Employers have been waiting for new Tupe regulations for nearly two years.
With a consultation document now on the horizon, John McMullen, one of the
country’s leading Tupe experts, takes an "inspired guess" as to what
it might contain
The Tupe regulations are based on the Acquired Rights Directive of 1977.
Overhaul has been overdue for a number of years. The European Commission
published a draft directive in 1994 but political wrangling meant a new
directive did not appear until 1998.
The purpose of the change was to amend the original directive in the light
of the impact of the internal market, the legislative tendencies of the member
states with regard to the rescue of undertakings in economic difficulties, and
European case law. There was also a need to marry changes in relation to
information and consultation in the context of Tupe transfers with the
amendments made to the Collective Redundancies Directive as long ago as 1992.
What does the directive do?
– First it provides a new definition of a transfer. However, the purpose of
the new definition is simply to consolidate existing European case law. This
case law includes the unpopular ECJ decision in Ayse Szen, 1997, ICR 662,
which suggests that Tupe might not apply if there is no transfer of significant
tangible or intangible assets or no taking over by the new employer of a major part
of the workforce in terms of numbers and skills.
– Second, the effect of the decision in Henke v Gemeinde Schierke and
Verwaltungs Gemeinschaft "Brocken", 1996, IRLR 701, is to exclude
transfers of undertakings in the public sector with purely administrative
functions. On the other hand, the new directive expressly states that
outsourcing is covered in that a transfer can take place where there is a
transfer of an economic entity which retains its identity – meaning an
organised grouping of resources that has the objective of pursuing an economic
activity whether or not that activity is central or ancillary.
– There is a new definition of "employee". The definition of
employee is, as before, left largely to member states save that now,
specifically, member states will not be able to exclude contracts of employment
or employment relationships solely because of the number of working hours
performed or to be performed; or because they are governed by fixed-duration
contracts of employment; or because they are temporary and the undertaking,
business or part of the undertaking or business transferred is part of the
temporary employment business.
– By article 3, as amended, member states are specifically allowed to
provide for the transfer of obligations in relation to occupational pension
schemes (regulation 7 of Tupe currently excludes pension transfer). The
question of joint liability of transferor and transferee is left again to the
member state. Member states are also allowed to oblige a transferor to notify a
transferee of all rights and obligations which will be transferred to the
transferee (which would be of some assistance in the case of second-generation
– On the subject of insolvency, there is a general relaxation of the rules
including the possibility of non-transfer of a transferor’s debts arising from
employment contracts before the transfer or before the opening of insolvency
proceedings. Also included is the facility to allow employee representatives
and companies to alter terms and conditions of employment in insolvency
circumstances to ensure survival of the undertaking or business.
– As to information and consultation, the principal change here is that it
will not be an excuse in the case of breach of the information and consultation
obligations, that a controlling undertaking was at fault in not supplying
information to the transferring undertaking to enable it to comply with
obligations under the directive.
Implementing the changes
The first stage in the implementation process is for a consultation document
to be issued. It may or may not contain draft regulations. In view of the
complexity of the issues, the odds are that draft regulations will have to wait
a while. What follows is an inspired guess at some of the issues for
consultation and which might appear in the new regulations. This is based
mainly on the climate of opinion and public speeches.
First, the mandatory provisions of the new directive of 1998 have to be
implemented. An example there would be the new rules on information and
consultation and on the definition of employee. Views will have to be taken on
optional issues such as relaxation of the rules in relation to insolvency,
joint liability, transfer of rights under occupational pension schemes and disclosure
of information about employees from transferor to transferee.
It is likely that the Government will adopt the sensible rule requiring
disclosure of information about employees from transferors to transferee. If
so, this will greatly improve the position of incoming contractors in
second-generation contracting where, in the absence of some obligation in a
contract to disclose information, the outgoing contractor can decline to
release employment information.
The question of relaxation of the rules in relation to insolvency will be a
matter put out for consultation. There are no strong views here although any
proposal to release a transferee from a transferor’s unpaid debts prior to the
transfer would be popular.
Then there is the vexed issue of pensions. At the moment, pensions are an
issue excluded from Tupe, although, of course, a private contractor contracting
from the public sector will in practice be required by the transferor to put in
a comparable pension scheme for transferring employees. The question is whether
this should be extended to the private sector as well. And, if so, should a
transferee be required to replicate the transferor’s pension scheme or simply
put in an equivalent, or alternatively, something broadly comparable? Who will judge
what is broadly comparable? Will individuals have the right in each case to
contest the new pension rights? Or will there be a system equivalent to that
presently adopted in relation to public transfer sectors where the Government
actuaries department assesses the new scheme as a whole and issues a
certificate of broad comparability? These are big issues and a good
illustration of why it is taking so long for decisions to be made even at the
Next, we consider the definition of the transfer of an undertaking itself.
There are several options here. First, we could leave it to European Court case
law as interpreted by the UK courts and follow the definition in the directive.
Alternatively, we could go further, because article 7 of the directive allows
member states to make provisions more favourable to employees than provided in
the directive. There is indeed significant pressure on the Government to
legislate for better rights to be provided to employees than under the
directive. If so, one possibility is for the directive normally to apply to
contracting out situations even in the absence of willingness on the part of
the new employer to take on assets and employees – unless the new employer has
a genuine organisational reason for refusing to take on assets/employees on the
basis that he already has sufficient resources, material or human, to carry out
the task in the future without additional purchase or recruitment. But we shall
have to see.
Finally, we move to the public sector and the position of the Henke case. It
is unlikely that the Government will move to legislate specifically about the
Henke case (which, as discussed above, excludes reorganisations in the public
sector of a purely administrative nature) in view of a number of factors.
First, in its Cabinet Office document, Staff Transfers in the Public Sector,
published in January 2000, the Government stated that public bodies should,
unless there are compelling circumstances otherwise, apply Tupe to transferring
Second, the UK courts have given Henke a restrictive interpretation. Third,
Section 39 of the Employment Relations Act 1999 has empowered the Secretary of
State to describe as Tupe transfers borderline cases which would not otherwise
be so described under EC law. A recent example is the Transfer of Undertakings
(Protection of Employment) (Rent Officer Service) regulations 1999. In the
light of that, there are not likely to be any special provisions regarding
public sector employees.
Dr John McMullen is national head of employment law at Pinsent Curtis and
author of Business Transfers & Employee Rights (3rd edition, Loose Leaf and