RESPONSE TO DTI CONSULTATION DOCUMENT

TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT)REGULATIONS 1981

(URN 01/1158 SEPTEMBER 2001)

Introduction

This response is based on the Consultation Document and onthe Background Paper of September 2001.

GMB, Britains General Union, represents over 650, 000members working throughout the UK in both the private and public sectors. GMBhas members working in the areas of:

Financial, commercial, and professional services

Clothing and textiles

Construction

Furniture manufacturing

Energy and Utilities

Engineering

Food and leisure

Process industries

Public Services

GMB members in all of these areas have first-hand experienceof the Transfer of Undertakings (Protection of Employment) Regulations 1981(TUPE). The experience of GMB members is that:

1. It is not always clear that the TUPE Regulations apply to a particular transaction e.g. thecontracting out of public services. So workers affected by competitivetendering are at risk of the loss of TUPE protection.

2. When the TUPE Regulations do apply there are still majorweaknesses in the protection provided e.g. occupational pensions are excludedfrom transfer.

In the 20 years since the TUPE Regulations were introducedGMB has often litigated to protect our members. This has occurred in manyareas, ranging from the out-sourcing of private sector in-house services toexternal providers, to the transfer of abusiness where employees were dismissed one hour before the transfer soas to avoid the effect of TUPE. GMBsexperience highlights the fact that there are significant weaknesses in the lawe.g.

Second generation contracting out without a transfer ofassets or workers may not be a relevant transfer

There is no obligation on a transferee to provide an equivalentoccupational pension to transferred employees

The original commercial venture requirement continuesto be the subject of Francovichlitigation supported by the GMB

GMB has a long-standing objective of improving theprotection afforded to workers who are affected by transfers of undertakings.In particular GMB believes that the legal framework under which such transfersoccur should be strengthened. The Governments proposals to amend TUPE, whilstwelcome in some respects, still expose workers to a loss of protection incertain instances. GMB believes that there is now an opportunity for the UKGovernment to strengthen the TUPE Regulations to secure full protection forworkers affected by a transfer.

Paragraphs 1 3: Introduction and Background (paragraphs 1 11 BackgroundPaper)

Paragraph 4:Proposals (Paragraphs 12 13 Background Paper)

General Objectives

The Governmentconsiders that the TUPE Regulations are based on a positive principle thecoupling of flexibility for business with fairness for employees. If made towork effectively, they should assist the smooth management of necessary change,in both the private sector and the public, by giving assurance to and securingthe commitment of the employees affected. The Governments aim in reforming theRegulations is to ensure that they operate as effectively as possible for allthose whose interests depend on them.

GMB Response

The preamble to the Acquired Rights Directive states thatthe objective of the Directive is;

the protection of employees in the event of a change ofemployer, in particular, to ensure that their rights are safeguarded

GMB and believes that any amendments made to TUPE should reflect this primary objectiveof the ARD rather than becoming lost in a nebulous balancing act.

Paragraph 5 6: Scope (paragraphs 14 17 Background Paper)

5. The scope of the legislation is the most extensivelydebated and litigated aspect of the current Regulations. Ideally, everyoneshould know where they stand, so employers can plan effectively in a climate offair competition and affected employees are appropriately protected as a matterof course. In the past, however, this has not always been the case.

6. The revised Directive gives for the first time anexplicit definition of a transfer of an undertaking, intended to clarify theexisting legal position without changing it. The Government proposesessentially to adopt this definition in the new Regulations. This alone,however, may be insufficient to address the problems that have arisen. TheGovernment considers that there may be a case for taking further measures intwo particular areas transfers within public administration, and serviceprovision changes that have in the past been frequent sources of confusionand dispute.

GMB Response

GMB believes that the definition of when a transfer occursis the most crucial issue that any amendments to the TUPE Regulations mustaddress. The case law on this issue isconfused and uncertain. This leads to the risk of avoidance by employers in an effort to defeat the objective of theARD.

a) The Present Position

In any case before an Employment Tribunal where an issue arises as to whether or notTUPE applies, the Employment Tribunal should adopt a purposive approach in interpreting the ARD. The Employment Tribunalshould interpret the ARD in such a way as to give effect to its purpose. Thispurpose, as stated in the preamble to the ARD, is to safeguard employeesrights when there is a change of employer. But this has not meant that the ARDwill always apply.

This is because an Employment Tribunal has to carry outessentially a factual exercise to determine the issue. But because of theconfusion in the law it is possible for two different Employment Tribunals toreach two different decisions based onalmost identical facts. Provided each has approached the issue by looking atthe right questions, and thedecision is not perverse, neither is likely to be overturned by the appellatecourts.

