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New TUPE and collective redundancy

Significant amendments to UK regulations governing collective redundancies came into force on 31 January 2014. Nick Thomas, partner in the Labour & Employment Group of global law firm Morgan Lewis, examines the changes and their implications.

Recent amendments to Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”), which form part of the UK Government’s drive to implement “business friendly” legislation in the employment sphere, include changes which are intended to assist employers when undertaking large scale redundancies exercises in the context of a business acquisition, outsourcing or change of service provider. Previously, any dismissal connected to a TUPE transfer was automatically unfair unless it was for an economic, technical or organisational reason entailing a change in the workforce (an “ETO” reason). Case law made clear that a need to reduce headcount would satisfy this test, allowing a transferee to lawfully dismiss employees that it inherited if they were genuinely surplus to requirements. The amendments broadened the concept of ETO to include a post-transfer change in work location resulting in a reduced need for employees in the pre-transfer location. 

However, an employer can only rely on its own ETO reason to justify a TUPE related dismissal. This means that a transferor cannot lawfully dismiss employees pre-transfer on the basis that a transferee will have a reduced need for those employees post-transfer. Instead, all employees assigned to the business/services in question automatically transfer to the transferee whether they are needed or not. Before a transferee can dismiss any transferring employees that are surplus to requirements, a fair individual consultation process is required. Where the transferee is looking to dismiss 20 or more employees, this also gives rise to the obligation to begin to collectively consult either 30 days (20 to 99 dismissals) or 45 days (100 or more dismissals) before such dismissals take effect (the “Consultation Period”). Moreover, the individual consultation process cannot begin until collective consultation has run its course. Whilst it is sometimes possible for individual consultation to overlap with the Consultation Period, employers are rarely able to issue notice of dismissal until at least a week or two after the Consultation Period has ended. The cumulative effect of all of this was that any transferee inheriting employees that it did not need would have to meet costs equivalent to several months of salary (including notice or pay in lieu of notice) during which those employees made little or no contribution to the business.

In an effort to reduce this burden, the amendments permit a transferee to collectively consult with the transferor’s workforce prior to a TUPE transfer, thereby potentially allowing a transferee dismissing 20 or more employees to reduce its salary bill more quickly than was previously the case. However, the government decided against allowing a transferor to dismiss employees immediately before the transfer in reliance on a transferee’s post-transfer ETO reason. As a consequence, many practical difficulties still exist. A transferee will only be able to collectively consult in advance of a transfer with the full permission and cooperation of the transferor. The amendments place no obligation on a transferor to give such permission/cooperation. Moreover, as the dismissals will not take effect until after the transfer, the transferee will still need to consider the potential impact on its existing employees, particularly where the intention is to absorb the transferring employees into the wider organisation, as this may for example require placing employees in similar roles from both workforces into single redundancy selection pools. The amendments do not remove the need for the transferee to collectively consult with its existing workforce about potential redundancies. It is not yet clear whether such consultation would be run in parallel with, or as part of, the pre-transfer consultation with the transferor’s employees, and what the practical implication of this would be.

However, one can easily foresee potential difficulties arising from consulting about largely the same issues on two different fronts, with two separate sets of employee representatives (particularly if each employer recognises a different trade union). Whilst it may be too early to reach any firm conclusion, assuming the motivation for these changes was the Government’s much trumpeted drive to reduce the burden on business, given these concerns it is hard to escape the conclusion, at least in relation to TUPE related redundancy situations, that this is a missed opportunity.

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