The application of the TUPE Regulations (together with its case law) whether on a business sale, outsourcing of services, or following an insolvency remains one of the most challenging areas which employers have to deal with.
Despite the TUPE Regulations attempting to make outsourcing and second generation contracting more straightforward, there remain real challenges with its application, particularly in relation to service provision changes.
The new TUPE Amendment Regulations (introduced on 31 January 2014) have introduced several miscellaneous changes designed to make life easier for employers. Overall these amendments have had a positive impact.
The more common problem areas include:
- dealing with transferees who refuse to accept that TUPE applies and therefore will not accept the transfer of any employees.
- attempting to assess whether TUPE applies and, if so, which employees should transfer following the loss of a service contract which is fragmenting to more than one transferee; and
- on a contract win, identifying which employees should legitimately be transferring in from the outgoing contractor who, in turn, might use the loss of the contract to off-load surplus staff.
Having won a contract, any TUPE’d employees need to be assimilated into the new business. This may lead to ETO redundancies (an economic, technical or organisational reason entailing changes in the workforce) and consideration about how employees’ terms and conditions might be changed, mindful of course, that any attempt to harmonise terms and conditions is likely to be void under TUPE if they are by reason of the TUPE transfer.
More recently some service contracts are being drafted in such a way that can leave a business on a loss of a contract with substantial exposure to both the client and the incoming contractor for unfair dismissal and failure to consult claims through open ended indemnities.
On a business sale it is important to make sure that any employment warranties and indemnities contained in the sale and purchase agreement are reasonable. For the purchaser, any potential employment liabilities need to be assessed – for example, the unwritten bonus scheme, or generous pension and permanent health insurance arrangements.
On large scale business sales or outsourcing contracts there is often the prospect of the transferee needing to make wholesale ETO redundancies (i.e. more than 20 employees) post transfer. Historically any collective redundancy consultation and dismissals would need to wait until the transfer was complete. With the changes to the collective consultation regime which came into effect in 2014, transferees are more likely to want to start collective redundancy consultation pre-transfer. This affects the dynamics about how the parties will have to work with each other in appropriate cases, both on simultaneous TUPE and collective redundancy consultation.