The case law seems to indicate that the questions that anEmployment Tribunal has to consider are:

1. Is there an undertaking i.e. a stable economic entity which issufficiently structured and autonomous?

2. Has there been a transfer of the stable economic entity fromone employer to another?

Attempts have been made by the Courts to clarify theposition, but there is still a great deal of uncertainty in this area. Thisaffects both employees and employers.For example the loss of a service contract to a competitor will notautomatically mean that the transfer falls within the scope of TUPE. TheEmployment Tribunal considers:

The views of the parties at the time

Whether there is a transfer of physical assets and thevalue of those assets

Whether a major part of the workforce, in terms ofnumbers and skills, of the transferor are taken on by the transferee

Whether there has been a transfer of intangible assetsand the value of the assets e.g. goodwill

The degree of similarity between the activities carriedon before and after the transfer

The period of suspension of the activities, if any,over the period of the transfer

The Employment Tribunal then makes a decision based onconsideration of these various factors. Besides the potential complexity of theissues involved, certain aspects of the criteria allow for avoidance e.g. bythe device of the transferee refusing to take on the employees. This issue hasbeen particularly problematic since the decision of the European Court ofJustice in Suzen.

Prior to Suzen,the case law had progressed to a position where it was possible to say that theARD and TUPE would apply to most contracting-out situations including first andsubsequent contracting-out exercises. However, in Suzen, the European Court of Justice held that a second-generationcontracting-out may not constitute a transfer under the ARD (and TUPE) unlessassets or a significant part of the workforce are transferred.

Following the decision in Suzen, the UK Courtsinitially held that the case marked a change of direction so that where noassets or staff transferred there was no TUPEtransfer. At the same time the fact that the majority of employees aretaken on does not automatically mean that TUPE will apply. This had the effectof encouraging avoidance.

In some recent decisions the UK Courts have moved away fromthe harsher application of the Suzen decisionto some extent, but the problems created by the decision still remain. Theapproach of the UK Courts has been to look at the reasons for employees notbeing taken on, and if it is found that this was simply a device to avoid TUPEthe transferee will be in some difficulties. This is helpful to an extent. Butit suggests that there may be acceptablereasons for not taking the employees on. This perpetuates the uncertainty forboth employees and employers.

b) The TUPE Amendment

It is noted that the Government proposes to adopt thedefinition of a transfer contained in Article 1 of the ARD. This states asfollows:

1. (b) there is a transfer within the meaning of thisDirective where there is a transfer of an economic entity which retains itsidentity, meaning an organised grouping of resources which has the objective ofpursuing an economic activity, whether or not that activity is central orancillary.

c) This Directive shall apply to public and private undertakingsengaged in economic activities whether or not they are operating for gain

GMB believes that although the undertakings activity doesnot have to be carried on for gain, the reference to an organised group ofresources which has the objective of pursuing an economic activity may raisedifficulties for employees in the public sector. It invites a transferee toargue that an undertaking does not pursue an economic activity and that TUPE may not apply to a particular transfer.

c) What is Needed

GMB believes thatwhat is required is a definition of a transfer which explicitly coverscontracting out situations. This would assist in overcoming some of thedifficulties referred to above. Thisshould cover not only the first contracting-out exercise but subsequentexercises. This would serve to protect the rights of employees at a vulnerabletime. It would also create certaintyfor employers as they would then know the basis upon which bids are to be made.

Further, GMB also believes that the wider definition of whena transfer occurs should be extended to cover take-overs by sharetransfer. TUPE Regulation 3(2)indicates that the Regulations do not apply to the change in control of acompany by ordinary share transfer. This is the case even if the decision toeffect the transfer by such method is taken to deliberately avoid TUPE. Eventhough there may be no transfer of the contract of employment, the impact onaffected employees can be just as dramatic as if there was e.g. it can lead to a change to terms andconditions or have an impact on pension arrangements. The extension of TUPE tothis area should include all individual and collective rights e.g. the collective rights of employeerepresentatives to information and consultationunder Regulations 10 and 11 of TUPE.

Paragraphs 7 8: Transfers within public administration (Paragraphs 18 22 Background Paper)

7. The Government proposes to address the issue oftransfers within public administration through:

Applying theCabinet Office Statement of Practice Staff Transfers in the Public Sector(issued in January 200); and

Whereappropriate, and subject to prior consultation with interested parties,ensuring that TUPE-equivalent protections are afforded to affected employees:

In case-specificlegislation, where that is the vehicle for effecting a particular transferwithin public administration; or

By regulationsunder section 38 of the Employment Relations Act 1999 on an adhoc basis inother cases or classes of cases outside the Directives scope.

