Consultation on reforms to TUPE: would it be smarter?

The government believes that consultation in 2023 demonstrated appetite for further reform of employment law. In follow up to this, they have launched a consultation into reform of two areas: TUPE and European Works Councils. We have written about EWCs here and in this article consider what is proposed in relation to TUPE. The consultation will remain open until 11 July 2024 but since it was launched, a general election has been announced for 4 July, casting the progress of these reforms in doubt.

TUPE reform

As a continuation of its review of EU-based employment law, the government has published a consultation paper on some new (modest) changes to TUPE to address two of the decisions of the Employment Tribunal and European Court of Justice that have led to some uncertainty about who TUPE applies to and what happens to employment if a business or service is split between two employers.

This follows some earlier changes to confirm that, for transfers which take place on or after 1 July 2024, a business can inform and, if applicable, consult with employees directly (provided there are no existing employee representatives in place) where the business:

• has fewer than 50 employees, irrespective of the size of the transfer; or
• where the proposed transfer involves fewer than 10 employees, irrespective of the size of the business.

What is being proposed?

The two proposals in the new consultation are:

• Restricting TUPE to employees (so excluding workers)
  

The Employment Tribunal in Dewhurst said the EU Acquired Rights Directive requires that TUPE applies to “workers” as well as employees.

The government is proposing to amend the definition of employee in TUPE to clarify that workers are not protected by the regulations.

The Dewhurst decision has been widely criticised in the UK because workers may owe no ongoing obligations to the company, may not operate under its control, and are difficult to consult if they only work occasionally. It is also worth noting that only employees, not workers, are entitled to unfair dismissal rights; so it makes little sense for transferors and transferees to be able to dismiss workers but still be obliged to inform and consult with them.

The decision was at tribunal level only, so did not have any binding weight. As a result, Dewhurst has not, in practice, resulted in a significant change in the individuals considered “in scope” to TUPE transfer, but it has created ambiguity. The proposal that workers are excluded is a small but welcome change.

• Confirming that employment can only TUPE transfer to one employer

The ECJ in Govaerts ruled that a full-time employment contract can be split between new employers in proportion to tasks performed. Until this decision, it had been understood that an employment contract could not be split as part of a TUPE transfer. The consultation recognises that splitting contracts is very often impractical, resulting in employees having two employers and being required to work on different sites and on different terms and conditions.

The “service provision change” gold-plating of the EU Acquired Rights Directive has meant that this sort of situation arises more often in the UK and, although it has been largely ignored in practice, it has provided uncertainty.

The government is proposing to amend the TUPE regulations to clarify that an employment contract should only be transferred to one employer and should not be split between multiple employers. Instead, the employers taking over the business or service would be required to agree who should be responsible for each employee’s contract.

Is this realistic?

Although the clarity that a contract of employment cannot be split is welcome, the suggestion that two prospective employers will agree who is responsible for which employee is unlikely to create any more certainty. In most cases, the prospective two employers are competitors, and neither is likely to want to take responsibility for an employee who may not meet the “wholly or mainly assigned” test in relation to the part of the business or service acquired. If this proposal is going to address the current uncertainty in a meaningful way, it will need to include a mechanism for determining whether TUPE applies and, if so, to which prospective employer the relevant employee transfers.

What’s missing?

Following Brexit, TUPE was seen as an area on which the government could legislate to remove some of the frustrations that arise in practice. Although these proposals (and the changes already made) address some of the issues, they do not address the bigger frustrations including:

• The restriction on changing terms and conditions, when there are often sensible business reasons for harmonising terms with the existing workforce. The restriction applies even when employees agree to the changes and/or the change is to their benefit.
• The current requirement for an “ETO reason” in a redundancy situation. This results in redundancies being delayed until immediately after the transfer (so they can be implemented by the incoming employer with an ETO reason). For example, even where there is a clear “place of work redundancy” as a result of an “off-shoring”, the redundancy cannot be confirmed until after the transfer (particularly unattractive where the transferee’s own jurisdiction does not have TUPE or equivalent and so they may not play ball).

Employees rarely benefit and are often forced into artificial redundancy consultation with an employer that is unknown to them and that they have no prospect of working for. It would make more sense for this to be removed or for the government to legislate that outgoing employers should be able to rely on incoming employers' ETO reasons.

• Post-termination restrictions in the employment contracts of transferring employees are interpreted very literally (for example the definition of 'group' company was interpreted to mean the outgoing employer's group only). This puts the incoming employer at a disadvantage because it must honour the transferring employee's contractual terms but can't be sure of relying on post-termination restrictions which would ordinarily be a key tool for protecting its business.
• The current requirement for a business with more than 50 employees, which does not have any existing employee representatives in place and which is not envisaging taking any measures, to organise the election of employee representatives when 10 or more employees will be transferring. In these circumstances the employee representatives’ sole role is to receive information (as no consultation is required by an employer which is not envisaging taking measures); and election in such cases therefore serves no benefit compared to an employer providing the same information directly to all employees.
• The current inability for a business to settle any liability for a breach of its information and consultation obligations by using a settlement agreement, and instead having to enter into a COT3 using ACAS to make any such settlement legally binding.

But will this make it through in time?

The proposed changes can be made relatively quickly by statutory instrument using the government’s new powers to change assimilated EU law.  However, with a general election now scheduled for 4 July, a week before the consultation period will even have ended,  these changes currently seem unlikely to be implemented.