BIS: CALL FOR EVIDENCE EFFECTIVENESS OF TUPE REGULATIONS 2006

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1 BRIEFING NOTE BIS: CALL FOR EVIDENCE EFFECTIVENESS OF TUPE REGULATIONS Context The Government is currently reviewing the 2006 TUPE Regulations. Although no detailed proposals for reform have been published, the BIS Call for Evidence to which responses are required by 31 January 2012 provides useful indications of the key changes being considered. The "Call for Evidence" is a precursor to formal proposals for legal change and further consultation. It creates an opportunity for employers to influence government thinking and to lobby for "business friendly" changes in this important area of employment law. The key opportunities include: improving the ability of transferees to vary employment contracts by agreement after a TUPE transfer, removing unnecessary and unhelpful restrictions introduced in the 2006 Regulations. This reform will create certainty and promote the transferee's ability to harmonise or vary terms and conditions on a voluntary basis and in a lawfully binding way; gaining greater clarity on whether, and how, TUPE will apply if a service contract is relet in a fragmented way, so that one contractor is replaced with several different contractors. e.g. under call off arrangements. This would promote greater certainty in an area which remains legally unpredictable; improving the interaction between TUPE consultation obligations and collective redundancy consultation rules, to allow transferees to consult on business changes before the transfer and so implement them on the transfer date. This would enable earlier consultation and avoid delay in implementing necessary business changes; removing rules which currently create automatic unfair dismissal liabilities for transferees if the transfer involves a change in work location or if employees are dismissed prior to the transfer for reasons relating to the transferee's future business plans. As TUPE 2006 currently stands, transferees face considerable practical difficulties in implementing such changes before or at the time of the transfer, and are likely to face liabilities for automatic unfair dismissal and failure to consult; making the transferee (not the transferor) liable for constructive dismissals where employees object to the transfer because of a threatened breach of contract by the transferee or a detrimental change in working conditions proposed by the transferee. Currently the transferor can be liable, even though the transferee is at "fault". Pinsent Masons will be making a submission to BIS in response to its the Call for Evidence and we are aware that a number of our clients intend to do so themselves. The purpose of this note is to highlight the key points we intend to make in our submission and which you may wish to include in your own response. Where possible, we intend to say in our response that it reflects the broad position of our clients. To assist this, it would be useful if you could complete and return the feedback form included at the end of this note. If you are happy to be named by us as an organisation we have consulted for the purposes of our response, then please make that clear. We would also be very happy to discuss further your responses to the call for evidence and to review your proposed submission \CXM 1

2 We are considering holding round table discussion forums or similar events in due course, once the Government has issued firm proposals for change to the current TUPE Regulations in order to help business prepare for change and to discuss the planned reforms in more detail. Please let us know if you would be interested in attending these, using the attached feedback form. 2. Clarity and Transparency of 2006 Regulations Overall 2.1 Clarity on the application of TUPE 1 of the Call for Evidence seeks views on whether the changes made to TUPE in the 2006 Regulations have provided greater clarity and transparency on when TUPE will apply. Our broad view (subject to feedback) is that the principal change made 2006 the introduction of the "Service Provision Change" TUPE transfer has indeed provided much greater certainty and clarity on the application of TUPE to outsourcing, contractor changeover and in-sourcing exercises. The effectiveness of the SPC rule itself is considered further below (in response to 4). Proposed Response That the 2006 Regulations do provide greater certainty on when TUPE will apply. However, the application of the SPC rule in situations where one contractor is replaced with two or more contractors (eg under call off arrangements) should be reviewed and clarified (see section 3 below). 2.2 Clarity on the transfer of liabilities and obligations s 2 and 3 of the Call for Evidence ask for views on the clarity and transparency of the 2006 Regulations regarding the provision of information, from transferor to transferee, about the liabilities and obligations that will transfer under TUPE. The specific questions are: there is sufficient transparency around the transfer of employment rights and obligations to ensure a smooth transition ( 2 which overlaps with 14); whether there are particular problems around the timing and/or accuracy of the information provided about transferring liabilities and whether there are any problems particularly in relation to transfers from the public or private sector ( 3, again overlapping with 14). On the whole, our experience is that these changes have had only limited impact and are not often of significant value to the transferee. In most cases, there will be underlying commercial requirements that provide for a more detailed transfer of workforce information along with warranties and indemnities. Even in a contractor changeover case, where there is no direct contract between the service providers, this transfer of information will typically be regulated in the agreement between client organisation and outgoing and incoming contractor. These commercial provisions form the real framework rather than the 2006 Regs which governs the transfer of workforce information. The statutory scheme has some value in those occasional situations where this underlying commercial framework is absent or inadequate, e.g. because of deficiencies in the contract between client and outgoing contractor. However, the statutory notification requirements are far from an exhaustive list of the relevant legal obligations which would be transferred under TUPE. They are therefore of limited value in terms of ensuring that the transferee is aware of key obligations that will transfer. For example, the list might usefully require disclosure of full copies of contracts of employment (rather than just the information required to be given in s1 statements under ERA 1996); details of staff absent on long term sick leave or maternity/family \CXM 2

