TUPE or not TUPE? [ 10 Nov 2006]

(Company and Commercial )

Steven Fullman

Shakespeare it is not, but the new Transfer of Undertakings (Protection of Employment) Regulations 2006 came into force on 6 April 2006 and replace the 1981 version in their entirety.

The new Regulations codify what the Government believes to be the position reached by more than 20 years of case law under the old regulations.

Accordingly it is now clear that TUPE will apply to the following arrangements:

• outsourcing (where a service previously carried out in house is to be performed by a third party);
• insourcing (where a service previously carried out by a third party is brought ‘in house’); and
• service provision change (where an existing sub-contractor is replaced by another).
  

For the new Regulations to apply there must still be an ‘organised grouping of employees’ carrying out the relevant activities and, broadly speaking, the change must be intended to be permanent; it is clear that TUPE will not apply “in connection with a single specific event or task of short-term duration".

TUPE is of potential application to all types of business regardless of the number of employees effected.

Thus a purchaser of a freehold office block may end up having to assume the employment of a full time caretaker, security guard or managing agent if that person is employed exclusively in the business. Alternatively, if that person’s services were provided to the seller through a sub-contractor, the buyer’s agent may assume the obligations when it takes over management of the property. This is something to be wary of if you are considering taking over an existing service when appropriate indemnities should be sought.

The expected exemption from the ‘service provision change’ provisions for ‘white collar’ professional service providers such as lawyers and accountants did not materialise. The new Regulations also contain obligations on the transferor business to supply to the transferee business "employee liability information" including information about the identity, age and employment terms of the transferring staff. Failure to comply can result in a minimum award of £500 per affected employee.

There the transfer follows an insolvency, the new Regulations make provision for some of the pre-existing debts to the employees of the insolvent business to be met by the National Insurance Fund instead of the transferee business. However the amount is capped and the transferee will remain liable for any debts owed in excess of the amount paid for by the NI Fund.

Although the changes seek to clarify the circumstances under which the transferee can vary the terms of employment of any transferring staff, it will remain difficult to vary those terms if the sole purpose is to harmonise them with existing staff members of the transferee business.

For further details on the new TUPE Regulations or if you wish to discuss any TUPE related issue further then please contact Steven Fullman, head of Jeffrey Green Russell's TUPE task force, on 020 7339 7046 or at srf@jgrlaw.co.uk.