The transfer market

For the past 25 years, transfers of employees have been governed by the Transfer of Undertakings (Protection of Employment) Regulations 1981. As this magazine highlighted earlier in the year, TUPE has been replaced by fresh regulations this week (6 January, page 54). The aim of new TUPE is to make it easier for businesses to understand when a transfer will occur and to make them easier to manage.

TUPE applied where there was a transfer of an "undertaking". This could happen where a client outsourced a function previously carried out in-house, or changed contractors. The main effect was that staff assigned to that undertaking be transferred to the new contractor. In addition:

• Old and new employers had to inform and, in some cases, consult affected employees
• The transferred employees' terms and conditions of employment were preserved and protected. This did not apply to pensions, which were subject to separate rules
• All liabilities connected to the transferred employees passed to the new employer
• Employees were protected from dismissal in connection with the transfer.

All this remains true under new TUPE. But there are also changes. These are as follows …

Informing and consulting employees

Where an employer failed to inform and consult employees as required by TUPE, affected employees could receive compensation of up to 13 weeks' pay. This remains the case. But previously, even if the fault lay with the old employer, the responsibility to pay such compensation passed to the new employer. This gave outgoing employers little incentive to inform and consult employees, particularly if the outgoing employer had been fired and replaced by a rival contractor.

Under the new rules, the existing and new employers will be jointly liable for failures to inform and consult. Outgoing employers must provide specific information about transferring employees to the new employer 14 days before the transfer. This is probably far later than the new employer would like, but should make it easier to inform and consult.

Dismissing employees

Under new TUPE, where employees are dismissed following a transfer:

Previously, the responsibility to pay compensation passed to the new employer. This gave outgoing employers little incentive to inform and consult

• If the principal reason for the dismissal is the transfer and there is no economic, technical or organisational reason for dismissal, it will be automatically unfair
• If the principal reason is the transfer, but there is also an organisational reason, the dismissal is potentially fair
• If the dismissal is unconnected to the transfer, the normal rules on fair dismissals apply.

Also, employees may claim constructive dismissal against their existing employer if a proposed transfer would cause a "substantial change in working conditions to the detriment of the employee".

Insolvency

It is recognised that employees lose out if nobody will take over failed businesses for fear that employment liabilities will transfer under TUPE. Therefore, the new rules state the new employer:

• Will not be liable for some liabilities, including some back pay and holiday pay and statutory notice pay
• Will be allowed to change employees' terms and conditions of employment where necessary for the survival of the undertaking and provided such changes are negotiated with employee representatives.

Contracted out services

As mentioned, TUPE could apply where a client outsources a service, changes contractors, or brings a service back in-house. But the law left room for argument, and prospective employers often refused to take on the employees in the hope of avoiding TUPE liabilities. Such changes will now almost always be covered by TUPE. The only exceptions will be where:

• The services are in connection with a single and specific short-term event
• The services are mainly the supply of goods.