UK’s Employment Rights Bill will impact TUPE, says lawyer

The Employment Rights Bill is making its way through parliament bringing with it a huge and significant raft of employment reforms. While the Bill doesn’t directly affect changes to TUPE, it introduces reforms to dismissal procedures and public procurement laws that could have significant implications for employers managing business transfers, albeit indirectly. We’ll speak to a TUPE expert about which of the changes proposed in the Bill will most affect business transfers and the likely impact on employers. 

Among the most significant changes, the Bill removes the two-year qualifying period for unfair dismissal claims. This will potentially increase liability for transferees, particularly when managing redundancies or resolving grievances during a transfer.

There are also significant changes to collective redundancy rules, meaning redundancies across multiple locations will count towards the collective consultation threshold. This could force transferee employers to conduct more pre-transfer planning and engage in earlier consultation with transferring employees. Also, for businesses involved in public sector outsourcing, new rules aimed at preventing a ‘two-tier workforce’ could lead to significant extra costs. Employers may need to align terms and benefits for both transferring and existing staff, raising serious implications for workforce planning and, perhaps most costly of all, public sector pensions.

The Bill also proposes   meaning changes to terms and conditions post-transfer will be permitted only in very limited circumstances. The knock-on effect of that will be to limit the ability of transferees to change terms and conditions of staff they inherit. 

Aside from the Bill, there are also broader reforms on the horizon. Labour’s ‘Next Steps to Make Work Pay’ paper signals the government’s intention to launch a Call for Evidence on TUPE reforms. While we don’t yet have a formal launch date, all the signs are it is likely to lead to a number of significant changes, including a loosening of the restrictions on changing terms post-transfer, as well as addressing some of complexities which can arise in multi-transferee transfers.

So, let’s get a view on all of that. Gill Ross is a TUPE expert with huge experience of advising clients on business transfers and earlier she joined me by phone from Glasgow to discuss it. First, the change to day-one rights:

Gill Ross: “Yes, I think the change to day-one rights will impact transferees, as it will every employer, but I suppose the key things for transferees who are inheriting staff is that there will be, firstly, less flexibility on them to be able to dismiss employees who have under two-years’ service. So whereas any employees who had over two years’ service, they would need to follow a redundancy process, for anyone who had less than two-years’ service who they inherited, they wouldn't necessarily have to follow a full redundancy process and they could dismiss them more easily with no come back on the employer for unfair dismissal. Now, there will need to be a full process in terms of redundancy, and that won't be possible to be shortened. The government have already said that while they'll put in the initial periods of employment where, for some reasons, they'll be able to dismiss more easily without having to follow a full process for redundancy, there will need to be a full process so that will have a significant impact on transferees who are looking to rationalise the workforce post transfer. The other issue that's likely to occur is if they are inheriting previous disciplinary or grievances where they might not have full sight of the detail of those, they might inherit somebody who's on a final written morning and facing a potential conduct dismissal for a further instance of misconduct and then that person, if they had under two years’ service previously, they could have been dismissed with minimal risk to the new employer but with the removal of the two year qualifying periods of service they will be facing higher risk of unfair dismissal claims.”

Joe Glavina: “The Bill removes references to "at one establishment” in the legal test which is likely to mean transferees will reach the 20 plus threshold more quickly so we may see more pre-transfer collective consultation going forward. What do you reckon?”

Gill Ross: “Well, transferees at the moment have got the ability to carry out pre-transfer redundancy consultation and that's been in place for about 10 years now, and they have to get consent and agreement with the transfer if they work hand in hand to carry out that redundancy process before the transfer takes place. I think we'll look for transferees to use that option more now because it will be more difficult for them from a practical perspective if the employees transfer over and they then have to consult with them post transfer, which may impact on other redundancy processes that are taking place within their organisation. So I think we'll look to see transferees trying to convince the transferor to go down that process more frequently. On the flip side, the transferor may be more reluctant to do it because, again, they may breach the 20 threshold more easily if they are having to carry out pre-transfer redundancies. So I think there maybe be more discussion around that. Whether it'll actually change the frequency of those pre-transfer consultations taking place I suppose we are yet to see. The other change that we might see is more emphasis on including contractual provisions into outsourcing agreements which cover off the pre-transfer redundancy consultation option, and on exit as well. Maybe the client will look to put an onus on the outgoing employer to cooperate with any incoming employer in terms of pre-transfer redundancies. I think that's something that certainly I would be thinking about in drafting outsourcing agreements going forward, so looking for that cooperation on a contractual level.”

