Employers pick up the tab for TUPE indecision

Research released exclusively to Personnel Today by Pinsents finds employers
are meeting the costs of the Government’s failure to get to grips with TUPE
staff transfers. As the DTI drags its feet over producing a workable reform of
the legislation, firms struggle to pick their way through muddled regulations
and have to test TUPE case law in the courts

Employers are wasting time and resources because of the Government’s failure
to reform legislation protecting staff terms and conditions when transferring
from one organisation to another.

Research released exclusively to Personnel Today by law firm Pinsents reveals
that employers have been left facing a legal minefield because of lack of
clarity over the Transfer of Undertakings (Protection of Employment)
regulations (TUPE). Organisations have to take account of TUPE when entering
into agreements over outsourcing, Public Private Partnerships (PPPs), Private
Finance Initiatives (PFIs), as well as buying and selling a business.

Employers have been waiting for TUPE reforms in the UK since 1998 when a new
EU directive superseded the original Acquired Rights Directive of 1977 on which
the current regulations are based.

Trade and industry secretary Patricia Hewitt announced in February this year
that the new TUPE regulations would be published in draft form during the first
half of 2003 with a view to placing them before Parliament in the autumn.

The Pinsents study, based on responses from 262 HR directors, finds that
almost 60 per cent of respondents consider TUPE to have increased the cost of a
transaction as a result of the confusion. A similar proportion indicate that
TUPE had slowed down the process of sale or purchase of businesses or

More than a third indicate that the existence of TUPE made them think of
alternative ways of structuring their transactions, while 12.7 per cent
consider TUPE has actually stopped a transaction going through.

Even more surprising, the survey highlights that three-quarters of employers
face uncertainty over whether TUPE actually applies. Only 16.8 per cent report
they have never experienced problems with the issue.

John McMullen, national head of employment law at Pinsents, said the survey
shows the Government needs to produce a much less ambiguous definition that
cannot be challenged by the courts. "In practice there is a direct
relationship in how cases are decided by the European courts and UK
tribunals," he said.

"If you get a shift in case law at the European courts there is a
corresponding hike in the incidence of tribunals and difficulty in deciding
when TUPE applies.


"The period between 1994 and 1997 was one of relative certainty,
particularly regarding outsourcing. The European courts seemed to give a broad interpretation
that all cases of outsourcing were covered by TUPE. Then, in 1997, a European
court case found there was scope for non-TUPE bids – that it need not always
apply. As a result, there has been particular difficulty in applying TUPE over
the past five years," said McMullen.

The study reveals that as a result of this confusion, 77 per cent of
respondents are concerned over inheriting unsuitable terms and conditions of
employment through the application of TUPE. More than 80 per cent cite difficulties
with changing terms and conditions.

Nearly one third of respondents express concern about inheritance of
collective agreements and almost 30 per cent highlight problems over
information and consultation with employee representatives. Concerns over implementing
redundancies are reported by 14.1 per cent of those polled.

A fifth are concerned that a takeover of groups of employees on
TUPE-protected terms might trigger equal pay claims.

McMullen believes that the new equal pay questionnaires giving people the
right to request salary information on a comparable worker of the opposite sex
will complicate matters further.

"The issue of equal pay could be a sleeping lion," he said.
"I have heard people say that if the equal pay argument took off, for
example, they would think very differently about tendering for certain
contracts because the net result would be to equalise pay and conditions across
their entire workforce."

Pensions is another area of major concern. More than half of those surveyed
recount difficulties in applying TUPE over pensions. Although currently not
covered under TUPE, there is increasing pressure on the Government to clarify
legislation in this area.

McMullen said the Government is to consider coverage of pension rights under
TUPE separately, and to a longer timescale, as part of the pensions review
being taken forward by the Pensions in the Workplace Green Paper.

Further complications

The issue of pensions and TUPE was further complicated by February’s
publication of the code of practice on local authority transfers of employees.
This ensures transferring local government employees are offered new terms and
conditions that are no less favourable – including the right to ongoing access
to the local government pension scheme or to an alternative good quality
pension scheme.

The code also applies to new joiners, ensuring their terms and conditions
are no less favourable than those of transferred staff. Unions such as Unison
are calling for all public sector workers to be given the same protection.

The study reveals the main contact with TUPE arose from outsourcing (52.7
per cent of respondents) and buying or selling a business (30.5 per cent). Just
under 10 per cent of respondents came into contact with TUPE over PPP and 6.8
per cent over PFI.

More than a fifth of those polled had been involved in an employment
tribunal over a TUPE transfer or alleged transfer. In all, 85.1 per cent of
respondents always take advice on whether TUPE applied.

McMullen said the challenge for the DTI was to make reforms that would cut
out much of the ambiguity and legal challenges.

"It would be easier to go back to the position we had in 1994 when
there was an assumption that most cases were going to be covered [by
TUPE]," he said. "I think the DTI will be attracted to this solution,
but the challenge is to find the right wording that is going to survive the
courts’ scrutiny. HR directors want a definition that is quibble proof."

View from the profession
Tardiness over TUPE leads to clogging up of tribunal system

Mike Taylor, group HR director at Lorne Stewart, who leads the
TUPE working party for the Heating and Ventilating Contractors Association, was
not surprised by the survey’s findings. "The date for new TUPE regulations
just keeps going back and back," he said.

"Pensions are a particular problem. Although they don’t
transfer under TUPE, most enlightened clients expect us to offer comparable

"In terms of outsourcing, the biggest problems are the
near impossibility of changing terms and conditions.

"When talking about these, the unions claim you are trying
to lower them, but it is about harmonisation so you don’t have people working
alongside each other who are on different terms. This uncertainty over TUPE has
a massive impact on PFI and PPP schemes. I think the European approach would
make sense where TUPE only applies if someone is doing exactly the same job as
they were doing under the old contract.

"The regulations need to be sorted out because they are
causing a great waste of time and resources, as well as clogging up the
tribunal system."

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