Proposed TUPE Service Provision Changes

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provide for the transfer of employees from one business to another by way of a business transfer or as service provision change (SPC).  The 2006 legislation was intended to incorporate the provisions of a European Directive safeguarding the rights of employees of business when the ownership of that business changes, as well as clarifying previously rather opaque application of the 1981 TUPE Regulations to outsourced situations.

Under the 2006 TUPE Regulations, a service provision change takes place when certain activities are outsourced, when they are reassigned from one outsourced contractor to another, or when they are brought back in house after having been outsourced and the activities are carried out by an organised group of employees (or employee) whose purpose is to carry out those activities. The simplest example of a service provision change is the outsourcing of something like the word processing function in a business.

In September of last year a response to a call for evidence as to the effectiveness of TUPE was published by the government, who suggested in the consultation paper that “the 2006 service provision changes may have actually imposed unnecessary burdens on business, and [the Government] questions whether they have delivered the benefits originally anticipated.” Whilst the SPC inclusion was intended to safeguard employees’ rights, this view reflects the idea that the current system is an unnecessarily restrictive way of implementing the European directive requirements and that the SPC provisions should be repealed. The benefit to the Government in removing the TUPE application to SPC would be to allow for public sector outsourcing and second generation public services contracting, that would take place outside the provisions of TUPE. What this would remove would be automatic staff transfer and the requirement to duplicate existing employment terms and conditions. It could also be used to reduce costs and there would be much more flexibility for service provision to be changed.

The effect on contractors will be double-edged and those who are incumbent will most likely suffer the sharp edge of the proposals. The reason for this is that incumbent contractors will no longer be able to use TUPE to pass on their workforce to the incoming contractor. Currently, contractors can avoid having to deal with the – often high – costs of redundancy by passing on their workforce in this way. If the proposals change then the introduction of these costs will come as an unbudgeted-for shock to many. However, for any incoming contractors, there will no longer be the opportunity to inherit the workforce to carry out the job, which means that small and medium sized businesses without large numbers of staff may now be out of the running for certain types of work. On the bright side, for contractors bidding for contracts there are cost savings and the opportunity to start a new contract afresh, without any of the liabilities passed on by an outgoing contractor.

The introduction of the SPC provisions was intended to introduce clarity to the pre-2006 situation where there was often considerable difficulty in interpreting case law – both UK and EU – and contractors struggled to work out whether the provisions of TUPE should apply. Many believe that although the 2006 Regulations went over and above what was required, that they have indeed managed to introduce both increased certainty and a decrease in the number of resulting disputes. However, the number of cases that have since made it through the tribunal system have demonstrated that this certainty is not always there – whether or not the government’s proposed changes will help or hinder this clarity remains to be seen.