Amended TUPE regulations came into effect on 31 January. Here, Felicity Gemson of Allen & Overy highlights some of the main changes as they affect FMs
15 April 2014
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees in the event of a transfer of business or service provision changes by providing for the transfer of their employment from one party to another.
The result of a government review of TUPE is more a "tinkered-with" version of the legislation than the radical revamp that was originally expected.
Application of TUPE to FM contracts
The service provision change rules, which bring most service provision changes (that is outsourcing, insourcing and retendering exercises) within the scope of TUPE, have been retained. This is likely to be broadly welcomed in the FM sector as it continues to give parties certainty and predictability when negotiating contracts.
TUPE rules have, however, been amended in line with existing case law to clarify that a service provision change will only occur if the activities carried out by the new provider are fundamentally the same as the activities carried out by the previous provider. In practice, this is unlikely to reduce arguments as to whether TUPE applies where FM services will be provided in a different way, as Employment Tribunals will continue to analyse the nature and significance of differences in each particular case.
Changes to terms and conditions
TUPE rules restrict the ability of FMs to make changes to the employment terms of incoming staff, or to harmonise them with those of their own staff following a TUPE transfer. The European Union Acquired Rights Directive (ARD) and related EU case law, which must be followed by TUPE, leave little room for manoeuvre here in providing that even consensual contractual changes are ineffective if they are by reason of a TUPE transfer itself.
TUPE rules have been amended to give new service providers some additional flexibility. Collectively bargained terms can be renegotiated one year after the transfer, even if the reason for the change is the transfer, provided that the change is no less favourable overall to employees. Changes will also be permitted where the sole or principal reason for them is an "economic, technical or organisational reason entailing changes in the workforce" (ETO reason) and provided that by the employee agrees to them. Or changes can be made if they are permitted by the contract of employment.
These routes will not provide the flexibility that is needed, not least because UK case law has interpreted "ETO reason" narrowly, and it is unclear how tribunals would view detrimental contractual changes. In practice, incoming FMs may continue to take a pragmatic view of the risks of changing terms, and manage the risk of a challenge by ensuring that staff are happy and better off overall.
The ARD and TUPE recognise that dismissals will not be automatically unfair where they take place for an ETO reason. Amendments confirm that a change in workplace location, which would constitute a "place of work" redundancy under the Employment Rights Act 1996, will now be considered an ETO reason. So where staff are needed at different premises following TUPE transfers, any dismissals on account of their refusal to relocate would not be automatically unfair, although it would still be necessary to contend with ordinary dismissal protection when managing the dismissal process.
A proposal by the government to allow outgoing providers to rely on incoming providers' future business needs to justify pre-transfer dismissals was dropped from the final TUPE. Post-transfer redundancy dismissals therefore continue to be the safest option for incoming FMs, albeit with the downside of delay, additional cost and uncertainty for staff.
In part to mitigate the impact of prolonged staff uncertainty, there have been separate changes to legislation on collective redundancy consultation, which mean that where an incoming provider elects to start consultation pre-transfer and the outgoing provider agrees, that pre-transfer consultation will count for the purposes of their compliance with the rules. As this would entail giving new FMs early access to the workforce, outgoing FMs may wish to negotiate appropriate indemnity protection, and there is sense from both parties' perspectives in having a code of conduct in place to identify how the process will be run.
For transfers taking place on or after 1 May, outgoing FMs will have to provide the required statutory employee liability information about transferring staff sooner (28 days rather than 14 days before the transfer). Other changes include a right that will enable FMs with fewer than 10 employees to inform and consult directly with employees affected by transfers taking place on or after 31 July where there is no recognised union or existing employee representatives.
New TUPE rules are likely to entail minimal changes to the way in which FMs negotiate, prepare for and conduct TUPE transactions.
The complex questions remain, such as whether TUPE applies where services are performed in a different way and what changes are permitted. Coupled with the uncertainty raised by some of the new changes, we can be confident that this will continue to be fertile ground for litigation - and yet more case law.
Felicity Gemson, senior professional support lawyer, Allen & Overy LLP