3 leave reasons, and details of reasonable adjustments made under the disability discrimination legislation. Given that the framework in the 2006 Regulations governs not just the transfer of information but also the potential liability of the transferor to the transferee for failure to provide this information, making the list of required information more comprehensive would seem desirable. The 2006 Regulations require information on transferring liabilities to be provided only 14 days before the transfer - which we regard as too short a period for the transferee to digest the information, identify its impact, and formulate measures which it may propose in connection with the transfer. This is another factor which acts to limit the value of the statutory disclosure regime. On balance, we consider that this is an area where changes to TUPE 2006 are desirable rather than essential. Proposed Response to s 2, 3 and 14 It would be desirable to add greater detail to the statutory list of required information, so that this corresponds more fully with the type of information that would be commonly sought in commercial disclosure provisions. The transferee should provide the information 28 days before the transfer, unless otherwise agreed between transferor and transferee. 3. TUPE and Service Provision Changes s 4 to 7 of the Call for Evidence relate to the "Service Provision Change" type of TUPE transfer introduced by the 2006 Regulations. BIS is asking for views on whether these changes have created increased transparency and reduced burdens on business, in particular by providing greater certainty about the application of TUPE in outsourcing situations. 3.1 The SPC Change Clarity and Certainty Overall, our view is that the SPC change has been positively welcomed by service providers and client organisations and tends to work well in practice. It creates a presumption that TUPE will apply to all stages of the contracting out process, including contract changeovers. It has protected UK contractors from volatility in EU and domestic case law, eg on when contactor changeovers will fall within the scope of TUPE. It has reduced the scope for disputes between incoming and outgoing service providers on whether TUPE applies (to the point where these are far less common than before) and provides a more certain framework in which those bidding for contracts can evaluate the legal risks and liabilities, and therefore the costs, of providing the service. The change has also been successful in reducing the need for legal advice on when TUPE will apply (except, for example, where novel contractual arrangements are being made for the re-tendering of contracts or there is a change in the nature of the services provided). In our experience, since 2006, there have been fewer tribunal cases in which the application of TUPE is at issue. Some elements of legal uncertainty have remained, despite this change - in particular, where a contract is re-tendered and allocated to two or more service providers. This can occur, for example, under call off arrangements or where the services are fragmented so that multiple contractors provide services, each working in only part of the geographical area covered by a single outgoing service provider. Case law on these situations has provided mixed outcomes in some cases TUPE has been found to apply, but not in others. A strict interpretation of the SPC rule suggests that TUPE should apply because that test is focused only on the organisation of the service prior to the SPC, and not to the location or structure of the service in the hands of the new contractor. However, in the "call off" or "fragmented service provision" cases referred to above, the fundamental problem has been how TUPE can be applied in practice to which contractor \CXM 3

