contractors even before any formal notice period has expired
On the loss of a contract, trying to identify the transferees in good time with a client who is deliberately reticent in providing any information
Making contact with incoming contractors who have been assured by the client that TUPE won’t apply
Securing employee due diligence from transferee(s) in good time and ideally before the 14 day statutory minimum provided for by Regulation 11 TUPE
On a tender situation, trying to collate and assess sufficient employee due diligence information from the client (who often won’t be the transferor) in order to be able to make an informed bid
Dealing with transferees who refuse to accept that TUPE applies and therefore won’t accept the transfer of any employees
On a fragmentation loss of contract, attempting to assess whether TUPE applies and, if so, which employees should transfer and to which transferee(s)
On a contract win, identifying which employees should legitimately be transferring over from the transferor who might be using the loss of a contract to 'dump' staff
In anticipation that the transferee(s) might refuse to accept transferring employees, deciding whether to initiate a redundancy consultation exercise as well as fulfilling TUPE consultation obligations

Having won a contract and dealt with TUPE issues, then the TUPE’d employees need to be assimilated into the existing business. This may lead to redundancies and consideration as to how terms and conditions might be changed mindful of course that any attempt to harmonise terms and conditions them will almost certainly be void under TUPE if they are connected with the TUPE transfer.

On a proposed business sale it is vital to make sure that the warranties and indemnities contained in any outsourcing agreement are reasonable and, for the purchaser, making sure that any inherited liabilities are assessed– for example, the unwritten bonus scheme, generous pension and permanent health insurance arrangements, company car and employee share option schemes.