Outsourcing an activity to a new supplier, or transferring the activity offshore, often to a low-cost destination such as India or China, can result in job losses. In January outsourcing provider Capita confirmed it would close its site in Wythall, Birmingham, with the loss of more than 370 jobs. It is to transfer the work to India and other parts of the UK, including Glasgow.
Outsourcing started in the IT sector in the 1980s when specialist companies started to run customers' IT services which had been operated by in-house staff. Now it has spread far and wide and is commonplace in many sectors. An understanding of TUPE is essential for employers involved in outsourcing.
Employee protections under TUPE
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provide protection to employees where there is a "transfer of an undertaking" or a "service provision change".
In the context of an outsourcing, there is likely to be a service provision change in three different circumstances: when an activity is outsourced by a customer to a supplier, when there is a change in supplier and when the activity is taken back in house.
Where TUPE applies, employees who are assigned to the undertaking or the organised grouping of employees which is the subject of the transfer, will automatically transfer on their existing terms and conditions of employment, together with all associated rights, powers, duties and liabilities. The transferee (the new employer) effectively "steps into the shoes" of the transferor (the current or previous one).
Employees with at least one year's service may be able to claim unfair dismissal rights if the reason or principal reason for their dismissal is the transfer – or a reason connected with it, which is not an economic, technical or organisational reason entailing changes in the workforce – a so-called ETO reason.
A dismissal will be automatically unfair if the reason for it is the outsourcing, or a reason connected with the outsourcing, unless the employer is able to establish an ETO reason.
A redundancy will normally be an ETO reason. Compensation for unfair dismissal is currently capped at £63,000 plus a basic award based on salary, age and length of service, so the potential liabilities are considerable. I