GMB Response

The approach taken by the European Court of Justice in thisarea is difficult to reconcile with the aim of the ARD. The way to address thisissue is to explicitly include such transfers as falling within a widerdefinition of TUPE. The Cabinet Office Statement is helpful, but is only avoluntary arrangement with no method of enforcement, and on its own is likelyto be less effective in areas outside of central government. It could be usedas a starting point to develop a Statutory Code for the application of TUPEwhich is admissible in proceedings. Similarly the use of case-specificlegislation or section 38 of the Employment Relations Act 1999 in the wayenvisaged could be helpful to re-inforce the application of TUPE in certainsituations. But GMB believes that overallthe issue is best dealt with by way ofa wider definition of TUPE (see the response to paragraphs 9 12 below). This would make the position clear for all concerned.

Paragraphs 9 12: Service provision changes (Paragraphs 23 35 Background Paper)

9. There has in thepast been uncertainty over the Regulations application in cases where aservice is contracted-out or outsourced, or a service contract is re-let toa new contractor, or a previously contracted-for service is taken in-house orcontracted-in. For convenience all these types of changes are referred tobelow as service provision changes, and the party on behalf of whom theservice activities are performed as the client.

10. It is well established that the Regulations can inprinciple apply in relation to service provision changes. Whether or not anysuch change does constitute a relevant transfer of an undertaking depends onall the factual circumstances. The key question is whether or not there is atransfer of (in the words of the Directive) an economic entity i.e. anorganised grouping of resources which has the objective of pursuing an economicactivity that it retains its identity in the process. The difficulty ofanswering this question in service provision change cases is the root cause ofmost of the problems that have arisen in this regard in the past.

11. The Government would welcome views on whether or notadditional measures, going beyond the requirements of the Directive, should betaken in the Regulations in relation to service provision changes, and if sowhat form these should take. Views are also invited on whether there should be:

a) separate legislative or administrativemeasures introduced by individual government departments specifically for theparts of the public sector within their responsibility, underpinning the policyin Staff Transfers in the Public Sector; or

b) a general extension of the Regulationsscope in relation to service provision changes for public and private sectorsalike using the powers in section 38 of the Employment Relations Act 1999.

GMB response

As indicated above we believe that a wider definition ofwhen TUPE applies is required. This should explicitly state that allcontracting-out and out-sourcing in the private and public sectors fall withinthe scope of TUPE. This should extend to first and subsequent exercises. Thisshould be achieved through an amendment to the TUPE Regulations. The use ofcase-specific legislation or section 38 of the Employment Relations Act 1999could assist in underpinning the definition in particular cases, but it wouldbe necessary to ensure that this was consistent with the TUPE Regulations.

GMB supports the useof the terminology referred to in paragraph 27 of the Background Paper i.e. theuse of the words principal purposeshould be used as the appropriate test.This would be in line with thewider objective of encompassing service provision changes within TUPE and theprimary objective of the ARD i.e. safeguarding employee rights.

GMB makes the following comments on the drawbacks referredto in the Background Paper:

1^stDrawback: There are already disputes in this area and the wider definitionshould be able to reduce these although it is inevitable that some disputeswill occur.

2^ndDrawback: It is inevitable that there may be some possible dispute in thisarea but this ought not prohibit the introduction of the wider definition.

3^rdDrawback: There is still a risk of services being redesigned so as to avoidthe application of the TUPE Regulations. GMB has experience of such cases e.g.in local authorities. The introduction of a general anti-avoidance provisionwould assist in supporting the primary objective of the ARD.

Paragraphs 13 17 Occupational Pensions (Paragraphs 36 59 BackgroundPaper)

13. Rights. Powers, duties and liabilities in respect ofcontinuing membership of occupational pension schemes were excluded from thecoverage of the original Directive and do not transfer under TUPE. Accruedrights in an occupational pension scheme are however covered by the Directiveand are protected in the UK under pensions regulations. Where TUPE applies,therefore, the only rights excluded from the otherwise automatic transfer ofemployees terms and conditions are rights to continuing active membership ofan occupational pension scheme, where such rights existed prior to thetransfer.

14. The Governments policy is that former public sectoremployees transferred to the private sector should continue to have pensionprovision made for them. The Government considers the current legal position isnot certain and that there is at present a risk of claims of constructivedismissal where the transferor does not require the transferee to providebroadly comparable pension rights after the transfer. Central guidance togovernment departments and local authorities lays down that the transfereeemployer in transfers from such public sector bodies is generally required tooffer transferred employees occupational pension provision broadly comparableto that afforded by the transferor. Whether or not the broadly comparablecondition is met in any particular case is assessed according to establishedcriteria by the Government Actuarys Department (GAD). The Treasury hasreaffirmed this policy in a note entitled Staff Transfers from CentralGovernment: A Fair Deal for Staff Pensions, and GAD has set out its approach ina Statement of Practice entitled Assessment of Broad Comparability of PensionRights. The legal position has never been directly tested in the courts,however, and the risk of successful legal challenge has apparently been widelydiscounted in the private sector. In this one respect of pension terms,therefore, private sector employees, unlike public sector employees, may stillin practice find themselves in a significantly worse position after a transferthan they were before it.

