Q: We will inherit employees under TUPE that had generous private health cover (and permanent health insurance) under their employment contracts. Can we swop providers or dilute the benefits? What are our risks?
A: Andy Atwell, Senior Associate at CMS Cameron McKenna answers…
Changes to employment terms and conditions in normal circumstances often come up against the obstacle of having to obtain employee consent. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) present an additional problem.
The aim of TUPE is to protect employees whose employment has gone across to a new employer as part of a “relevant transfer”. In these circumstances, the new employer faces restrictions on changing their terms and conditions of employment. You have said that the benefits are provided under their employment contracts.
Under TUPE, any attempted contractual variation will be void if the only reason or main reason for the change is the TUPE transfer. A change to the insurance provider is unlikely to present any issue, provided the same level of benefits is maintained (e.g. financial cover and waiver of pre-existing medical history). However, a move to dilute insurance benefits will have a far greater impact on staff and is likely to be interpreted as driven by the TUPE transfer and therefore (at first glance) void.
A common misconception is that contractual variations by the new employer are permitted a year after the TUPE transfer has taken place. In fact, case law has shown that there is no prescribed “shelf life” to TUPE rights where contractual variations are concerned, and any move to align terms with legacy staff (however far down the track) is likely to present the employer with similar issues (unless the relevant contractual terms have derived from a collective agreement as discussed below). Of course, the greater the passage of time between the transfer and the attempted contractual variation, the greater the opportunity for the employer to point to other commercial reasons as being behind the changes.
Notwithstanding the above, there are some limited statutory exemptions which permit changes to employment terms against the backdrop of a TUPE transfer. The most relevant exemption is where the incoming employee’s original contract gives the employer the express right to change the benefit, i.e. to amend or withdraw the insurance. There is a school of thought that says that this exemption under TUPE runs contrary to European law on this point. Regardless, it provides a real incentive for the new employer to check the contractual terms to see whether this is a viable option.
Another exemption is where the previous employer was subject to relevant insolvency proceedings. In these circumstances, some contractual changes by the new employer are allowed, provided certain conditions are met. A third exemption provides that an employer can vary a contractual term which has been incorporated from a collective agreement provided the variation takes effect more than a year after the TUPE transfer and the employee is left with a contract that is, in overall terms, no less favourable to them than it was before.
If none of the exemptions apply, the new employer may try to persuade incoming employees to sign up to its standard template contract, which omits reference to the insurance schemes, but provides other new benefits which hold some appeal. Unfortunately, even if the incoming employees willingly enter into this contract, and enjoy the new benefits, the removal of the insurance schemes will still be void at law. An employee might seek later on to claim an entitlement to the insurance benefits, which could end up being very costly to the new employer, particularly in the case of permanent health insurance.
Note that, regardless of whether the proposed changes to the insurance schemes are permitted under TUPE, the new employer should provide the original employer with written confirmation of its plans on this point in good time before the TUPE transfer to enable them to consult with employee representatives on these ‘measures’.
If the TUPE rules prohibiting contractual variations are breached, an affected employee could bring a breach of contract claim and/or resign and claim constructive and unfair dismissal. Such a dismissal will be automatically unfair if it is found to be by reason of the TUPE transfer. If the new employer fails to inform the original employer of proposed changes to the insurance schemes before the TUPE transfer, the new employer could be held jointly and severally liable for a failure to inform and consult.
Finally, regardless of the legal risk, any proposed change to terms and conditions of employment has to be handled with care from a general employee relations perspective. It will be vitally important to instil confidence in the incoming employees to ensure they are fully committed to their new employer’s business.