TUPE or not TUPE
Most operators at some point will have to consider the operation of Transfer of Undertakings (Protection of Employment) Regulations (TUPE). There has been recent case law affecting bus and coach operators and in this article we will look at that case law and take the opportunity to recap on the basic operation of TUPE and how it is likely to affect operators.
This article does not look at the important information and consultation requirements.
Why do we have TUPE?
For some operators, the answer to this question might be somewhat dangerous to put in print. However, basically TUPE is there to protect the rights of workers when a business changes hands. More recently, judges have also emphasised the need for business certainty for employers especially for those contemplating taking over a new business.
Are they now clear?
There have been several attempts at drafting TUPE and some might say that the legislators still have not got it right. Certainly, at the margins of the legislation, there is plenty of scope for lawyers to argue technical points. Nevertheless, there is a vast body of case law that gives very clear guidance as to how the rules will work in most cases. The rules might seem overly bureaucratic but in most cases, with a little time and effort (and proper advice of course), the apparently unsafe waters can be safely navigated
This is important because the economic penalties for failing to comply with the Regulations can be severe.
When does TUPE apply?
TUPE will apply where there is what is known as a ‘relevant transfer’. There are two types of relevant transfer, being firstly a business transfer, and secondly the newer concept of a service provision change. A relevant transfer might constitute either or both of these, but it must be one of them for TUPE to bite.
A business transfer
A business transfer requires there to be an ‘economic entity’ (that is a business to you and me) which retains its identity following the transfer.
So, if an operator ‘sells out’ to a larger operator, that larger operator is likely to take the business as a going concern and there is likely to be a business transfer.
When deciding if an operator’s business will ‘retain its identity’ after the transfer, an Employment Tribunal would consider a number of factors. One of the key questions to be asked is whether the activities carried out by the operator will be sufficiently similar to those carried out after the transfer. When deciding if an economic entity has ‘transferred’, the Courts will look past any labels provided by the parties and will consider whether in reality a transfer has in fact taken place.
Operators need also to be aware that a transfer can take place even if there has been a series of transactions between unrelated parties. This means, for example, if two operators were sold as separate businesses to another operator and one of the businesses was later sold on to a third party this could trigger the Regulations to apply in the transfer to the final purchaser of the business.
Operators should also be aware that the Regulations could also apply in cases where the employees have not been informed of the transfer.
Unfortunately, there is no hard and fast rule to determine whether the activities are sufficiently similar, but some of the key elements an Employment Tribunal may look at are;
- The similarity and differences between the services provided by the operators;
- Whether the operator’s customers remain the same after the transfer; and
- Whether the profit generated by the services carried out by the operator after the transfer significantly contributed to the new operator’s business.
Service provision change
There can also be TUPE transfer in cases where there has been what is known as a ‘service provision change’. Usually this occurs where an operator engages a contractor to carry out work on its behalf (out-sourcing), or where an operator brings the work back in to be completed by the operator’s own employees (in-sourcing).
Most operators understand that this is very important when contracting in and out services from the local authority and often such contracts are offered for tender on that basis. However, the same principles might apply when an operator sells a couple of vehicles to another operator. On the face of it a simple sale of assets will not engage TUPE, however, maybe in this case a driver or two goes over to the new operator at about the same time, and maybe the new operator starts operating services substantially similar to those previously operated by the first operator. In such circumstances, there might well be a TUPE issue.
Qlog Limited v O’Brien and others UKEAT/0301/13
In a recent Employment Appeal Tribunal case the importance of operators understanding the application of TUPE Regulations in outsourcing situations was highlighted.
In this case a cardboard manufacturer had entered into an agreement with a haulage company to deliver their products. The haulage company employed several drivers and a transport manager to carry out the work for the cardboard manufacturer.
At a later date the cardboard manufacturer terminated the agreement with the haulage company. The cardboard manufacturer subsequently engaged another company to arrange for the transporting of their products.
The new haulage company accepted that some of the employees from the former haulage company transferred under TUPE. However, they argued that the drivers did not transfer as the new haulage company did not provide drivers themselves.
The drivers were later dismissed by the original haulage company and claimed they had been automatically unfairly dismissed by the new haulage company.
The Employment Appeal Tribunal decided that as the transfer agreement identified that the second haulage company were to carry out the activities of the first haulage company this indicated that there was a service provision change. Importantly, the Tribunal said this was the case despite the first and second haulage companies having different methods of carrying out works on behalf of the cardboard manufacturer.
There are several practical pieces of advice that can be taken from this case:
- Firstly, if you are the incoming employer to an outsourcing arrangement be aware that TUPE can still be triggered even if you were to sub-contract out some of the activities.
- Secondly, there can be a service provision change in cases where the activities carried out after the transfer are fundamentally the same as the activities carried out prior to the transfer. This means that TUPE could apply if an operator in-sourced employees to carry out work that was very similar, but not identical to the work they completed for their former employer.