4 should the employees transfer and how can the correct transferee be identified? The legal position remains very uncertain. An existing service provider may be faced with unexpected redundancy costs when the contract is re-let and TUPE is found not to apply. Alternatively, one of the new contractors may find itself saddled with all of the transferring liabilities (while other contractors escape liability altogether). There is a real likelihood of disputes between contractors and employees about whether and how TUPE applies. These are all problems which the SPC rule was designed to resolve, but which remain "live" in these scenarios. There is no single solution to this problem which would universally benefit client organisations, incoming service providers or outgoing contractors. Each will have different interests and potential liabilities depending on whether or not TUPE will apply or can be applied in these cases. Options for change would include amending TUPE to expressly provide that the SPC rules will not apply if the activities undertaken by one service provider pre-transfer are undertaken by two or more service providers after the SPC. However, this could encourage the artificial fragmentation of services to evade the SPC rules (although the standard TUPE definition would still apply, albeit with the same difficulty re identifying the relevant transferee). Another option could be to provide that in such cases, if employees do not transfer to any of the new contractors, the liabilities for redundancy and notice costs would be apportioned between the outgoing and new service providers, or even with the client organisation as well. Liability could be adjusted to give "credit" to new contractors who do engage some of the outgoing contractor's staff. This would have the benefit of sharing costs between the parties involved, ensuring that no one party bears all the risk and cost in these unpredictable scenarios. Proposed Response to s 4 and 7 BIS should consider how greater certainty can be introduced in cases where the SPC rule cannot be easily applied in practice because multiple service providers are appointed. This could include provision for redundancy and notice costs to be shared between outgoing and incoming service providers, if the outgoing provider's employees do not actually transfer into the employment of any new contractor. 3.2 Increased Burdens from TUPE In response to 4, our view is that while the SPC rules have provided greater certainty, they have also increased the burden of the TUPE Regulations, by virtue of the very fact that TUPE will now typically apply to all contracting out/contractor changeover scenarios. In particular this means that those involved with SPCs face a higher impact from the actual effects of TUPE, namely: the rules restricting changes to contracts and harmonisation of terms and conditions following TUPE transfers; obligations to provide minimum pension entitlements on TUPE transfers; the burden of information and consultation obligations has increased; the risk of constructive dismissal claims for breach of transferring contract entitlements and even for a change in non-contractual working conditions to the employee's detriment; and the specific difficulties posed by a change of work location on the transfer, in terms of unfair dismissal liabilities, and consultation obligations under TUPE and collective redundancy legislation. These issues are discussed elsewhere in this paper, but the point we will make in our response to 4 is that the very fact that TUPE now applies essentially "as \CXM 4

5 standard" to SPC cases means that reform in these other areas should be pursued, to reduce the burden on contractors of other aspects of the TUPE regime. We would also be interested in whether you feel that any other significant additional burdens have been introduced as a result of the SPC rules, which outweigh the benefits of greater certainty regarding the application of TUPE. 4. Harmonisation of Terms and Conditions s 10 to 12 of the Call for Evidence seek views on the difficulties of harmonising terms and conditions in the context of a TUPE transfer and ask how the existing rules can be changed while staying within the principles of the Acquired Rights Directive. In our experience, this is perhaps the biggest practical problem for transferees. The current rules preclude the ability of the transferee to harmonise or vary terms and conditions by agreement following a transfer. An assumption has been created that terms and conditions can never be lawfully varied by agreement following a TUPE transfer, so that the rights at the time of the transfer are protected forever. This can deter transferees from making changes at all or create uncertainty as to whether changes actually agreed with employees are valid and effective. This causes significant uncertainty and leads directly to additional and unnecessary costs for business. 4.1 The ability to change by agreement following a transfer 10 asks how the Regulations could be adjusted to enable post-transfer harmonisation while remaining in line with the Directive. The crucial issue here is to identify the true scope of the restrictions which the Directive actually places on post-transfer harmonisations or variations. In our view, the 2006 Regulations were hopelessly muddled on this point, and operate to restrict the transferee's ability to change terms and conditions far beyond the limits which apply under the Directive itself. This was not just "gold plating" of EU law but "gold plating" through a fundamental misunderstandings of the law and the impact of the changes being made. There are compelling arguments that the Directive prohibits variations by agreement only where they occur "by reason of the transfer", and that that phrase simply means "on the occasion of the transfer". The essential principle of the Directive is that employees should actually transfer from the transferor to the transferee with their existing terms and conditions intact. These same rights and obligations between employer and employee should apply before and after the transfer. This should include the rights of both employer and employee to effectively and lawfully agree changes to the contracts of employment on a voluntary basis at a date after the transfer. A variation which occurs at the time of the transfer offends against this principle because it precludes the employee taking up employment with the new employer with their existing contractual rights preserved. However, once that transfer has been achieved, and the employee has secured the same contractual relationship with the transferee as enjoyed with the transferor, the parties should be free to agree changes to those contracts at a later date. Given that before the transfer, employee and transferor were free to agree changes to the contract of employment, there seems to be no policy reason why that freedom should be taken away, as between transferor and transferee, on a permanent basis. Where the change in contracts is made after the transfer, it should not be regarded as made by reason of the transfer itself. If this is the correct interpretation of the Directive, the 2006 Regulations go much further than required. They preclude not only variations by agreement which are by reason of the transfer, but also variations for reasons "connected with the transfer". It is this extension which means that the restriction will apply in most circumstances where post-transfer variations are sought by the employer, even many years after the transfer itself. Further, variations for reasons connected with the transfer are only currently permitted under TUPE 2006 if they are for an "ETO reason entailing changes in the workforce". The phrase \CXM 5

