When it comes to TUPE, it makes sense to take a pragmatic, commercial view, says Dominic Holmes, Partner, at Taylor Vinters LLP.
OK, I admit it. TUPE isn’t everyone’s cup of tea. It is often perceived as unfriendly for business, an unnecessary distraction when trying to negotiate a business sale or outsourcing contract. For those unfamiliar with it, TUPE can prompt a range of reactions: curiosity, bewilderment, indifference.
There are certainly areas of complexity, but I think the key for any business is to focus not on the law, but on its preferred commercial outcome. In an ideal world, what does it want to happen to the employees and how will it deal with any associated costs?
The basics
If TUPE applies, employees transfer automatically on their existing terms and conditions to the new employer, who steps into the shoes of the old employer and becomes responsible for any existing liabilities. The employees are protected from dismissal and any changes to terms and conditions because of the TUPE transfer (save in certain limited circumstances). There is an obligation to inform (and potentially consult with) employee representatives, before the transfer takes place.
It is not possible to “contract out” of TUPE by simply agreeing that it does not apply. However, there are ways to achieve a good result for everyone, which reflects their respective bargaining power.
For example, indemnities are common in commercial agreements. They are a good way of getting round the default position, by dividing up employment costs associated with a TUPE transfer. In many cases, employees can be moved around or organised to avoid TUPE applying (or not, as the case may be!).
Sometimes, businesses just ignore TUPE altogether. They work on an assumption that it does not apply and hope that no-one raises it. This is a perfectly valid strategy, depending on your appetite for risk.
How TUPE works in real life
Here’s a typical scenario. A customer outsources its IT helpdesk function to an external service provider. It decides to re-tender the services and awards the contract to a new provider. There are three parties involved, all with potentially conflicting interests.
First, the customer. Why has it decided to change its service provider? It may be because it is not satisfied with the service it gets from the current provider’s employees – in which case, automatic transfer of staff to a new provider just shifts the problem, rather than solving it. Conversely, it may really like the people who currently do the work, but think the service is too expensive – if the new provider can do the same work with the same people, but cheaper, a TUPE transfer makes sense.
Second, the existing provider. If it loses the contract, it may not have enough work to keep everyone busy and need to make redundancies. Far better that those employees transfer automatically and become someone else’s cost. Or perhaps it really values its highly skilled workforce and the very last thing it wants is to lose employees to a direct competitor, so they can benefit from all that investment and training.
Finally, the new provider. It may want at least some of the employees to come across, so it can service the contract and benefit from their knowledge of the customer and its systems. Or it may have enough existing resource and not relish the prospect of going through a redundancy process or absorbing employees into its organisation, without being able to harmonise pay and benefits.
Normally, you would think that the customer’s demands will win the day. However, as it does not have any direct responsibility for how the work is resourced (which is often the point of outsourcing it), it can be left vulnerable to an outcome it does not want when changing providers.
The customer can certainly stipulate that if TUPE does apply against its wishes, the new service provider will dismiss any employees that transfer and deal with any redundancy costs. It may have the benefit of indemnities in its contract with the existing provider, which it can pass on to the new provider. If not, some or all of the cost may be passed straight back to the customer, again either by using an indemnity or simply increasing the price of the work. All of this depends, of course, on how much the new provider covets the work and how badly the customer wants that particular provider to take over.
It is also important that the services contract deals with two potential TUPE scenarios – one at the start of the contract and another when some or all of the services are moved to a new provider (or taken in-house by the customer). Well-negotiated exit provisions can really help a customer when it next re-tenders the work.
Don’t leave it too late!
In my experience, the most common problem is that employers do not leave enough time to deal with TUPE issues. Ideally, you will need at least a month (and often longer) to deal with minimum obligations, such as providing employee liability information and, if necessary, going through a consultation process.
Before you even get to that stage, there can be opposing views on whether TUPE actually applies (which reflect each party’s conflicting commercial objectives).
Such issues are beyond the scope of this article. However, if there is a dispute, it is important to iron out any disagreements quickly. If employees end up stuck in the middle with no-one taking responsibility for them, they may bring claims against both the old and prospective new employers (on the basis that one of them must be wrong).
And that is where you will definitely need to think about what the law says…
