TUPE - the new regulations

The heavily debated and long-awaited ‘second generation’ Transfer of Undertakings (Protection of Employment) Regulations 2006 are new and improved and on 6 April 2006 will hit the statute books.

The main changes from the 1981 Regulations are that they incorporate the majority of the authoritative case law that has developed over the last 25 years by making the well-established principles statutory. Hopefully, this will assist by providing certainty through a clearer framework.

For example, the 2006 Regulations, amongst other things, make it clear that ‘service provision changes’ (i.e. first and subsequent generation contracting-out, and contracting-in) are covered by TUPE, when there is an organised grouping of employees whose principal purpose is to carry out the contracted-out activities. However, there is an exception if the service is for a single specific event or task of short-term duration.

The 2006 Regulations verify that variations to contracts of employment are void, unless the principal reason for the variation is an economic, technical or organizational, (ETO) reason, entailing changes in the workforce. They also make clear that liability for redundancy, notice and other payments to employees of insolvent companies are NOT transferred to the transferee.

Of great use is clarity that the transferor (the seller) is obliged to provide ‘employee liability information’ to the transferee (the buyer) at least a fortnight before the transfer. This will include information about the identity and age of employees, details as the employee’s statement of terms and conditions of employment and collective agreements, along with details of any disciplinary or grievance proceedings issued in the last two years. The transferor must also provide details of any court or tribunal cases brought by the employees in the last two years or any possible cases that employees might bring. A failure to provide this information will enable the transferor to bring a claim against the transferee in an employment tribunal for such compensation as is ‘just and equitable’ having regard to any loss suffered by the transferor. This will hopefully put the transferee on a level playing field where they know what they are getting from the outset without protracted arguments on due diligence disclosure and escalating legal fees to extract this information. There will be a minimum award of £500 per employee for a failure to provide this information unless the tribunal considers it just and equitable to award a lesser sum.

Finally, the transferor will be liable jointly with the transferee for awards for failure to inform and consult with a trade union or employee representative. So whether you are the buyer or the seller a failure to consult could prove costly! This change is intended to promote a smoother transfer with more informed employees rather than the often disjointed approach and uncertainty that employees previously faced not having any contact with their new employers until after the transfer.

The 2006 Regulations apply to any transfer which takes place on or after 6th April 2006 with the duty on a transferor to provide a transferee with employee liability information taking place with effect on 19 April 2006.