6 "entailing changes in the workforce" is the element which operates to prevent lawful variations in the majority of cases it requires a change in the employer's workforce, in terms of numbers of employees or their job functions. Most contractual changes following a transfer will relate to terms and conditions which have nothing at all to do with job functions or numbers of employees, for example payroll dates, holiday entitlements, sick pay arrangements, and contractual policies and procedures. These cannot be classed as valid "ETO reasons". As a result of this failure to appreciate what an "ETO reason entailing changes in the workforce" actually requires, and the impact of the phrase "entailing changes in the workforce", the 2006 Regulations appeared to offer the promise of greater flexibility to effect such changes, but in practice made them unlawful. Neither the Directive itself, or cases from the ECJ, limit the scope of lawful contract variations to circumstances in which there is an ETO reason entailing changes in the workforce. This is a totally unnecessary and counter-productive requirement under domestic law. In summary, the problem with the 2006 Regulations is that: the current position under the 2006 Regulations is much more restrictive than the position under the Directive; the 2006 Regulations fail to meet the stated objective of providing a clearer framework in which transferees can change terms and conditions with certainty; indeed, while purporting to clarify when changes to contracts could be made, the 2006 Regulations have narrowed the scope for lawful variations. Our proposed solution would be to allow variations by agreement between transferor and transferee after a specified period of time for example 6 months or 1 year after the transfer, on the basis that at this stage any such changes are not to be regarded as being by reason of the transfer. Such a change would provide certainty as to the length of time for which a transferee must continue to observe the transfer terms and conditions and would allow both employer and employee to make changes after that period with certainty that they are valid and binding. There would be no requirement for the variation to be for an ETO reason entailing changes in the workforce. As a result, the burden of TUPE on employers would be reduced, without infringing the principles in the Directive. This provision has parallels in the Directive which allows Member States to restrict to one year the period over which terms and conditions of employment set by collective agreements must continue to be observed by a transferor. If this change were introduced, it would enable voluntary changes but still leave employees protected against changes forced on the employee or imposed through dismissal and reengagement. These are the necessary and adequate safeguards - not a ban on chnages by mutual agreement. Proposed Response to 10 That the current provisions allowing variations connected with the transfer, and for ETO reasons, should be abolished. Instead, the TUPE Regulations should state that contractual changes made by agreement after a defined period (6-12 months) should not be treated as changes "by reason of the transfer" and should therefore be permitted. 4.2 Variation by agreement must be "no less favourable overall"? 12 asks whether it would be helpful to allow terms and conditions to be renegotiated with employees provided that the resulting contract was no less favourable than that at the point of transfer. We do not consider that this is attractive. It would ultimately fall to an employment tribunal to decide whether the "no less favourable overall" test was satisfied. Introducing such a rule would \CXM 6