15. The Government considers that the uncertain legalposition is unsatisfactory, and that in implementing the Directive legalcertainty should be achieved. There are a number of possible ways in which thiscould be done. One would be simply to provide that ongoing occupational pensionrights are not transferred to the transferee, extinguishing any arguments alongthe lines discussed above. The Government is not attracted to this however.Other possible approaches would be:

a) amending the TUPE Regulations so as toprovide that ongoing occupational pension rights are not transferred to the transferee, but preserving the currentpublic sector policy by way of separate legislative or administrative measuresintroduced by individual government departments specifically for the parts ofthe public sector for which they are responsible; or

b) amending the TUPE Regulations to provide adegree of protection for occupational pension rights on transfer, for publicand private sector employees alike.

The Government would welcome views on this issue

OPTIONS

16. If the approach described at point b) above were tobe taken, the Government would aim to strike a balance between protectingtransferred employees and minimising additional burdens on private sectoremployers The Options may be summarised as follows:

Option 1: If the transferor offered either acontracted-out salary related scheme (COSR) or a contracted out money purchasescheme (COMP), then the transferee would be required to offer a scheme of thesame type meeting a certain minimum standard. If the transferor offered acontracted-in scheme, then the transferee would be required to offer some formof occupational pension scheme that was Revenue-approved but with no specifiedform or level of benefits.

Option 1a: As for Option 1, except that there would bea limit placed on the reduction in benefits an employee could suffer.

Option 2: The transferee would still be required tooffer a contracted-out occupational pension scheme if the transferor offeredone, but could switch from COSR to COMP or vice versa.

Option 2a: This would incorporate a safety net for employeesanalogous to that suggested in Option1a.

Option 3: The transferee would be able to choosewhether to offer a salary-related or a money purchase scheme, irrespective ofthe nature or level of benefits offered by the Transferor, provided that the schememet a prescribed benchmark.

Option 4: There would be a requirement for thebenefits under the transferees scheme to be of a similar value to those underthe transferors scheme.

17. If one of these options were to be pursued, theGovernment would propose to provide also that transferees were permitted to paytransferred employees adequate alternative compensation in exceptionalcircumstances where it was not reasonably practicable to meet the newrequirements.

GMB Response

The Pensions Perspective

Paragraph 38 Background Paper

It is unacceptable to proposediffering protections for private and public sector employees. Pensions are deferred pay, and it is to bewelcomed that the Government is considering redressing the longstanding inequityof protecting every term & condition of employment upon transfer except theone representing long-term financial security.

Furthermore, it is GMBsexperience that Staff Transfers fromCentral Government: A Fair Deal for Staff Pensions (hereafter referred toas 2000 Guidance) has provided little comfort within local government transfersto private contractors, despite explicit mention of this sector of governmentwithin the document. Public sectoremployees also require the pension protection that a clear amendment to TUPERegulations on this matter can provide.

Option B is therefore preferable.

Paragraphs 41-42 Background Paper

It is unacceptable to suggest twomethods of approving the transferee pension scheme, unless the only differenceis one reflecting different circumstances.If broad comparability is too stringent, then any alternative mustoffer greater flexibility but not at the expense of pension benefit protection.

However GMB is not convinced thatthe existing broad comparability test is too stringent and would beinterested to hear the details of the cases implied in paragraph 41. When referring to quite small differencesin the structure of benefits, are the differences perceived as small by thetransferring members? GMB is well awareof schemes, which have obtained GAD certificates, where a small difference(e.g. a reduction in the early retirement benefits, alongside an increase inthe death benefits) has a substantial effect upon the quality of life of thoseconcerned.

GMB would agree with theGovernment that differences in administrative procedure and other aspects ofschemes tangential to the members benefits should not prevent a certificatebeing applied, on the for the want of a nail argument. However employers are not currently requiredto operate separate pension schemes for transferring employees; it is possibleto set up sections within a scheme.

Paragraph 43 Background Paper

While it is clear that, in somecircumstances, offering an occupational pension scheme with the same schemedesign and benefits is logistically difficult, GMB wishes this alternative tobe as tightly defined as possible.

We do not believe there are anysituations in which it is impractical to offer any form of pension scheme, and would resist any form of lump sumbuy-out option. Our view is discussedfurther under Option 2 below.

