TUPE reform: Who transfers and where do they go?

It appears that TUPE is, all of a sudden, a fashionable topic for the UK Government (and who would have predicted that?!). 

Hot on the heels of changes to information and consultation requirements for smaller businesses and smaller TUPE transfers, it has now launched a consultation exercise on further reforms to the TUPE regime.

It is seeking views on the following proposals:

• reaffirming that only employees are protected by TUPE; and
• removing the complex obligation to split employees’ contracts between multiple employers where a business is transferred to more than one new business.

The consultation exercise runs until 11 July 2024. This article summarises and analyses the Government’s proposed reforms, which can be reviewed in full here.

TUPE – a brief introduction

The UK's Transfer of Undertakings (Protection of Employment) Regulations (or “TUPE”) provide legal protections for employees who are impacted when a business changes hands or a customer decides to outsource, re-tender or bring services in-house.

The main principle is very straightforward. Affected employees transfer to a new employer (usually the purchaser of their previous employer’s business or a new service provider), their existing terms of employment are preserved and they are protected from dismissal because of the transfer. 

However, the devil is in the detail. The underlying law is opaque in places and often clashes with the preferred outcomes of those seeking to operate within (or despite) TUPE.  The Government is now consulting on two amendments to TUPE, aimed at increasing clarity and reducing complexity.

Proposal 1: TUPE only applies to employees

This appears to be stating the obvious. After all, the “PE” in “TUPE” stands for “protection of employment” – the clue is in the title.

However, all is not as it seems, when you read the legislation.  Under TUPE, an “employee” is defined as:

“any individual who works for another person whether under a contract of service or apprenticeship or otherwise, but does not include anyone who provides services under a contract for services.”

This is different to (and wider than) the definition of employee used elsewhere – for example, in determining who is protected from unfair dismissal and has access to family friendly rights and sick pay. 

TUPE is clear that individuals working under a contract of service (i.e. an employment contract) are caught and those who work under a contract for services (i.e. genuinely independent contractors operating their own business) are not. It is those two words “or otherwise” which have caused the problem. 

In particular, it is unclear whether individuals who fall into the intermediate (and very catchily-named) category of “limb (b) worker” could be subject to TUPE. 

A limb (b) worker is someone who undertakes to perform personally any work for another person who is not a client or customer of their own business undertaking. This could include, for example, a consultant who is not on the payroll, but is contracted to perform work themselves and cannot send a substitute.

Previous employment tribunal decisions have suggested that limb (b) workers should be included in TUPE transfers. However, these are not binding in future cases and there has been no proper consideration of this important issue by the appeal courts. 

Therefore, the Government proposes to amend the TUPE definition of “employee” to confirm that limb (b) workers are not protected. This is a very sensible and much needed clarification.

Proposal 2: An employee can only transfer to one new employer

For many years, the law was relatively settled on this issue. Even if a business was divided up between different buyers or services were transferred to two (or more) new service providers, a TUPE transfer could only result in an employee transferring to one new employer.

This all changed in 2020, with a landmark decision of the European Court of Justice in a case called Govaerts. In summary, it confirmed that employment contracts could be “split” between two or more transferees, in proportion to the tasks performed.  These principles were subsequently applied by the UK’s Employment Appeal Tribunal, in a more recent case.

In light of this, the current position is that an individual may transfer away from their existing employer and be employed on multiple part-time contracts by different (and perhaps competing) transferees. This causes several challenging practical problems for the employees and the various employers involved, for which there are no obvious solutions.

The Government proposes to amend TUPE so that an employee can only transfer to one employer. It would be up to the employers taking over the business or service to agree who should be responsible for each employee’s contract.

Any move away from the bizarre situation created by Govaerts is sensible. However, the current proposal still leaves open the question of what happens if the transferees cannot agree who should take on any given employee.  There need to be some underlying legal principles to enable the parties to sort it out amongst themselves – or, in a worst case scenario, that will allow an Employment Tribunal to make a decision. 

It would make sense for the previously accepted legal principles to apply. Where a business is divided up between different buyers, an employee would need to be able to show that they were assigned to one of those parts to fall within TUPE. Where a customer outsources or retenders services to two or more new service providers, any assigned employees should transfer to the provider which takes on the majority of the work.

Comment

These latest proposals are welcome.  It is difficult to argue against changes that make it easier to understand who transfers and where they might transfer. TUPE is complex enough without unnecessary certainties which have long caused headaches for employers and their legal advisors.

The recent activity in reforming TUPE may, in part, be motivated by a desire for some quick wins to show that our domestic employment laws are being released from some of the shackles of EU regulation.  TUPE is, after all, derived from the EU Acquired Rights Directive (or “ARD”), although EU law no longer has supremacy here. 

There may also be a broader objective in play. If anything, we have a history of gold-plating the minimum requirements of the ARD – from introducing a distinct category of “service provision change” TUPE transfers that are unique to the UK to imposing requirements on transferors to provide employee liability information to transferees at least 28 days before the transfer. 

Now, the economic landscape requires a different approach. In a competitive post-Brexit marketplace, there is increased emphasis on boosting innovation and attracting new investment.  The proposed reforms will undoubtedly help, by clarifying the existing rules without diluting the basic protections that TUPE offers to employees.

However, I still think there is room to go further. 

I have written elsewhere that there is an opportunity to be bolder in reforming the TUPE regime, for the benefit of employers and employees. In particular, it would be good to see a more sensible approach to allowing transferees to harmonise terms and conditions, offer different bonus structures and benefits and rely on post-termination restrictions inherited from former employers. 

It has long been acknowledged by the courts that TUPE is not aimed solely at protecting employee rights. Rather, the purpose of the regulations is to ensure a fair balance between the interests of the transferring employees and the transferee. All of the above continue to cause significant practical challenges and could easily be rectified. 

Dominic Holmes is a Partner at Kilgannon & Partners. He is the author of “A Practical Guide to TUPE and Employee Transfers: Core Legal Principles, Tricky Issues and How It Really Works in Practice”. He writes and presents regularly on TUPE issues.

Article by

Dominic Holmes - Partner

dh@kilgannonlaw.co.uk

07969 921 491

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This article is for information purposes only and is correct at the time of publication. It does not constitute legal advice 14.05.24