Employment Law update – The new TUPE regulations – Part 2
The Service Provision Change Test
Following my first blog in which I outlined the key changes introduced by the amendments to the TUPE Regulations, in this second of four blogs I focus on the amendment to the service provision change test – now there will be a transfer only where the activities carried on post transfer are “fundamentally the same” as those carried on pre-transfer.
When changes to TUPE were first proposed, the Government’s intention was to repeal the service provision change test on the basis that it represented a “gold plating” of the underlying EU legislation.
The Government response to consultation reported however a 2:1 majority in favour of retaining the service provision change test on the basis that:
- the then current TUPE Regulations:
- brought clarity for employers and employees and reduced the number of TUPE claims to Employment Tribunals and
- provided a level playing field for service providers and
- resulted in continuity of staffing and increased security for service sector workers
- employers and unions had become used to the service provision change provisions and had put processes in place to deal with them
- repealing the test would increase uncertainty for businesses which could lead to more disputes
- commercial transactions would become more time consuming and costly
- removal of the test could have a detrimental impact on terms and conditions for employees.
Although there was support for the Government’s view that the then current Regulations went beyond the requirements of the EU Acquired Rights Directive, they did so in a way that did not increase the burden unnecessarily for those involved in TUPE.
So, the plans to scrap the service provision change test have been shelved, and instead we are now in a position where the test has been amended to reflect current case law, so there will be a transfer only where the activities carried on post transfer are “fundamentally the same” as those carried on pre-transfer.
Will this make a difference in practice?
Arguably not. How easy will it be for an incoming provider to argue that the services it is going to provide are not “fundamentally the same” as those carried on pre-transfer? On a catering or cleaning contract, I’d say it’s pretty unlikely. Similarly, in the IT context, on an applications maintenance outsourcing, how many service providers will be able to truly differentiate their product/ service from their competitors.
In areas where the outsourcing results in a far greater degree of automation of a process which was previously a people-heavy process, perhaps there will be some scope to argue there is a sufficient difference between the services pre-transfer and post-transfer.
And, what of off-shoring, will the change make it easier to argue no TUPE if off-shoring?
Again, arguably not. Remember, on a strict legal analysis, employees transfer to the incoming provider in UK and it is the incoming provider’s decision to move the work off-shore; the employees don’t automatically relocate overseas. If services remain the same TUPE is still likely to apply, but, given that a place of work redundancy now qualifies as an economic, technical or organisational (ETO) reason (a point I will come back to in the final part in this series of blogs on the TUPE changes), there will be a fair reason for dismissing the employees post-transfer (and provided that a fair process is followed the risk of claims should be low).
Will businesses engaged in outsourcing do anything differently?
As the Government’s response to the consultation acknowledged, employers (and unions) have become used to the service provision change provisions and have put processes in place to deal with them. Customers and service providers have become used to accepting that TUPE applies and contracting around the consequences.
If anything, I expect we may see more prevalent use of terms where customers say employees engaged in the services transfer regardless of whether TUPE applies and provision is made for what happens if employees do not transfer.
On the face of it, this is a significant change from the original service provision change as set out in the 2006 Regulations. However, in the light of the case law developments in recent years, this probably doesn’t represent too significant a change.
The well advised service provider will already be accounting for the possibility that TUPE does not apply on exit (either by pricing to cover severance costs that may be incurred on exit or by obtaining an indemnity against any liabilities incurred as a result of employees not transferring on exit), but arguably now service providers have an even greater need to ensure that they are adequately protected against this risk.
The next blog in this series will focus on another key change. Collective redundancy consultation will now be permitted pre-transfer when there is a TUPE transfer. What impact will this have?
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