How employers can legitimately avoid being caught out by Tupe
Companies often ask their legal advisers how they can avoid the impact of Tupe on their commercial arrangements. A parallel with that sort of discussion is the distinction drawn between legitimate tax avoidance and unlawful tax evasion. The real question is the extent to which it is legitimate and possible for employers to manage their employment arrangements so as to ensure that Tupe does, or does not, apply in a given situation.
The first point to consider is that the clue is in the name – the Transfer of Undertakings (Protection of Employment) Regulations 2006. Tupe’s objective is to preserve the employment of the employees involved, protect them against unfair dismissal (for those eligible to claim it) and inform and consult with them via appropriate representatives in the wide variety of circumstances where Tupe applies.
The introduction in 2006 of the service provision changes (SPC) as a form of Tupe transfer widened the scope of the rules so they apply not only when a business is sold, but also when a service is outsourced, or brought back in house, or a contract is put out for re-tendering, provided certain specific requirements are met. The activities involved must constitute the provision of services (as opposed to the supply of goods) and must be carried out by an ‘organised grouping of employees’ whose principal purpose is undertaking those activities.
This expansion may make it easier to predict when Tupe will apply, but triggering the rules may not be desirable to the organisations involved, which in a retendering will include the client, the current contractor, and the incoming contractor. The new contractor may not wish to inherit employees and their associated liabilities from the outgoing contractor, but an outgoing contractor may want Tupe to apply so it can avoid the termination costs it would otherwise face from having to make redundancies at the end of its contract.
The regulations also trigger potentially onerous collective information and consultation requirements and an obligation on the outgoing contractor to provide detailed ‘employee liability information’ to an incoming contractor.
So, what can organisations in these circumstances do legitimately to achieve their commercial objectives? Employers may need to consider the following aspects of their arrangements which affect whether or not Tupe applies.
For there to be an SPC, there must be an ‘organised grouping of employees’ whose principal purpose is the activities involved. So, if the employer has a team specifically dedicated to servicing the commercial activities in question, Tupe is more likely to apply; if the team works for a variety of clients, there is unlikely to be an SPC for Tupe purposes.
The activities also need to remain fundamentally or essentially the same after their transfer for there to be an SPC. So awarding a genuinely different function to a new contractor may escape Tupe, whereas simply redesigning the function in a way which in reality only requires the new contractor to find a better way of performing the same activities may not. If the contract in question is awarded to a number of new replacement contractors, the services involved may be so ‘fragmented’ that there is no SPC.
Whether or not particular employees are ‘in scope’ for the purposes of Tupe will depend on the extent to which those employees are involved in the activities transferring.
The contractual arrangements between the parties can also provide protection through provisions – called indemnities – which specify which company has responsibility for the employees affected and any associated liabilities and termination costs. A client awarding a contract could ensure in its initial contractual arrangements that the contractor will not perform the contract in a way that would make Tupe apply on its termination. Alternatively, the contract could provide that the contractor remains liable for any employment liabilities which might pass to a new contractor under Tupe. The incoming contractor can also be protected by provisions preventing the outgoing contractor from moving lower performing or more expensive staff to the transferring team.
Tupe is notoriously fact sensitive, so hard and fast rules are not really feasible in terms of employers being able to ensure that they fall within or outside Tupe in any given situation. But
careful planning in relation to the award of a contract and the contractual arrangements applicable to it, and any procedures leading up to it, can pay considerable dividends where Tupe is concerned.