Option 1

This option is correct to focusupon the scheme design as a key requirement for protection (i.e. that a COSRscheme should be replaced only by a COSR scheme etc.), but the implicitassumption that people only join occupational pension schemes in order tocontract out of SERPS is false. Theoverwhelming majority of COSR schemes offer substantially better benefits thanthe reference scheme test. This optionis analogous to saying that, so long as the transferee offers the StatutoryMinimum Wage, then satisfactory protection is offered for the purposes of pay.

Option 1a

This option is clearly a betteroption for employees as it provides a better level of protection. GMB would question, though, why we shouldaccept a reduction in deferred pay when we would not be expected to accept areduction in pay on transfer of employment.

It would also probably result intransferees offering schemes worth little more than 90% of the original scheme;experience has shown that with occupational pensions, the trend is towards theminimum necessary rather than towards best practice.

A lot more detail on how 10% of aCOSR scheme would be calculated is necessary for further comment. If based upon the cost of providing thebenefits, this could prove problematic; a scheme which offered double thebenefits on death and ill health but substantially less in terms of retirementincome could meet this definition. Thiswould clearly work against the Governments objective of improving individualpension provision.

More thought needs to be given tothe other factors in COMP schemes in determining the retirement income, overand above the contribution rate, as to whether safeguards are required on theseas well.

Option 2

In practice, when talking aboutemployers offering a different type of scheme, we mean transferees offering aCOMP/CIMP rather than a COSR/CISR, and not the reverse.

GMB would not accept a change inscheme design should be available when all members of a COSR pension scheme aretransferring to the same employer, or even when only a substantial proportionare doing so. However we do recognisethe logistical problems inherent for an employer without an existing COSRscheme in setting one up for, say, five people. In these circumstances, a change to scheme design may beappropriate.

It may not be advisable to insistunder these circumstances on the contracted-out nature of the replacementscheme, given the current situation with rebates. Most Final Salary schemes are contracted out, while mostemployers with Money Purchase Schemes haverecently contracted back in to SERPS on the basis of the rebates. If a CIMP is acceptable under thesecircumstances as a replacement for a COSR, it would be fair to take theadditional SERPS benefit into account - but taking account of the additionalemployee National Insurance contribution as well.

Assuming any comparison of thetwo schemes is on an actuarial basis, GMB would wish to see stronglyconservative assumptions made about investment returns in any COMP/CIMP. As the members would be giving up thesecurity of a guarantee underwritten by the employer, and taking on theinvestment and annuity risk themselves, it is important that more prudentassumptions are applied.

Option 2a

It is not clear how a safetynet would apply in the above scenario, given the statement the actuary mighthave to certify that overall the new scheme would provide broadly equivalentbenefits. This statement is preferableto any safety net below this level, for reasons explained elsewhere.

Option 3

For the arguments against aprescribed benchmark, please see the response to Options 1 and 1a.

Paragraphs 54 and 55 (of theBackground Paper) set out how thisoption would operate where employers offered better benefits than the RST. For the reasons explained above, we believeit unlikely that employers required to provide the RST will do much more inthese circumstances, without pressure from the transferor or trade unionrepresentatives.

Option 4

Equivalent value is an amorphousconcept for transferring employees to get to grips with. The Government appears to feel there isdifficulty with the current broad comparability approach. GMB would like to see more detail on howequivalent value differs from this, before commenting beyond what we havealready said.

In addition existing legislationfocuses entirely on a comparison of benefits. GMB would also like to see thenew Regulations include minimum standards for funding levels and memberrepresentation on the trustee body.

Paragraph 18: TheFrankling case. (Paragraphs 60 61 Background Paper)

18. In the Frankling case the EAT found that certainage-related payments to which an employee would become entitled on redundancyunder term s and conditions applicable in the NHS did pass across in a TUPEtransfer because the benefits in question:

arose underlegislation rather than under a contractual obligation on the employer to paythem to the employees; and

fell within theoccupational pensions exclusion in the Directive and TUPE.

The same issues have subsequently arisen in the Beckmancase and the High Court has referred them to the ECJ for a preliminary ruling.

19. The Governments policy is that, whatever ruling theECJ makes in the Beckman case, benefits of this kind should pass across in aTUPE transfer. It proposes to make specific provision to this effect in theamended Regulations.

GMB Response

GMB welcomes this general proposal, but believes that itshould be made as part of the overall changes to the protection of pensionrights on transfer.

Paragraphs 20 22: Notification of employee liability information(Paragraphs 62 73 Background Paper)

20. The revised Directive gives Member States a newoption to introduce provisions requiring the transferor to notify thetransferee of all the rights and obligations in relation to employees that willbe transferred so far as those rights and obligations are or ought to beknown to the transferor at the time of the transfer.

