New U.K. Transfer Rules Require Greater Scrutiny of HRO’s Impact
Magazine Issue:
New TUPE revisions extend definition of employee transfer. Offshoring is now more likely to fall under the recent amendments.
by Julian Roskill
One of the difficult issues for organizations sourcing their activities is whether employees will transfer to a new service provider. The issues are complex and remain unclear in some areas, despite detailed scrutiny by national and European courts.
The practical solution is often to carve up the resulting financial risks through indemnities, both at the start and at the end of the sourcing contract. In the U.K., the balance of power in those negotiations may now have shifted as a result of legislation introduced by the U.K. Government in April 2006 amending the 2006 through the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
When will TUPE apply?
The previous TUPE test focused on whether there was in the U.K. a transfer of an economic entity that retained its identity. In considering this, it was necessary to look at what happened to the assets of that business (including those made available by the customer), whether the majority of the employees were taken on by the new service provider, and the degree of similarity between the old and new activities. Essentially, if the new service provider continued to provide the same basic services, TUPE would apply. However, this caused problems when customers wanted a change in service levels or divided the services between different countries. This test continues to apply. New to the concept is the “service provision change,” which sits alongside and often overlaps with the previous test.
TUPE now also applies when a customer stops performing the activity, which is then carried out by someone else on the customer’s behalf. It also applies when there is a change of service provider or when the customer takes the activity in-house. For TUPE to apply, all of the following conditions need to be satisfied:
• Immediately before the change, there is an organized group of employees situated in the U.K. whose principal purpose is performing services on behalf of a customer.
• The customer will shift the activity to a service provider beyond either a one-off event or the completion of services of a short-term duration.
• The activities concerned do not consist wholly or mainly of the supply of goods for the customer’s use.
What constitutes an activity is not defined. All that needs to happen for TUPE to apply is that the activities stop being provided by one party and are taken over by another. Activities are likely to be broadly defined to prevent arguments that they are being supplied in such different ways that the economic entity (under the old test) did not retain its identity.
It is now far more likely that employees will transfer under TUPE under the service provision change and, presumably, have to be retrained. Employees will now follow the activities that they have been performing, rather than the assets that they have been using. Under the service provision change, there is no need for any assets to transfer.
What remains unresolved is whether TUPE applies where activities are moving offshore, possibly to more than one country. At the risk of not doing justice to complex arguments, the debate until now has been over whether you looked at the activity at the point of transfer, no matter what happened afterwards, or whether the offshoring was so radical that the activity lost its identity. What the service provision change has done is sharpen that debate because retention of the identity of the activity is no longer relevant. This makes it more likely that TUPE will apply to offshoring. What is still likely to happen, however, is that employees will lose their jobs for economic reasons. The legal debate will then focus on whose reason is it and the commercial debate on who should pick up the costs.
Consequences for HRO Buyers
The U.K. is the only European country that has adopted the concept of the service provision change. As a result, the focus of the debate (if the parties do not want TUPE to apply) will require a careful analysis of whether the grouping of employees spends the bulk of their time in the activity. If they do, they will transfer; if they do not, they will not.
In practice, employers may entice their employees to remain with them and encourage them to opt out of transfers. Moreover, service providers may well take steps to ensure that employees do not spend the bulk of their time working for particular customers. Indeed, the parties may look to impose conditions in their contracts for the supply of services to deal with situations like this, even though there may be cost implications. The alternative is that clients unhappy with the quality of the service may find that the same underperforming employees continue to provide the same services through a new employer.
Posted: July 12th, 2010
at 12:59am by admin
Tagged with impact magazine, service provision, transfer of undertakings
Categories: business articles
Comments: 4 comments
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