What you need to know

After many years of waiting, the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE 2006") have finally been published, along with Guidance by the DTI.

TUPE 2006 brings TUPE up-to-date by clarifying some of its more complex provisions and reflecting certain case law developments since 1981.  The main substantive changes are: a widening of the scope of the Regulations to include any service provision change; clarification in relation to the ability to change terms and conditions on a transfer; a new obligation for the current employer to provide employee information to the transferee; a provision making the transferor and transferee jointly and severally liable for a failure to inform and consult; and the introduction of provisions making it easier for insolvent businesses to be sold.

The Government's stated intention is that these changes will ensure that everyone knows where they stand on a business sale or contracting-out so that "employers can plan effectively in a climate of fair competition and affected employees are protected as a matter of course".  Whether TUPE 2006 will achieve those lofty aims remains to be seen.

Key Dates

• TUPE 2006 applies to transfers that take place on or after 6 April 2006 
• The duty to provide employee information applies to transfers that take place on or after 20 April 2006
• The duty to inform and consult applies to service provision changes (that would not have been caught by TUPE 1981) that take place on or after 5 May 2006
• TUPE 1981 will continue to apply to transfers that take place before 6 April 2006

When does TUPE 2006 apply?

TUPE 2006 applies to business transfers and service provision changes. 

A business transfer is a transfer of an economic entity which retains its identity post transfer (the existing TUPE 1981 test).

There are 3 main forms of service provision change, where a contract to provide a client (public or private sector) with a business service is:

• awarded to a contractor,
• reassigned to a new contractor on a subsequent re-tendering, or
• brought in-house to be carried on by the client.

For TUPE 2006 to apply to a service provision change, three conditions must be satisfied:

• Immediately before the service provision change, there must be an organised grouping of employees situated in Great Britain, carrying out (as its principal purpose) the services on behalf of the client.  So, if there is no identifiable "team" working for one client, there is no transfer.
• The client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration.  So, buying in services to hold a one-off conference would not satisfy this requirement.
• The activities concerned do not consist wholly or mainly of the supply of goods for the client's use.  So, the supply of sandwiches to a client's canteen would not satisfy this requirement.  However, a contract to run the canteen may trigger the application of TUPE.
• Importantly, there is no requirement for the services to retain their identity post transfer in order to qualify as a service provision change.  TUPE 2006 will therefore apply even where the new contractor carries out the services in a different way.

Changing terms and conditions
TUPE 2006 renders void any change to terms and conditions where the sole or principal reason for the variation is:

• the transfer itself; or
• a reason connected with the transfer that is not an economic, technical or organisational reason entailing a change in the workforce (ETO reason).

However, pre- or post-transfer changes to terms and conditions are effective where they are:

• unconnected with the transfer, or
• for a reason connected with the transfer which is an ETO reason.

The DTI Guidance says that harmonisation of terms and conditions to bring transferred employees on to the same terms as existing employees would be by reason of the transfer, and not for a reason connected with the transfer, and that any such changes would therefore be void.

New obligation to give the transferee employee information

TUPE 2006 requires the current employer to provide employee liability information to the transferee not less than 14 days before the transfer (unless special circumstances make this not reasonably practicable).

Employee liability information consists of the following:

• the identity and age of the employee
• written particulars of employment required to be given under the Employment Rights Act
• information about any statutory disciplinary or grievance procedures in the previous 2 years, and
• information about any legal action by an employee against the transferor in the previous 2 years and any anticipated legal action.

Failure to provide this information can result in an award of compensation against the transferor for any loss sustained by the transferee of at least £500 per employee.

Transferors and transferees cannot contract out of these obligations in sale or outsourcing agreements but can introduce more onerous obligations.

Liability for information and consultation

The obligations to inform and consult in TUPE 2006 broadly mirror those in TUPE 1981.

There is an important change in relation to the remedy for failure to inform and consult.  TUPE 2006 makes both transferor and transferee jointly and severally liable for a failure to consult (as opposed to the transferee alone, as under case law based on TUPE 1981).  The claimant can therefore choose whom to sue. 

Compensation for failure to consult remains at up to 13 weeks' pay per employee.

Insolvency To assist the rescue of failing businesses, TUPE 2006 makes special provisions for insolvent businesses, by:

• ensuring that some of the transferor's pre-existing debts to the employees do not pass to the transferee (including statutory redundancy pay, pay in lieu of notice, holiday pay, etc) and will be met by the National Insurance Fund instead, and
• allowing the transferee to vary terms and conditions post-transfer if such changes are agreed with appropriate employees representatives.  Note that the changes do not require the consent of individual employees.

Click here for a copy of TUPE 2006 and here for the DTI Guidance.