DAMIAN BROWN
Introduction[1]
1 On 6 April 2006 the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“new TUPE”) came into force. They replace the 1981 Regulations (“old TUPE”) and are intended to give effect to EC Directive 2001/23/EC on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses (“the Directive”). The 2006 Regulations were made under section 2(2) of the European Communities Act 1972 and section 38 of the Employment Relations Act 1999.
2 Government publications which throw light on the meaning of new TUPE include the DTI Consultation Document of March 2005 (“the Consultation Document”), the DTI Response to the Public Consultation on the draft revised TUPE Regulations (“the Consultation Response”) and the DTI Guide to the 2006 TUPE Regulations for employees, employers and representatives (“the Guidance”).
Overview
3 The main changes that will be effected by new TUPE are the following:
(1) the definition of a transfer will be expanded to ensure that TUPE apply to “service provision changes”;
(2) the effect of TUPE in relation to transfer-related dismissals and changes in terms and conditions will be clarified;
(3) the transferor will be required to notify the transferee of the identities of transferring employees and of the rights and liabilities which will transfer with them;
(4) there will be greater flexibility in the application of TUPE in certain insolvency situations, in line with the Government’s policy of promoting the “rescue culture”.
4 The DTI Consultation Document explains that the general approach taken in redrafting new TUPE was to leave provisions the same as in old TUPE except where the intention was to bring about a substantive change in effect. However, this approach has been departed from in a number of instances: some provisions have been recast in order to reduce or eliminate confusion, address case law conflicts or update TUPE for “increased user-friendliness”. In addition some measures go beyond that permitted in the Directive while others seem to derogate from it.
What is a relevant transfer?
5 The DTI Consultation Document pointed out that the scope of TUPE is probably one of the most extensively debated and litigated aspect of the regulations. It went on to explain that:
“The Government considers that, ideally, everyone should know where they stand when a business sale or reorganisation, or a contracting-out or similar exercise, takes place, so that employers can plan effectively in a climate of fair competition and affected employees are protected as a matter of course.”
6 To this end, the new regulation 3:
(1) expands the definition of a transfer with the aim of ensuring that changes in service provider fall within the scope of TUPE; and
(2) clarifies the extent to which TUPE apply to transfers in the public sector.
New definition of a relevant transfer
7 Under the new regulation 3, TUPE apply to:
(1) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is “a transfer of an economic entity which retains its identity”;
(2) a “service provision change”.
New definition of economic entity
8 Regulation 3(2) defines the expression “economic entity”. It states:
“In this regulation, ‘economic entity’ means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.”
This definition reflects the case law of the European Court of Justice (“ECJ”), which has defined an economic entity in similar terms – see, for example, Suzen v Zehnacker Gebaudereinigung GmbH Krankenhausservice [1997] IRLR 255. However, the Court has emphasised that an organised grouping of employees who are specifically and permanently assigned to a common task may, in the absence of other factors of production, amount to an economic entity – see Francisco Hernandez Vidal SA v Gomez Perez [1999] IRLR 132. There is no reference to employees in the new regulation 3(2), perhaps because this situation is covered by the new rules in relation to service provision changes.
What is a service provision change?
9 Under old TUPE, it was often difficult to say with certainty whether TUPE would apply to a change in service provider. New TUPE aim to eliminate this uncertainty by expressly applying the regulations to service provision changes.
10 The new rules in relation to service provision changes are to be found in regulation 3. Regulation 3(1)(b) describes a service provision change as a situation in which:
(1) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client's behalf (“a contractor”) i.e. out-sourcing;
(2) activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client's behalf i.e. replacement of one contractor by another;
(3) activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf i.e. in-sourcing,
and in which the conditions laid down in regulation 3(3) are satisfied.
11 The conditions prescribed by regulation 3(3) are that:
(1) immediately before the service provision change –
(a) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
(b) the client intends that following the service provision change the relevant activities will be carried out by the transferee, other than in connection with a single specific event or task of short term duration; and
(2) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.
Need for organised grouping of employees
12 The Guidance says that the reference to an organised grouping of employees:
“… is intended to confine the Regulations’ coverage to cases where the old service provider (i.e. the transferor) has in place a team of employees to carry out the service activities, and that team is essentially dedicated to carrying out the activities that are to transfer (although they do not need to work exclusively on those activities). It would therefore exclude cases where there was no identifiable grouping of employees. This is because it would be unclear which employees should transfer in the event of a change of contractor, if there was no such grouping. So, if a contractor was engaged by a client to provide, say, a courier service, but the collections and deliveries were carried out each day by different couriers on an ad hoc basis, rather than by an identifiable team of employees, there would be no ‘service provision change’ and the Regulations would not apply.”
