Employment Law Update – The new TUPE regulations – Part 3
In the third of four pieces on the recent amendments to the TUPE Regulations, I look in detail at another of the key changes – undertaking collective redundancy consultation pre-transfer will now be permitted, provided certain criteria are met.
The general consensus seems to be that the ability to carry out pre-transfer consultation is welcome news for employers. However, the process gives rise to a number of issues and I consider these may significantly impact upon parties’ willingness to elect to carry out pre-transfer consultation/ accept the election to do so.
So, taking the example of a first generation outsourcing, what does the new process involve?
The service provider may give written notice to the customer that it wants to start redundancy consultation with representatives of the affected employees before the transfer. If the customer agrees, the collective consultation on potential redundancies may start pre-transfer, and this consultation will count towards the minimum 30/ 45 day consultation required. If the customer does not agree, the service provider cannot undertake pre-transfer redundancy consultation (although the parties’ obligations to inform/ consult on the TUPE transfer will remain).
If consultation does go ahead, the service provider is deemed to be the transferring employees’ employer and the transferring employees affected by the proposed dismissals are deemed to be employed at the service provider’s establishment.
But, and it is a big but, the customer is not obliged to provide any assistance or information to the service provider to help it fulfil its obligations.
I therefore do not consider that the will be much practical difference from how things are now.
1. There is still a need for co-operation between the parties.
On a first generation outsourcing, both parties have a vested interest in transitioning to the new arrangements as quickly as possible, so it is easy to see the motivation for both parties in co-operating.
However, on a second generation outsourcing, will the outgoing service provider help?
- The outgoing service provider will likely be a competitor of the incoming service provider, and as such is unlikely to be motivated to help the customer and incoming service provider by allowing redundancy consultation happen on its watch.
- A disaffected outgoing provider could try to disrupt the process by agreeing to consultation then do nothing to help. If this happens, the incoming service provider could elect to cancel the process. However, from an employee relations point of view, it is clearly unattractive to have to stop the process only to re-start it after the transfer.
To protect against that happening we may see incoming service providers seeking to negotiate not just the usual protection against a failure to inform and consult in respect of the TUPE transfer itself, but against delays caused by having to start over with collective redundancy consultation post-transfer which may impact transition, transformation and the hitting of SLAs.
Customers will only agree to stand in the middle where they have protection from the legacy provider against any such liabilities. I would be surprised if there are any outsourcing agreements out there which protect against such liabilities, so no doubt there will be scope for some interesting negotiations on this point in the months ahead.
We may also see customers insisting on more prescriptive provisions around the respective providers’ obligations drafted in such a way that there is no incentive for the providers to be disruptive. For example, we may see consultation schedules including matters such as each party’s obligations, and a timetable of proposed consultation meetings. In larger scale outsourcings, such documents often exist, but we may find them making their way into the contractual documentation, backed up by indemnities to cover any liabilities arising out of the other party’s conduct during the pre-transfer consultation.
2. Another potential complication comes when considering with whom to consult
Where the outgoing provider/ customer recognises a union in respect of the transferring employees affected by the dismissals, the incoming provider should consult with representatives of that union. If the outgoing provider/ customer does not recognise a union, then we are left with the usual choice – use existing representatives if they have authority to be consulted about redundancies, or elect representatives for the consultation.
But, if the incoming provider chooses to consult with the customer’s existing representatives, do they still have authority to represent the affected transferring employees, because those employees are deemed to have already transferred to the incoming provider? Arguably not.
Although those employees are deemed to have already transferred to the incoming provider, would it be possible to consult with the incoming provider’s own existing employee reps since they have no mandate from the affected transferring employees? Again, probably not.
So, the election of new representatives is likely to be the safest option, or amend the mandate of the transferring employees’ existing representatives.
On their own I expect these reservations would be enough to make most customers and service providers have second thoughts about whether there is really anything to be gained from making use of these new provisions.
3. But, which party has the potentially fair reason for dismissal?
The most significant reason I can see for there not being much of a change in parties’ practice is that there is no change in the position that the customer or outgoing service provider cannot rely on the incoming provider’s redundancy situation to effect dismissals pre-transfer. So, it remains the case that the transferring employees must be employed by the incoming provider at the time of dismissal. In theory, dismissals on day one would be possible (with payments in lieu of notice being made), but how many service providers will have the appetite to go through the process of transferring employees on to their payroll for one day with the resulting tax reporting obligations and other management costs associated with running a dismissal exercise?
Prior to the changes, many service providers’ preferred practice was for there to be a period of joint consultation (which they and the customer/ outgoing provider (depending upon whether it is a first or subsequent generation outsourcing) both take part in), which covers TUPE and redundancy consultation, with employees then exiting pre-transfer under a statutory settlement agreement. Many customers, wanting to avoid the additional costs associated with having to pay for the ongoing employment of the transferring employees have been happy to adopt that approach. Nothing in the changes to the regulations makes me think there will be much appetite to move away from that approach.
In the final blog in this series, the focus will be on changing terms and conditions and carrying out dismissals in the context of a TUPE transfer, including the significance of a change in location now being an ETO reason for dismissal.
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