7 create a considerable uncertainty as to the outcome of any dispute. Further, it would appear incompatible with the Directive which provides that any detrimental changes are unlawful even if other terms and conditions are improved. The better solution would be to allow employers and employees as suggested above - a free hand to agree the terms of a new contract, and leave the parties themselves to decide on what counts as an acceptable "trade off". This would be a far more certain and workable way to address the harmonisation issue. Proposed Response to 12 There should be no requirement for a post transfer variation by agreement to be "no less favourable overall" than the contract at the time of transfer. The employer and the employee should be free to negotiate the new contract themselves. 4.3 Limiting the Duration of Collective Agreements 11 itself asks whether it would be helpful to include, in TUPE, provisions in the Directive which limit the transferee's requirement to observe terms and conditions derived from collective agreements. This provision is not completely incorporated into the 2006 TUPE Regulations. We consider that it would be helpful to expressly specify in the TUPE Regulations that terms and conditions set by collective agreement will be lawfully varied if a new collective agreement is reached between the transferee and the trade union concerned. That is stated in the Directive, but not currently in the TUPE Regulations The omission is not fundamentally problematic, so this would be change for clarity and transparency only, not a change in legal principle. However, a provision that terms and conditions contained in collective agreements would otherwise only apply for a period of one year after the transfer would be very problematic in our view. The scheme in the Directive (which allows such time limits to be imposed) reflects a model of employment contracts common in continental Europe under which terms are set at a national, regional or industry specific level by collective agreement. The role of collective agreements within the UK is much different. Creating a time limit in the UK after which terms and conditions contained in collective agreements would cease to apply would create considerable uncertainty and legal complexity. Would those terms cease to apply between employer and employee? If so, what other terms would apply? How would these be determined? Would they have to be collectively agreed or could they be agreed directly with employees (or even imposed)? These questions seem to be a recipe for confusion and dispute, including industrial unrest. It also creates complex legal problems, particularly with the interface with legislation precluding employers from offering inducements to staff to enter into terms and conditions which are not set by collective agreement (section 145B TULRCA). te that a case is pending before the ECJ which will determine whether, following a transfer, the transferee is obliged to give effect to new collective agreements to which the transferee is not even a party - on the basis that these are referred to in the contracts of employment, so that the transferring rights of the employees include the benefit of any post transfer variations. That issue is of great practical importance but as the position will be set by the ECJ in its decision, we do not see scope for BIS to address it at this point in time Proposed Response TUPE should be amended to make clear that terms and conditions derived from collective agreements will be lawfully varied by a new collective agreement between employer and employee. Otherwise, no time limit should be placed on the period for which terms and conditions contained in collective agreements should be applied following a transfer. 5. Overlap between TUPE and Collective Redundancy law \CXM 7

8 20 of the Call for Evidence asks whether problems have been experienced in the interaction of TUPE Regulations and the rules on collective redundancy consultation. It is not uncommon for transferees inheriting a workforce under TUPE to wish to make changes to the composition or organisation of the workforce or to terms and conditions of employment. Common scenarios include: the transferee wishes to implement redundancies or other organisational changes to save costs or achieve efficiencies; the transferee proposes to change terms and conditions by dismissal and reengagement; the transferee will employ the transferring staff but at its own work location (eg call centre) rather than that of the transferor effectively, a "change of workplace" redundancy situation brought about by the TUPE transfer. In these cases, the transferee may well face two consultation obligations- under TUPE (as the changes are measures connected with the transfer) and under s188 TULRCA (collective redundancies). A key practical problem is both cases is that the transferee cannot technically begin such consultation until it has actually become the employer under TUPE. If the transferee waits until the transfer to begin consultation, it faces the additional costs of continuing employment on the current basis until relevant consultation periods and notice periods have been observed. This also creates uncertainty for employees they will know that measures are proposed but face a significant delay before their representatives can actually engage with the transferee in consultation on them. The difficulties and indeed impracticalities of this situation are demonstrated in the change of workplace scenario mentioned above. Assume that a new contractor based in Glasgow takes over a contract to provide call centre services. The outgoing contractor's call centre is based in Birmingham. The contracts of employment give the place of work as Birmingham. The new contractor cannot physically continue to employ the staff in Birmingham. Taking over the contract involves a place of work redundancy in Birmingham (a measure connected with the transfer) and a collective redundancy situation. The new contractor would technically be required to consult on these measures after the transfer, continuing to employ those staff in Birmingham while collective redundancy time limits were observed. But the contractor needs employees in Glasgow and cannot physically continue employment in Birmingham. The logical approach in this scenario would be for the relevant consultation to be carried out ahead of the transfer date. However, under the current regime, that consultation is "legally premature" and the transferee is exposed to the risk of two protective awards, one under TULRCA and another under TUPE. Proposed Response to 20 That TUPE and s188 TULRCA should be amended to make clear that transferees can consult lawfully in advance of a transfer, so that the transferee can put new arrangements in place from the date of the transfer. What should matter here is that consultation has taken place, rather than whether the transferee was technically the employer at that time. The change would also give legal cover to good employment relations practice on the part of those transferees who already seek to engage in consultation ahead of the transfer. It would be desirable for transferors to have a legal obligation to allow the transferee access to employee representatives before the transfer. 6. Interaction of TUPE and Other Areas of Employment Law \CXM 8

