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Upcoming TUPE reforms – what do they mean for construction employers?

The anticipated reforms to the Transfer of Undertakings (Protection of Employment) Regulations 2006 have implications for employers and managers in the construction industry, where ‘TUPE transfers’ are particularly common.

TUPE was introduced in the UK in 1981 to implement a European directive that was designed to protect employees’ rights when their employer changes on the acquisition of the business or organisation in which they work.

What is TUPE?

TUPE was expanded in 2006 so that it explicitly included situations where work is outsourced, brought back in-house or the service provider changes.

This therefore created two kinds of TUPE transfer: one that applies to acquisitions and is commonly referred to as a business transfer, and another that applies to outsourcing, commonly known as a service provision change.

When TUPE applies, the affected employees’ employment transfers to the incoming employer – their terms and conditions of employment and continuity of service are protected; they receive additional protection from dismissal; and there is a duty to inform and consult with affect employees about the transfer.  

Removing the SPC provisions

The concept of a service provision change is specific to the UK and is not required by the European legislation that underpins TUPE.

In addition, while the introduction of the SPC provisions in 2006 did initially provide certainty in outsourcing scenarios, case law over the last two years has eroded this.

As such, the government proposes to reform TUPE by removing the SPC provisions.

The practical implications

This would mean there would no longer be an automatic assumption that a new contractor must take on an outgoing contractor’s staff. TUPE may still apply to a SPC under the pre-2006 test, but this would reintroduce the uncertainty that existed prior to the introduction of the SPC provisions in 2006.

This could therefore see a rise in disputes between outgoing and incoming contractors. 

Where TUPE does not apply, an incoming contractor does not need to take on existing staff, who would remain with the outgoing contractor. The outgoing contractor would then need to either redeploy them or make them redundant.

“There would no longer be an automatic assumption that a new contractor must take on an outgoing contractor’s staff”

This could have significant implications for lots of construction and facilities management businesses who may have entered into contracts on the assumption that TUPE will apply at the end of the contracts, and could face huge costs of making staff redundant which have not been factored into the pricing of the contract.

Contractors need to prepare for changes

While this is still only a proposal at this stage, and the government has made clear that there would be a ‘lead-in’ period before the removal of the SPC provisions, the scope of the changes are such that companies are already starting to take action to mitigate any negative effects.

This is especially important for businesses with long-term contracts that would likely span this lead-in period, such as those involved in private finance initiative schemes.

This can be done by revisiting employees’ contracts of employment with a view to changing certain terms and conditions, or by restructuring their workforces in advance. And anyone entering into contracts now should be trying to futureproof these as far as possible.

While the change to the SPC provisions is unlikely to be introduced in the near future (given the impact and the planned lead-in time), the government is still planning to introduce a number of other proposed changes that could result in a lighter touch approach to TUPE later this year.

Other changes looming

Currently, outgoing employers are required to provide incoming employers with information about the transferring employees’ terms and conditions of employment at least 14 days before the transfer. The government proposes to remove this requirement.

“Anyone entering into contracts now should be trying to futureproof these as far as possible”

Where there is a commercial contract between the parties, this is unlikely to make much difference because the contract may contain provisions dealing with the provision of information.

However, this is not the case where work moves between two competing contractors, as it often does in the construction industry, who may not co-operate voluntarily.

In these circumstances, the client should ensure it incorporates suitable contractual provisions to ensure it can obtain the information it needs to efficiently re-tender the work and ensure a smooth transfer.

Making the process more efficient

The government also proposes to make a number of other changes to TUPE to lessen the burden on employers and make the process more efficient.

These include greater certainty over collaboration between the outgoing and incoming contractors with regard to collective redundancy consultation; removing risks that currently exist in terms of the fairness of any post-transfer business relocation; allowing greater freedom for transferred employers to change terms and conditions after a transfer; and making the information and consultation process less formal for micro businesses. 

The government also proposes to reform the law relating to pre-transfer dismissals to allow outgoing employers to lawfully dismiss staff based on reasons which reflect the incoming employer’s future plans for the transferring business.

We will find out later this month when the new regulations are expected and which proposals are likely to be implemented. The government had planned an October 2013 implementation date (which now seems unlikely).

Neil Black is an employment partner at Pinsent Masons

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