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Brexit - what now for TUPE?

21 July 2016

Following the UK’s vote to leave the European Union, much is being discussed and written about the future shape of post-Brexit employment law, shorn of the requirement to comply with underlying EU directives.

Following the UK’s vote to leave the European Union, much is being discussed and written about the future shape of post-Brexit employment law, shorn of the requirement to comply with underlying EU directives. While many EU-derived employment laws are widely supported and so expected to be retained in largely unchanged form, what does the future hold for the much maligned Transfer of Undertaking (Protection of Employment) Regulations 2006 (“TUPE”)?

TUPE, first introduced in 1981, is the UK’s implementation of the EU Acquired Rights Directive. Labour and Coalition governments have both tinkered with TUPE in recent years in order to promote greater certainty in outsourcing situations (2006) and to give it a slightly more pro-business makeover (2014). It is also noteworthy that TUPE is an example of where the UK has gone further than EU law actually requires. Some of this so-called “gold-plating” was stripped away by the 2014 reforms (notably in relation to restrictions on changes to terms and conditions), but the concept of a service provision change (“SPC”) remains an exclusively UK enhancement to the minimum requirements of EU law.

So could TUPE now be for the chop? As with all things Brexit, the answer is not yet known. The starting question should probably be: why bother? There is clearly a possibility (albeit unlikely) of a wholesale clear-out of any EU-related legislation, in the hope that this somehow creates a more favourable business climate in the UK. But at the time of writing, the reflective and concerned mood in the country would not seem to support indiscriminate change for change’s sake.

A case could theoretically be made for the wholesale repeal of TUPE to stimulate foreign investment in UK businesses. One of the cornerstones of TUPE is the automatic transfer principle, which protects jobs when businesses are bought and sold. Without TUPE, the argument goes, ailing businesses may be more attractive to potential foreign investor purchasers who could then purchase the assets and leave the employees behind. But there is little evidence to suggest that TUPE deters purchasers, as employees who are surplus to requirements can usually be made redundant with relatively little difficulty. Facilitating higher unemployment figures would, moreover, not exactly ease problems for the government of the day.

On the flipside, there are two specific reasons for thinking TUPE may be spared. Firstly, in 2014 when the Coalition government had the opportunity to remove the gold-plating SPC provisions, it decided not to do so. Ministers ultimately appeared to be persuaded by the benefits of continuity and certainty that the SPC rules offered (although it is questionable in light of recent case law how much certainty remains). Employers usually plan and bid on the basis that employees transfer when a business or contract changes hands. If that assumption gets unravelled, it can only add to the economic and commercial turbulence that UK business will already be feeling. If certainty and stability are favoured objectives, the safe money will be on TUPE staying – at least for the medium term.

The counter argument is that as there will be so much uncertainty for businesses anyway as a result of Brexit, little would be risked by throwing TUPE on the bonfire at the same time. The political preferences of those in power will inevitably be the critical factor. It’s not rocket science to predict that a right-wing government in a post-Brexit era would be under pressure to deregulate heavily and create at least the impression of a more pro-business climate. A more left-wing Government would be more inclined to cling on to the employment protections for which TUPE stands.

However, as employment laws go, TUPE is relatively apolitical in the sense that it does not fit as neatly as others into an “employer vs employee” equation. Take SPCs, for instance. If TUPE was repealed in its entirety, not only would employees lose valuable protections, but there would be both winners and losers among employers as well. Take a business that loses a significant contract, to which many hundreds of employees are assigned, to a competitor. In a post-TUPE era, such a business may find itself left with all of those employees at the end of the contract and an unexpected and costly redundancy bill.

The second reason why TUPE may survive is that there is an unresolved question as to whether Parliament could get rid of it even if it wanted to. Many commentators have suggested that an inevitable precondition of continued access to the single market will be that the UK continues to honour fundamental EU employment rights, in order to maintain a reasonably level playing field. If that happens, the UK may well have no choice but to retain TUPE anyway. In the cut and thrust of exit negotiations, the retention of less emotive employment laws is probably something the Brexiteers would happily compromise on in return for the all-important single market access and greater political capital of migration controls.

If the UK is in a position to jettison EU-derived employment legislation at will, political motivations will no doubt dictate the pecking order with the most unpopular laws being the first to go. TUPE is an unfamiliar concept to much of the UK public and has what could be described as a “Marmite” standing in the business community. That suggests it would be unlikely to be front of the queue. The prevailing state of the labour market could also have a bearing. If there is a shortage of labour in many sectors as a result of immigration reforms, there may be less clamour from business to abandon the automatic transfer of employees.

A final question is what would happen to the significant body of European Court of Justice (“ECJ”) case law in the event that TUPE is retained but the UK courts are no longer bound to follow the Court’s judgments. While the higher courts would most likely feel more liberated in their interpretation of TUPE, Employment Tribunals would no doubt continue to be influenced by past ECJ jurisprudence – at least until new binding case law emerged and they were told to do otherwise.

So the future is impossible to predict with any certainty but the odds would seem to be on TUPE remaining in some shape or form, albeit with a possible red tape and employee rights haircut. This leads us to the immediate problem of what businesses can do now to prepare for this uncertain future with or without TUPE. Current indications are that nothing is likely to happen in a great hurry, so we can expect TUPE to be around in its current form for at least another couple of years and probably longer. Forward-thinking businesses, particularly those who outsource or provide outsourced services, may nonetheless wish to consider the following:

  • When tendering for new contracts that may have an expiry date past a likely Brexit, it would be prudent to consider the possibility that TUPE may not be around at that point - with the result that the incumbent provider will potentially need to redeploy or make its own employees redundant. We are increasingly seeing examples of service providers seeking to agree a shared apportionment of redundancy costs in this eventuality.
  • Service providers may wish to review their business structure so they are better placed to cope without the automatic transfer of employees at the start and end of contracts. The ability to hire significant numbers quickly (particularly in an uncertain labour market) or to absorb periods of inactivity between losing one account and winning another will be greater challenges to grapple with. We may see short-term lay-off provisions coming back into fashion, or a trend towards broadening employee skills sets to make redeployment easier.
  • Finally, businesses may wish to review existing agreements for the provision of services, particularly those with many years still to run, to assess the impact of TUPE being repealed in the meantime. The prognosis may not make pleasant reading for some parties, but at least there is time to prepare for this contingency.

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