9 19 asks whether problems have been experienced from the interaction between TUPE and other areas of employment law. Please let us know if there are specific issues you would like us to raise in our response to this question. Examples might include data protection issues, pension rules and issues regarding equal pay in the context of TUPE transfers. 7. The Benefit of Further Guidance? Another area explored in the Call for Evidence (s 16 and 17) is whether employers would benefit from additional guidance on any area of the application and effect of TUPE. 7.1 Guidance on "ETO Reasons" 16 asks specifically whether employers would benefit from additional guidance on the meaning of "Economic Technical or Organisational reason entailing changes in the workforce". This provision currently operates: as the employer's defence to a claim for an automatic unfair dismissal where the dismissal is for a reason connected with the transfer. If an ETO reason entailing changes in the workforce can be shown, the dismissal is not automatically unfair (but may still be unfair on "normal" rules); in the context of lawful agreed variations to employment contracts - if the reason for the change is an ETO reason entailing changes in the workforce, the change is valid and lawful (see above). In our view, the definition of an ETO reason itself is clear and well understood and is elastic to cover a wide range of business changes connected with a transfer. Further guidance on that point appears unnecessary. The only part of the definition that operates in a restrictive way is the phrase "entailing changes in the workforce". This is not defined in the legislation or the Directive but has been interpreted by the UK courts as requiring changes to numbers of employees or to job functions. This is a narrow interpretation that robs the ETO defence of much of its potential force. Given that the current interpretation is derived from UK case law only, we believe that BIS should consider whether there is scope under the Directive for a more expansive interpretation of this phrase, particularly having regard to the application of the Directive in other EU jurisdictions. If possible, the TUPE Regs should be amended to include a definition which is sufficiently wide to cover changes to the organisation of work (eg shift patterns, hours of work) and even to contractual pay and benefits. To provide greater certainty, any new definition should be included in the Regulations, rather than contained in guidance. Proposed Response to 16 There would be benefit in a more expansive definition of "entailing changes in the workforce". This should be in the Regulations rather than in Guidance. Other changes connected with the concept of ETO reasons are mentioned below in section Other Guidance? 17 asks, more generally, whether employers would welcome additional guidance or clarification of other areas of TUPE \CXM 9

10 If you have any suggestions for this, please let us know so that we can consider these in our response. For example, would you welcome clearer guidance on when employees are assigned to a transferring undertaking and so are entitled to transfer under TUPE? 8. Other Possible Changes s 23 and 24 are very broad, asking whether any other changes to the TUPE Regulations would be desirable and inviting other suggestions to be taken into account in the review of the effectiveness of the current TUPE rules. Our view is that the following areas may merit further consideration. 8.1 Automatic unfair dismissals and ETO defences We will be suggesting that TUPE should be changed so that dismissals effected by the transferor for the transferee's ETO reasons should not be automatically unfair. The legal change required would be to allow a transferor to effectively dismiss for the transferee's ETO reason, on the basis that the reason relates to the future conduct of the business in the hands of the transferee. Currently this is not a valid ETO reason as it "belongs" to the transferee - the transferor can therefore not use it as a fair basis for dismissal. In our view, nothing in the Directive precludes this from being a valid ETO reason. This is not an abstract point of detail - it has real practical effect. Take for example the situation where the transfer involves a change of workplace because the transferee operates from a different location. The reality of that situation is that if the employees are to continue their employment, they will have to move to the new location (redundancy is the alternative). Currently, the transferee cannot deal with this situation ahead of the transfer - the transferor has no redundancy situation so cannot give notice for a valid ETO reason. Any such dismissals will be automatically unfair (and the transferee will be liable) To avoid constructive dismissal liability, the transferee would technically have to wait till the transfer has happened, consult under TUPE/TULRCA (as required) and then serve notice. Alternatively, the employees who do not wish to transfer could resign and claim constructive dismissal based on the anticipated change in workplace/detrimental change in working conditions, a claim to which there would be no valid ETO defence. The change we propose - especially if implemented alongside our proposal that the transferee should be able to consult pre-transfer on measures it proposes in connection with the transfer - would allow the transferee to deal with this scenario in advance of the transfer without incurring automatic unfair dismissal liabilities. Liability for the dismissal would need to be allocated to transferee rather than transferor under our proposal, even if the employees are dismissed prior to the transfer. The employees would still be able to claim unfair dismissal however those dismissals would be looked at on their real merits and decided on "normal" principles. This would allow transferees greater scope to implement business changes ahead of transfers, without unduly impacting on employment rights. Proposed Response to s 23 and 24 Pre-transfer dismissals for reasons connected with the transfer should not be automatically unfair simply because the ETO reason relied on relates to the transferee's future conduct of the business. The fairness of these dismissals should be decided on standard principles. The liability for them should rest with the transferee. 8.2 The interaction of TUPE and liability for constructive dismissal. Where a transfer will involve a breach of the employment contract or a substantial detrimental change in working conditions, an employee can resign ahead of the transfer and bring a constructive unfair dismissal claim \CXM 10