21. The Government proposes to take advantage of this byproviding that:

the transferor ina prospective transfer of an undertaking is required to give the transfereewritten notification of all the rights and obligations in relation to employeesthat are to be transferred;

If any of therights or obligations in question change between the time that suchnotification of them is given and the completion of the transfer, thetransferor is required to give the transferee written notification of thechange;

Both these typesof notification may be given in more than one instalment but every instalmentmust be given:

In good time before the completion of thetransfer;or

If special circumstances make this not reasonably practicable as soonas is reasonably practicable and in anycase no later than the completion of the transfer.

GMB response

GMB supports this proposal in principle, but believes thatthere are a number of issues that still need to be addressed as follows:

Clarification is required of the information to bedisclosed relating to the rights and obligations in relation to employeesthat are to be transferred. Is this obligation limited to details of pay,hours, holidays etc, or does it include details of employment and personal injury claims? Experience shows that evenbasic pay details are not always disclosed. How far must the transferee go?

Adequate safeguards need to be in place in respect ofthe information disclosed. Much of it will be confidential and some will besensitive personal data for the purposes of the Data Protection Act 1998.Further consideration needs to be given to these issues in the light of theforthcoming Codes of Practice on Employee Relations from the Information Commissioner. These safeguards should relateto the disclosure, use, and retention of information, particularly where thetransfer does not proceed in which event there needs to be an obligation on thewould-be transferee to returninformation.

The obligation to provide information should extend tothe client awarding the contract in contracting-out situations e.g. the localauthority in a second generation exercise. GMB believes that the involvement ofthe client is important. This is because too often local authorities avoidhaving any involvement in the process despite the fact that it is theircontract that is being awarded. It would be helpful if the transferor isobliged to provide information via the client awarding the contract (paragraph 72 of the Background Paper). Asthe transferor is disclosing information to a prospective transferee thisshould not prevent disclosure of commercially confidential to the client.

This information should be provided to employeerepresentatives as well as to the transferee so that the representatives mayplay a full role in the information and consultation process.

The timing of the provision of the information needs tobe clarified the use of the phrase ingood time on its own is likely to lead some uncertainty. A minimum periodshould be set out. A useful model already exists in the collective consultationtimetable for redundancy. The minimum period should be not less than 30 daysbefore the transfer in the case of a transfer involving up to 100 employees,and not less than 90 days in the case of 100 or more employees. This wouldassist in making the position clearer, particularly in relation to theinformation and consultation process.

Effective sanctions should be in place to ensurecompliance with these obligations to enable employee representatives to applyto an Employment Tribunal for a failure to comply. This should include a sanction which prevents the transfer fromproceeding until such time as the employee liability information is provided.Compensation of up to 13 weeks pay for affected employees should also beavailable as is the case with a failure to inform and consult. This would bewithin the spirit of the ARD. The specialcircumstances defence should beextremely limited. It should place an employer in no better position than itwould be in a claim for a protective award for a failure to consult overcollective redundancies.

GMB believes that the proposals in paragraph 65 of theBackground paper have a number of shortcomings. They require litigation by theemployees. The effect may be that transferees will delay or deny employeerights until the employee takes legal action. This may also involve costsawards, since the transferee would have to defend even an open and shut case tobring the transferor into the proceedings..

Paragraphs 23 24: Dismissal by reason of a transfer of undertaking(Paragraphs 74 75 Background Paper)

23. Regulation 8(1) of the current TUPE Regulations makesa dismissal automatically unfair under the unfair dismissal provisions of theEmployment Rights Act 1996 (subject to the normal qualifying conditions,including one years continuous employment) where the transfer or a reasonconnected with it is the reason or principal reason for the dismissal.Regulation 8(2) then provides an exception from this general rule in thosecases where an economic technical or organisational reason entailing changesin the workforce generally referred to as an ETO reason is the reason orprincipal reason for the dismissal. In such cases the dismissal may be fair orunfair, depending on whether or not the employer has acted reasonably astreating that reason as sufficient to justify it.

24. The Government recognises that uncertainty has arisenabout the interpretation of Regulation 8, leading to cases before theemployment tribunals and the higher courts. A particular issue has arisen as towhether dismissals for a reason connected with the transfer Regulation 8(1) and dismissals for an ETO reason Regulation 8(2) are two mutually exclusivecategories or whether the latter are a subset of the former. The Governmentaims to improve the drafting of these provisions in the amended Regulations, inparticular by making clear that ETO reasons are a subset of reasons connectedwith the transfer

GMB response

The GMB welcomes the proposal to improve the drafting of theprovisions in the TUPE Regulations by making it clear that ETO reasons are asubset of reasons connected with the transfer.