Joe Glavina: “Turning to fire and rehire, Gill, the Bill proposes to limit the scope of this practice which will limit the ability of transferees to change terms and conditions of staff they inherit.”

Gill Ross: “It’s difficult for transferees to make changes to terms and conditions anyway in a TUPE situation because there's such a high level of protection, so where it is a change that's connected to the transfer really they have to have that ETO reason in for making changes in the workforce, and as we know that that's very difficult to establish. I think fire and rehire probably isn't used too often by transferees when they're trying to harmonise terms and conditions. What the change will mean is that, I think, employees will be more aware that the employer doesn't have this as the ultimate tool in their armoury. So if an employer is consulting with transferred staff about changes to terms and conditions they can't say, well, we're going to consult with you but if you don't agree then we'll look at dismissal and reengagement because employees, the majority of them, will know that that's not something that the new employer will be able to do because that's going to be effectively outlawed unless there is a dire financial position that the employer would be in if they don't impose those changes to terms and conditions. So I think there is much more limited scope for it to be used going forward. How much transferees use at the moment, I'm not sure. I think they would usually just consult with a view to reaching agreement rather than sort of forcing the changes in terms of conditions because it carries the risk of unfair dismissal claims anyway. So it's almost the kind of nuclear option that employers wouldn't normally want to use.” 

Joe Glavina: “Turning to outsourcing, the Bill aims to avoid a ‘two-tier workforce’ where ex-public sector employees and private sector employees are working on the same contract but are employed on different terms and conditions. That could have serious cost implications for private sector employers taking over public sector services. Agreed?”

Gill Ross: “Yes, agreed. This is a material change that is going to impact private sector businesses that work on public sector contracts. At the moment, they could inherit the ex-public sector staff and they would have to take their terms and conditions under TUPE as they as they always will, but the Bill is going to go further in terms of allowing regulations to be put in place which stop any less favourable treatment for ex-public sector workers. So that could cover non-contractual things like flexitime, for example, or other ancillary benefits that maybe aren't woven into their contractual terms. The other major change is the effect of the introduction of the two-tier code. So that will ensure that the private sector's own workforce and any new employees that are brought in to work on the outsourced services will need to be on the same terms and conditions as the public sector workers and public sector workers tend to have better terms and conditions than those in the private sector, particularly in relation to pensions. So I think pensions is the one that employers will be most aware of, the costs that are associated with running a public sector pension scheme or contributing to a public sector pension scheme. If they're having to do that not only for the public sector employees, which ordinarily they would have to in order to protect their pension terms anyway, but if they're having to do that for their own workforce and any new employees are brought into the services that's a significant additional cost that will need to be factored into their bids and, ultimately, whether it's feasible for them to do the work on the contract. So a really important issue for a lot of our clients who work with the public sector frequently and, yes, I think a seismic change is probably the right term to use.”

Those are the main knock-on effects of the Employment Rights Bill as they affect TUPE but the government has said it also has plans for changes to the TUPE regulations themselves. In Labour’s ‘Next Steps to Make Work Pay’ paper they say they plan to launch a Call for Evidence on TUPE reforms which will be a good opportunity for employers to have their say on a number of much-needed changes to the rules which hinder the way that business transfers operate in practice. We don’t yet have a formal launch date for that. 

Gill has previously talked to this programme about the changes clients would most like to see, changes which first appeared in the previous government’s policy paper ‘Smarter Regulation to Grow the Economy’ but weren’t followed up. That programme is called ‘Government’s policy paper ‘a missed opportunity’ for TUPE reform’ and is available for viewing now from the Out-Law website. We’ve included a link to it in the transcript of this programme for you.

- HRNews programme: ‘Government’s policy paper ‘a missed opportunity’ for TUPE reform’