11 There are two problems with this. First, the transferor will often be legally liable for these claims, even though "fault" will actually lie with the transferee (given that the transferee proposes to breach the terms of the contract or is responsible for the detrimental change in working conditions). That seems unjust. The second problem is the fact that a constructive dismissal can arise for these purposes even when there is no breach in the contract of employment. It is sufficient only for there to be a substantial change in working conditions to the employee's detriment - a wider and to a large extent more subjective test. Proposed Response to 23 and 24 The existing rules should be changed to make the transferee liable (regardless of whether the employee has also objected to the transfer) for constructive dismissal claims which arise from anticipated contractual breaches for which they are responsible. Further, these constructive dismissal claims should be limited to cases of actual or anticipated fundamental breach of contract - not to a mere detrimental change in noncontractual working conditions. Please use the attached feedback form to give us your views on these proposals, so that we can take these into account when submitting our response to BIS. To discuss these issues or your views on the BIS Call for Evidence on TUPE, please contact Chris Mordue (christopher.mordue@pinsentmasons.com) or your usual Pinsent Masons contact. Pinsent Masons LLP 19 January \CXM 11

12 Please use this form to send us comments on our proposed response to BIS on their Call for Evidence of the effectiveness of TUPE. This will help us to indicate to BIS whether our proposals have the broad support of our clients and contacts. Please complete the form and send it to Chris Mordue at BIS CALL FOR EVIDENCE EFFECTIVENESS OF TUPE REGULATIONS 2006 FEEDBACK FORM Name... Job Title... Organisation... Are you happy for us to name your organisation as one whose views we have canvassed in preparing our response Would you be interested in attending round table discussions or other events, once the Government has issued further proposals for the reform of TUPE? Do you agree that the 2006 Regulations have provided greater certainty on when TUPE will apply? Comments: Would you welcome greater clarification on the application of the service provision change rules when one contractor is replaced with multiple contractors? Comments: Do you agree that the statutory workforce information to be provided by the transferor to the transferee should be given 28 days before the transfer, rather than the current 14 days? Comments: Should the list of required statutory workforce information be more detailed? Is there anything that you would \CXM 12

13 particularly like to see included? Comments: Do you support our proposal that transferees should be able to agree variations to contracts of employment with transferred staff, provided that a specified time period has elapsed since the transfer? What time period should be allowed? Comments Do you support our proposal that there should be no requirement for agreed variations to employment contracts to be "no less favourable overall" and that employers and employees are entirely free to renegotiate contracts on whatever terms they choose? Comments: Do you agree that the TUPE Regulations should be clearer that any new collective agreement between transferee and trade unions will vary existing terms and conditions of employment contained in a transferred collective agreement? Comments: Do you support our proposal that transferees should be able to lawfully consult before the transfer about measures they propose in connection with the transfer before the transfer has taken place? Comment: \CXM 13

14 Would you welcome a wider definition of when ETO reasons will "entail changes in workforce", so that this concept is not restricted to a change in the number of employees or their job functions? Comments: Do you agree that pre-transfer dismissals should be permitted, and not automatically unfair, where the ETO reason relates to the transferee's plans for the business? Comment: Do you agree that if employees resign before the transfer because of a threatened breach of contract by the transferee, or because the transfer involves a detrimental change in their working conditions, that the transferee not the transferor should be liable for those claims? Comment: Are there any specific issues which you think BIS should consider in terms of how TUPE interacts with other areas of employment law? Comment: Are there any areas of the TUPE Regulations on which you would welcome more guidance, e.g. on the issue of when employees are "assigned" to a transferring business? Comment: \CXM 14

15 \CXM 15