Paragraph 25: Changes to the terms and conditions ofemployment of affected employees (Paragraphs 76 83 Background Paper)

25. There has also been some uncertainty as to thecircumstances in which a change in the terms and conditions of employeesaffected by a transfer can be validly made. The Government proposes to improvethe operation of the Regulations by making clear that they do not precludetransfer-related changes to terms and conditions that are made for an ETO reason that is, an economic, technicalor organisational reason entailing changes in the workforce. The lawfulness ofsuch changes will then clearly depend only on the normal considerations thatwould apply irrespective of a transfer.

GMB Response

This proposal does not sit very easily with the proposaloutlined in paragraphs 23 24. It is not accurate to say that the lawfulness of such changes will thenclearly depend only on the normalconsiderations that would apply irrespective of a transfer. Absent atransfer it is lawful to agree changes to terms and conditions where there areno changes in the workforce. It risksmisleading employers to suggest that the position can be the same under TUPE.The ETO reason has to entail changes inthe workforce. It is only when theemployer sets out to change the structure of the workforce, by reducing numbersor changing the functions that individuals perform, that the reason will entailchanges in the workforce. GMBbelieves that such changes should only be made where they are a means ofavoiding redundancies. Changes should only be agreed with employeerepresentatives who are independent trade unions.

Paragraphs 26 32: Application of the legislation inrelation to insolvency proceedings(Paragraphs 84 100 Background Paper)

26 Reflecting the position previously established in ECJcase law, the revised Directive provides that, unless Member States provideotherwise (which the Government does not propose to do), the normal safeguardsfor employees against transfer-related changes to terms and conditions andtransfer-related dismissals do not apply where the transferor is the subjectof bankruptcy proceedings or any analogous insolvency proceedings which havebeen instituted with a view to the liquidation of the assets of the transferorand are under the supervision of a competent public authority (which may be aninsolvency practitioner authorised by a competent public authority).Procedures for which the Insolvency Act 1986 provides that fall within thisdescription in the UK include in particular compulsory winding-up andbankruptcy, and possibly also creditors voluntary winding-up.

27. The Revised Directive also gives member States twonew options in cases where its requirements apply in relation to insolvencyproceedingsunder the supervision of a competent public authority (which may bean insolvency practitioner determined by national law). Procedures that fallwithin this description in the UK include in particular administration, companyand individual voluntary arrangements and creditors voluntary winding-up, butnot administrative receivership or any other receivership or members voluntarywinding-up.

28. The two new options are to provide that:

in cases givingrise to protection for employees at least equivalent to that provided for insituations covered by the EC Insolvency Protection Directive (implemented inthe UK by the insolvency payments provisions of the Employment Rights Act1996), the transferors pre-existing debts toward the employees do not pass tothe transferee; and/or

employers andemployee representatives may, exceptionally agree changes to terms andconditions of employment by reason of the transfer itself, provided that it isin accordance with national law and practice and with a view to ensuring thesurvival of the business and thereby preserving jobs.

29. The underlying aim of these options is to allowMember States to promote the sale of insolvent businesses as going concerns.This is in line with the rescue culture which the Government wishes topromote.

30. The benefits of exercising the first option areexpected to outweigh the relatively modest additional deadweight costs ininsolvency payments from the National Insurance Fund. The Government thereforeproposes to provide that where insolvency proceedings within the description ofthe new derogation have been opened in respect of a transferor, or anyoutstanding debts toward employees either:

fall to be metfrom the National Insurance Fund, if they are within the categories andstatutory upper limits on amounts guaranteed under the insolvency paymentsprovisions of the Employment Rights Act 1996; or

pass to thetransferee, as at present, if they are not.

31. The Government also proposes to take up the secondoption and provide that where insolvencyproceedings falling within the new derogation have been opened inrespect of a transferor, changes by reason of the transfer itself (i.e. changesfor which there is no ETO reason that would render them potentially valid inany event) may be lawfully made to the terms and conditions of employment ofaffected employees if:

they are agreedbetween either the transferor or the transferee and appropriate representativesof those employees;

they are designedto safeguard employment opportunities by ensuring the survival of theundertaking or business or part of the undertaking or business;

they are nototherwise contrary to UK law (e.g. the National Minimum Wage Act)

32. The definition of appropriate representatives usedfor these purposes would be consistent with that used for information andconsultation purposes (Regulation 10 of the current TUPE Regulations). In casesinvolving non-union representatives, in order for the agreement to be effectivein varying the contracts of employment of the individual employees represented,it would have to be in writing and the employer would have to have given theemployees in question the text of it in advance of it coming into effect, alongwith such guidance as they might reasonably require in order to fullyunderstand it fully. Representatives for the purposes of agreeing changes toterms and conditions would be given rights equivalent to those enjoyed byrepresentatives for information and consultation purposes. Those whoparticipate in the election of such representatives would also be givenequivalent rights

GMB Response

GMB believes that in principle TUPE should apply toInsolvency as employees are particularly vulnerable in this situation. Thisshould be the underlying principle in this area. The two options beingconsidered raise different issues.

a) Option One The transferors pre-transfer debts to employees

GMB believes that this is an area where a departure from thestrict requirements of TUPE can be justified to a limited extent, providedthere are adequate safeguards to prevent abuse. In general the state and thetaxpayer should not shoulder the burdenof debts that are properly those of business. However, we recognise that someassistance should be provided to encourage the recovery of insolvent businesses.In this way

Pre-transfer employee debts up to the statutory maximumpayable under the insolvency provisions of the Employment Rights Act 1996should continue to be met by the National Insurance Fund.