- Thirdly, the case highlights the importance of ensuring in a TUPE situation the commercial transfer agreement must be clear and accurate to avoid any ambiguities. As with all employment disputes, prevention is better than cure.
How are employees protected during the TUPE process?
One of the basic protections afforded to employees is the principle of protection from dismissal in certain cases where there has been a TUPE transfer.
Employees are provided greater protection against unfair dismissal in a TUPE transfer by providing that in some cases dismissals can be held as automatically unfair. Since the latest incarnation of TUPE on the 31st January 2014 the scope for when dismissals will be treated as automatically unfair has been somewhat narrowed.
Nonetheless, a dismissal will be considered as automatically unfair if the reason for the dismissal is the transfer itself. Whereas if the dismissal is what is known as an ‘ETO reason’ (economical, technical or organisational reasons) the dismissal will not be automatically unfair. It may nevertheless be otherwise unfair on normal unfair dismissal principles.
The onus is on the operator as the employer to show that if they intend to rely on an ETO reason it actually has one. But this means that if an operator who has taken on employees from another business wants to dismiss some of them because of a reason relating to the profitability or market performance of their business this is enough.
It is important to keep in mind that even if you have a potentially fair reason to dismiss an employee, you are still required to follow a fair procedure to terminate a contract of employment.
To relocate or not to relocate?
It is possible for employees to claim they have been dismissed in a case where their employer has committed a breach of their employment contract which is sufficiently serious to entitle them to bring the contract to an end. This might be as a result of forcing a change in work location. This is the normal principle of constructive unfair dismissal.
TUPE has an extra protection which is that after a relevant transfer has taken place, an employee can be deemed to have been dismissed where they resign on the basis that their working conditions have been substantially changed to their detriment. For those of you interested in such things, this is sometimes referred to as ‘quasi-constructive unfair dismissal’.
In a recent Employment Appeal Tribunal hearing the court were posed with the question of whether employees were entitled to claim quasi-constructive dismissal having been moved 3.5 miles from their original workstation following a TUPE transfer.
The four bus drivers in this recent case were originally based at Westbourne Park Depot. The bus drivers’ contracts of employment included clauses that allowed their employer to move them to any of its workstations. The bus drivers were later transferred to the Stamford Brook Depot which was approximately 3.5 miles from their original station. Stamford Brook Depot was not included in the drivers’ contracts of employment as one of the employer’s designated stations.
The change of location resulted in the drivers having to spend between an extra 30 minutes to one hour travelling each day. They subsequently resigned claiming that they had been constructively dismissed.
At the original Employment Tribunal it was decided that the changes to the employees’ working conditions were not sufficiently substantial to allow the employees to treat their contracts of employment as having been terminated by their employer.
At the first hearing, the Employment Judge decided it was not reasonable for the bus drivers to regard the changes as substantial in light of the ‘relatively slight impact of the changes, particularly when viewed against the loss of valuable jobs’.
When the case was appealed the Employment Appeal Tribunal agreed with the lower Tribunal that the bus drivers’ claim for unfair dismissal should be dismissed. There are several practical pieces of advice that can be taken from this case:
- Ensure your contracts of employment are fit for purpose.
In the above case the Judges were persuaded by the fact the transfer to Stamford Brook involved no greater burdens upon the bus drivers than those to which they were potentially subject under their contracts. If the drivers’ contracts of employment had been unduly restricted it may have been easier for the drivers to argue that their working conditions had been substantially changed.
- Changes to employees’ workstation after a relevant transfer will not automatically mean employees are entitled to claim constructive dismissal.
Prior to the above case there had been case authority that suggested a change of location would be likely to amount to a reason for an employee to claim constructive dismissal. It should also be kept in mind that since 31st January 2014 an employees’ change of location is now considered as an ETO Reason (see above). This means that a change of location is no longer an automatically unfair reason to dismiss an employee during the TUPE process.
- What amounts to a substantial change to employees’ contracts of employment is not an exact science.
In this case the drivers relied upon an earlier case where transport workers were able to show that a transfer of six miles from their previous workstation amounted to substantial change to their working conditions. However in this case the Judge made clear each case has to be decided on its own particular facts.
TUPE’s basic operation is familiar to most operators. However, there can be cases where you are being told that you must take on staff under TUPE and you disagree, or possibly you take the view that staff must pass away from you on TUPE and the purchaser or incoming contractor disagrees. Staff costs can be of huge significance in such transactions, and it is often helpful to be sure of the ground before proceeding with it.
Written by Andrew Banks and Peter Woodhouse of Stone King’s Transport Team. Contact them on [email protected]; [email protected] Efficiency, understanding and communication. This article is for guidance only. The law and practice referred to has been paraphrased or précised and should not be construed or relied upon as legal advice.