After a period of significant tumult and speculation regarding the UK Government's post-Brexit approach to business regulation, we are entering slightly calmer waters.
It appears that the proposal to repeal vast swathes of EU-derived legislation by the end of 2023 has been abandoned. There will no longer be the so-called "bonfire of EU red tape" which had employment lawyers rightly agitated about a potential legal vacuum on 1 January 2024.
Instead, there will be a more measured approach. Following an initial announcement last week, the UK Government has now launched a consultation on a programme of more modest reforms in the employment sphere. It includes proposals relating to, for example, non-compete restrictions (which in an employment law context actually have nothing to do with EU law) and holiday pay/working time records.
This article focuses on the proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE").
TUPE provides protections for an employee who is impacted by either a transfer of an undertaking (typically, a business or asset sale by their employer to another party) or a service provision change (where activities are outsourced, re-tendered or brought in-house by a customer).
Where TUPE applies, the employee's contract of employment (together with associated employment rights and liabilities) transfers automatically to the new employer. A transferring employee is protected from dismissal or changes to terms and conditions where the sole or principal reason is the transfer itself, save in limited circumstances.
TUPE also imposes pre-transfer information and consultation obligations on employers, which is where the proposed reforms are focused.
Duty to inform and consult
Currently, TUPE requires an employer to provide minimum information to representatives of its affected employees regarding, amongst other things, the underlying reasons for the transfer and the "legal, social and economic implications".
Where any "measures" are proposed by the employer, there is a further requirement to consult with those employee representatives. These could range from significant redundancy or restructuring proposals arising from the transfer to relatively minor administrative consequences (such as a change in benefits provider or payroll date).
In many cases, an employer will be required to facilitate an election of employee representatives specifically for these purposes, unless there is an existing trade union or an internal employee consultation body in place whose mandate covers TUPE issues. In practice, some employers choose to bypass the need to elect representatives, by informing and consulting with the employees directly. However, this carries some risk. A failure to comply with the strict requirements of TUPE can result in an award of up to 13 weeks' pay per employee.
There is a limited exception for "micro-businesses" – namely, those who employ fewer than ten employees in total – which are permitted to consult with employees directly.
The Government proposes to broaden the circumstances in which employers are not required to inform and consult with representatives in cases where there are no representatives already in place.
- the current exemption for "micro-businesses" would be extended to all employers with fewer than 50 employees, who would be able to engage with employees directly regarding TUPE transfers; and
- larger employers (those with 50 or more employees) would only be required to elect representatives if ten or more employees are transferring.
Beyond this, the Government has confirmed that it has "no intention of removing the important protections people enjoy under… the TUPE regulations". This suggests that no further changes are on the horizon.
The first proposal is straightforward and likely to benefit many employers, including smaller established businesses or fast-growth companies in the innovation economy that have moved beyond the start-up phase.
The scope of the second proposal is unclear, not least because the requirement under TUPE is to inform and consult with representatives of "affected employees", not simply "transferring employees". This will cover, for example, employees of the transferor who do not transfer (and may need to take on alternative duties or potentially be at risk of redundancy) or employees of the transferee whose roles may be impacted by the arrival of transferring staff.
Should the reforms go further?
When the Government initially raised the prospect of a wholesale repeal of EU-derived law last year, it was possible (although perhaps unlikely) that the very existence of TUPE might have been under threat. This is clearly now off the table.
In its consultation paper, the Government has recognised that "businesses can find certain aspects of the TUPE regulations burdensome". However, in reality, the proposal to narrow the circumstances in which employers are required to engage with employee representatives is no more than tinkering around the edges. There are other aspects of TUPE that are much more problematic for employers.
To give just a few examples, it is often very difficult for employers to:
- harmonise benefits or other terms and conditions post-transfer, to bring transferring employees into line with their existing workforce. This can only be done if there is an "economic, technical or organisational reason entailing changes in the workforce", which will rarely apply;
- maintain pre-transfer bonus arrangements and share incentives for transferring employees. Where the new employer cannot replicate these (for example, because it has no power to award share options in the old employer), it must put in place a "scheme of substantial equivalence". However, there is little guidance on what this means; or
- enforce post-termination restrictive covenants in a transferring employee's existing contract of employment. Although such restrictions transfer in the same way as other contractual terms, they are often ineffective in protecting the transferee's legitimate business interests.
Further, recent EU case law which raises the unwelcome prospect of an employee's contract being split between two or more transferees continues to apply to TUPE transfers in the UK. This will likely cause practical issues that are difficult to resolve in many cases.
Although the proposed reforms will no doubt be welcomed by many, it is reasonable to question whether an opportunity has been missed to reshape aspects of TUPE that cause significantly greater commercial headaches for employers.
Dominic Holmes is a Partner in the Employment Department at Mishcon de Reya. He is the author of the recently-published book, "A Practical Guide to TUPE and Employee Transfers".