The regulation governing staff transfers is 21 years old. But that
has not stopped disputes hitting the headlines again. Ross Bentley
reports on what Tupe actually means.
Outsourcing is not just about handing over your IT systems - it
also has major implications for your staff. In most cases it will
involve a proportion of the IT workforce becoming the employees of
the outsourcing company and those who remain behind taking on
different roles such as managing the outsourcing contract.
In the UK, the Transfer of Undertakings (Protection of Employment)
regulations guarantee staff employment under existing terms when
their work is outsourced to a third party. They also require that
employees be consulted in good time about any transfer.
In recent weeks Computer Weekly has reported on several outsourcing
deals that have been stalled by trade unions and staff councils
accusing both outsourcers and their clients of falling foul of the
employment laws.
In one case, networking company Lucent transferred an outsourcing
contract from Atos Origin to Compaq, now part of Hewlett-Packard,
leaving 60 IT support staff in limbo with no job or redundancy
payment.
In another instance, union officials threatened insurance giant
Prudential with legal action after the insurer announced plans to
move its call centre operations to India. Workers accused the
company of not undertaking proper consultation with staff.
If you are planning to outsource or strategically restructure in
the future it is vital that you are aware of the basic tenets of
the Tupe law.
"With outsourcing deals, you will find Tupe issues are not just
common, they are inevitable, especially in Europe where employee
rights are regarded as very important," says John Mackie, senior
consultant at outsourcing consultancy Morgan Chambers.
He says that where some companies fall down is in their failure to
communicate clearly and fairly with their staff. This, Mackie says,
is vital to prevent an endless circle of rumour and
counter-rumour.
In the current climate, where companies are focused on the bottom
line, high-level strategic business decisions are being made at the
expense of the people issues.
Here, two legal experts explain the implications of the Tupe
regulations for employers and employees.
What the employees should know
The Transfer of
Undertakings (Protection of Employment) regulations implement a
European directive in force in other EU countries. Tupe's aim is to
protect employees' rights on the transfer of a business operation
from one employer A to another B. On a transfer, employees of
A:
- Automatically become employees of B from the time of the
transfer. They remain on the same terms and conditions of
employment that they held with A
- Can claim automatic unfair dismissal if dismissed by A or B for
any reason connected with the transfer (either before or after it)
if they have one year's continuous employment. If A or B can show
that the reason for the transfer was redundancy, a dismissal will
not be automatically unfair but must be fair and reasonable
- Have the right to be informed and consulted about the transfer
via trade unions or employee representatives of A. If these
obligations are not carried out, and affected employees bring
successful employment tribunal claims, they may be awarded up to 13
weeks' pay;
- Can object to becoming employed by B so that they do not
transfer and their contracts of employment terminate with A
(without compensation).
Tupe applies to a transfer of a business operation from one
organisation to another or on the outsourcing of a function where
the operation is situated in the UK immediately before the
transfer. It may also apply on a subsequent transfer to a third
party - a second generation contracting out. Tupe is likely to
apply where there is similarity between the activities carried out
before and after the transfer, tangible assets (buildings or
movable property) or intangible assets (goodwill or intellectual
property) are transferred and employees transfer.
In situations where operations move offshore, UK employees of the
transferring employer may also face redundancy. Where an employer
proposes to make 20 or more employees redundant at a business site
within three months, employees have the right to be consulted via
trade unions or employee representatives at least one month before
the first of the dismissals occurs. The financial compensation for
inadequate consultation being carried out by a transferring
employer is up to 90 days' pay.
On a Tupe transfer, although liability may have passed to employer
B, complaints made to an employment tribunal should refer to both
employers. It is for the tribunal to decide which, if either, is
liable.
Kathryn Clapp is a solicitor at international law firm Taylor
Wessing.
E-mail k.clapp@taylorwessing.com
What the employers should know
Traditionally, English
law viewed an employment contract as a private matter between
employer and employee. If the employer sold the business, the
workforce could be made redundant. The new owner could offer to
re-employ the
ex-employees on less favourable terms. Tupe established new
principles:
- The transfer of a business (or "undertaking" in Tupe's
language) automatically transfers the employees to the new operator
(but the employee has a right to "opt out", terminating his
employment without right to compensation)
- All of the employer's rights, duties, and liabilities in
connection with the undertaking's employees' contracts transfer
(except some pension rights) including the employees' outstanding
claims against the old employer
- Any employee dismissed "either before or after a relevant
transfer" automatically has a claim for unfair dismissal "if the
transfer or a reason connected with it is the reason or principal
reason for his dismissal" (although there is a defence if the
dismissal was for an "economic, technical or organisational
reason")
- Employers have a duty to inform and consult employees affected
by a proposed transfer.
If a transfer is caught by Tupe, the new operator of the
"undertaking" becomes responsible for the continuing costs and
termination costs (including compensation for unfair dismissal) of
any employees who are not retained. If Tupe does not apply, the
costs remain with the existing employer. The regulations prohibit
"contracting out", so the old and the new employers cannot stop the
effects of Tupe where it applies even when they don't want the
regulations to take effect (but they can privately agree to
reimburse each other for any liabilities, for example by giving
indemnities).
Tupe applies to voluntary transfers of an undertaking where there
is an agreement between the old employer and the new employer (when
a business is sold or an employer decides to outsource part of its
requirements). It can also apply to involuntary transfers where
there is no direct relationship between the old employer and the
new employer, for example, where outsourced work is taken over by a
new contractor.
Employers and contractors have to be particularly careful where any
activity is carried out in a new way: where an existing function is
outsourced to an external supplier; where a function currently
outsourced is taken back in-house; or where a new contractor is
appointed and the services of the old supplier dispensed with, for
example on a competitive re-tender. In any of these cases Tupe is
capable of applying.
No one factor is decisive in working out if Tupe applies. All the
relevant circumstances must be considered. In the last few years
the court judgements interpreting Tupe have been a little more
consistent than in the past, and now it is usually possible to form
a clear view whether Tupe applies in any given circumstances (and
sometimes to carefully structure arrangements so that Tupe will not
apply). Even so, a number of cases are referred to the European
Courts for interpretation each year.
Teja Picton Howell is a partner at Picton Howell solicitors
specialising in business transfers. www.pictonhowell.com