13 It seems likely that this is an aspect of the new rules which will prove to be problematic, especially in cases where contracts are repackaged or subdivided when re-tendering takes place. The most obvious situations in which TUPE will not apply are those in which there is a floating labour force either before or after the changeover.
Continuation of activities
14 Note that there is no explicit requirement in the rules relating to service provision changes for the activities to retain their identity (thereby avoiding the old tests under Suzen and Spijkers which involved, amongst other things, an analysis as to whether the undertaking was labour intensive or not and whether the activity had continued). Indeed, the DTI noted in its Consultation Response that activities need not be carried out by the transferee in an identical manner. Where, however, there is a major change in the way in which a service is provided, it may be possible to contend that the “activities” before and after the change of provider are not the same.
Exclusion of short term ‘one off’ contracts
15 The exception in respect of activities connected with a single specific event or task of short term duration is designed to ensure that the new rules in relation to service provision changes do not catch cases where a client buys in services on a short-term ‘one off’ basis. By way of illustration, the Guidance contrasts a contract for the provision of security services to protect athletes during an event such as the Olympic Games with one under which security advice was to be provided in the years running up to the Games. The Guidance suggests that the former would not be covered by new TUPE whereas the latter would but the wording is not exactly clear as to whether we are distinguishing between (i) a single specific event and (ii) a task of short term duration or (i) a single specific event and (ii) a task both of short term duration. The Guidance on the Working Time Regulations was criticised in Commission v United Kingdom (C-484/04) on the basis that it was misleading so similar issues may arise here.
Contracts for supply of goods
16 The Guidance illustrates the effect of the exclusion in relation to activities consisting wholly or mainly of the supply of goods by comparing a situation in which a contractor is engaged to supply sandwiches and drinks which are sold by the client in its staff canteen with one where the client engages the contractor to run the canteen. The Guidance suggests that only the latter situation would fall within the scope of new TUPE.
No exemption for professional business services
17 The Government originally considered the possibility of incorporating an express exception in relation to professional business services e.g. accountancy, business consultancy, legal advice and computer software design. It ultimately concluded that there should be no exemption of this kind, since the disadvantages would outweigh the benefits. The Consultation Document made the point that the practical impact of any such exception would be small, since it is rare for professional business services to be provided by an organised grouping of employees whose principal purpose is to provide services to a particular client.
Transfers in the public sector
18 In relation to transfers in the public sector, regulation 3 makes clear that new TUPE apply to public and private undertakings engaged in economic activities whether or not they are operating for gain. However, it also excludes from the scope of the regulations an administrative reorganisation of public administrative authorities or the transfer of administrative functions between public administrative authorities. The exclusion codifies the decision of the European Court of Justice in Henke [1996] IRLR 701.
19 The Guidance says that intra-governmental transfers are covered by the Cabinet Office Statement of Practice on Staff Transfers in the Public Sector (and the related guidance). It adds that in appropriate cases TUPE-equivalent protection may be afforded to affected employees by specific legislative provision.
Who transfers?
20 The effect of a TUPE transfer on contracts of employment is covered by the new regulation 4, which replaces the old regulation 5.
Who transfers – the new statutory assignment test
21 Under old TUPE, an employee’s contract of employment transferred to the new employer if s/he was “employed in the undertaking or part transferred” – see regulation 5(1). These words have been replaced under the new regulation 4(1) with a reference to a person “employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer”.
22 This gives statutory effect to the decision of the ECJ in Botzen and others v. Rotterdamsche Droogdok Maatschappij BV (Case C-186/83) [1985] ECR 519. In Botzen the Court of Justice held that that the test which must be applied in deciding whether an employee is employed in an undertaking or part of an undertaking is whether he or she is assigned to it. The Court went on to say that an employee can be regarded as “assigned to” part of an undertaking if it forms the “organisational framework” within which the employee’s employment relationship takes effect. If the employee is assigned to some other part of the business, the fact that he performs duties which are for the benefit of the part of the undertaking which is being transferred or involve the use of assets assigned to it does not mean that he transfers to the new employer.
23 Regulation 2 provides that:
“‘assigned’ means assigned other than on a temporary basis”.
24 The Guidance says:
“Whether an assignment is ‘temporary’ will depend on a number of factors, such as the length of time the employee has been there and whether a date has been set by the transferor for his return or re-assignment to another part of the undertaking.”
25 The Consultation Document stated that the exclusion of temporary assignments accords with the decision of the EAT in Securiplan v Bademosi EAT/1128/02, in which it was held that a security guard who had been temporarily re-assigned from his usual place of work to a magistrates court for a period of one year was not assigned to the provision of security services at the court.