Will Brexit Mean “no TUPE” for the ousourcing industry?

John Hayes, managing partner of Constantine Law looks at the status of TUPE for the outsourcing industry when the UK leaves the European Union.

Will TUPE apply after we “Brexit?”

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), or “TUPE” (as we prefer to call it!) is a piece of UK legislation. TUPE implements the Acquired Rights Directive (Directive 2001/23/EC) which is a piece of EU legislation.

As a member of the European Union, the UK is required to give effect to the general purpose of the underlying (EU) Directive, which is to safeguard employees’ rights on the transfer of a business.

A big question for the outsourcing industry is whether, if the UK “Brexits” will TUPE continue to apply in the UK?

The meaning and effect of TUPE

TUPE is, in essence, a piece of “pro-employee” legislation emanating from the European Union. TUPE:

  • Applies the “automatic transfer principle”: employees transfer to the business (the transferee) who inherits all employment rights in relation to them;

  • Employees have the right to “follow their work” and TUPE means that their continuity of employment transfers (unbroken) to the new employer;

  • TUPE means that the new employer may have asymmetrical contacts of employment within its workforce: if the “incoming” employees have different terms and conditions to the legacy workforce;

  • Gives protection against dismissal in connection with a TUPE transfer;

  • Imposes certain obligations, including to consult and provide information to transferring employees.

TUPE can apply on the (asset) sale of a business, or on the transfer of a commercial contract. TUPE is particularly likely to apply in the transfer of public sector contracts. Many businesses, now welcome (or at least “live with”) TUPE on the basis that it provides “contractual certainty” – there being a presumption in favour of TUPE in many instances.

TUPE can apply when commercial contracts are won and lost

As most UK (and European) businesses are aware, TUPE can apply when there is a “service provision change.”  TUPE was updated in the UK in 2014 (when the prospect of leaving the EU was not even conceived of) and TUPE applies when:

  • There is a transfer of a business, undertaking, or part of a business and where the economic entity in question “retains its identity” – this has spurned a considerable degree of UK case law;

  • There is insourcing: so when a business takes back “in-house” a commercial contract (for example a cleaning contract);

  • Or out-sourcing: where a business decides to outsource a service (for example a catering contracts);

  • And where employees are “assigned” to the contract in question – again this has prompted a considerable amount of caselaw, in the UK, as to whether employees are, in practice, assigned to a particular contract.

TUPE can be cross border

TUPE can apply cross border if:

  • The contract (or business) is situated in the UK before a transfer;

  • The transfer is governed or affected by the law of an (EU) country or territory outside the UK;

  • In practice, UK based employees will decide to “opt out” of TUPE if the transfer means relocating to another country.

If we “Brexit” then we will probably be with TUPE, at least for a while…

Even if we “Brexit” on 29 March 2019, the transition period agreed with the EU will last until 31 December 2020. The UK has promised to continue to implement EU legislation during that transition period. Separately, the Conservative Government has promised to honour all existing UK employment rights (for the duration of this Parliament).

What if there is an extension to the Brexit process?

If there is an extension to Article 50 of the Lisbon Treaty (which required the UK to give 2 years’ notice of its intention to leave the EU), and is due to expire on 29 March, then the UK will still be a member of the EU on 30 March 2019, and thereafter, until the UK formally leaves the EU. As a member of the EU, the UK would have no option but to implement TUPE. Even if we leave the EU, there will clearly be a transition period and TUPE will continue to apply.

The question is: what will be the status of TUPE if: (a) we ever leave the EU; and (b) the transition period has expired; and (c) the UK is notionally free of all EU rules and regulations? At this stage, TUPE will be “up for grabs.” A question for the outsourcing industry is whether this sector would then lobby the government at the time to either repeal, or amend TUPE?

It is possible to conceive of TUPE becoming a political football in, say, 7 years’ time (perhaps the election after next). A future conservative government could lobby to repeal TUPE (the US does not have it), on the basis that “freedom of contract take primacy.” This is the US position, whenever one speaks to our business contacts from across the Pond.

However, a future Labour Government (and the unions) would look to maintain and extend TUPE. The current position of the UK Labour Party is that employees will have unfair dismissal rights after their first day of employment. The current qualifying period for unfair dismissal rights under TUPE is to two years. This would certainly reduce under a future labour government.

Could we use leaving the EU to improve TUPE?

In short, “yes.”

The author is a “fan” of TUPE: it provides contractual certainty (in most instances) and the acquiring business can budget for TUPE before bidding. The alternative is worse: employees lose all statutory employment rights when a business is bought and sold. However, if we leave the EU then certain aspects of TUPE could be improved. It would be possible, for example, to legislate to make it easier to change terms and conditions, post TUPE. This would be my “no.1 wish” for improving TUPE (if we ever Brexit…)

This article was first published in the April edition of Intelligent Sourcing magazine.