Pre-transfer debts in excess of the statutory maximumshould pass to the transferee to be discharged.

It may be argued that this places employees at an advantageby comparison with other creditors, but this would be consistent withsafeguarding employee rights in a transfer and with the objectives of the ARD.But there is a risk of abuse of this arrangement. Some employers may place acompany into insolvency to transfer employee debts to the National InsuranceFund, and then re-start the same business but as a different company. Stepsshould be taken to prevent this abuse.

The alternative option is to substantially increase the sumguaranteed by the National Insurance Fund in this situation. GMB is not opposedto this in principle as we believe that the current guarantee is too low. Amajor shortcoming with the current insolvency arrangements is that thecompensatory award in an unfair dismissal claim is not guaranteed. In additionunlike a protective award an award for a failure to inform or consult is notguaranteed. This creates particular difficulties where the award is madeagainst an insolvent transferor.

b) Option Two Changes to terms and conditions

GMB believes that this option raises issues of potentialabuse and should not be proceeded with.

First, the Government proposes to allow changes to terms andconditions to be agreed where insolvencyproceedings have been opened in respect of a transferor (paragraph 94 ofthe Background Paper). This is not further defined. A Company can openinsolvency proceedings e.g. by way of administration, without necessarilyhaving to prove that the Company is insolvent. This leads to the possibility ofinsolvency proceedings being opened so as to secure changes to terms andconditions which otherwise would not be lawful.

Second, the Government is proposing to extend the capacityto agree such changes to non-union employee representatives. This furtherundermines the objective of the ARD.

At the present time agreements reached between employers andtrade unions have a legal status. The terms may be incorporated into individualcontracts. Changes can be agreed at a collective level which take effectthrough the process of incorporation. Trade unions are accountable to theirmembers for any changes agreed. Any changes are also only valid if they satisfythe strict requirements of TUPE.

By contrast, agreements reached between employers andemployee representatives who are not trade unions have not traditionally had asimilar legal status. There is now precedent for this e.g. Workforce Agreementsin the Working Time Regulations. But the GMB believes it is not appropriate tomake such an extension to insolvency situations.

Trade unions are independent organisations with extensiveexperience of negotiations, with back-up for representatives in terms ofexpertise, information, and resources. Trade unions are accountable to theirmembers. But non-union employee representatives do not possess this experienceor back-up and are not accountable in the same way.

Employees will be particularly vulnerable at the time ofinsolvency, and GMB believes this proposal will undermine employee rights. Theproposed safeguard of written information will not adequately address theseissues. Such written notification should in any event be provided under Part Iof the Employment Rights Act 1996.

Paragraph 33: Hiving Down (Paragraphs 101 103 Background Paper)

33. The Government believes that in the light of case lawdevelopments, and of its proposal to take advantage of the new derogations inthe Directive, the existing provision in Regulation 4 of TUPE relating tohiving down no longer serves any useful purpose. It therefore proposes toremove that provision.

GMB response

GMB does not object to the removal of Regulation 4 providedthat the Government ensures that employees insolvency guarantee is safeguarded.

Paragraphs 34 35: Continuity of employee representation (Paragraphs 104 108 Background Paper)

34. The revised Directive contains a requirement relatingto continuity of employee representation in cases where a transferredundertaking retains its autonomy. To make explicit that UK legislation id fullyin line with this requirement, the Government proposes to provide expresslythat the effect of union recognition declarations made by the CAC under theprovisions introduced by the Employment Relations Act 1999 is appropriatelypreserved across a transfer.

35. The revised Directive also contains a new provisionrelating to continuity of employee representation in a case where a transferredundertaking does not retain its autonomy. Such a situation might arise where, forinstance, a small, independently managed business became following a transfer a department of a larger business with its own existing management structure.If the transferor and transferee had different employee representationarrangements for instance, if the transferor recognised a union but thetransferee did not there might be a period of time following the transferwhen the employees would lose their representation. The Government wouldwelcome views as to whether or not any new measures might usefully beintroduced in the UK in the light of this new provision, and if so, what formthey might take.

GMB Response

GMB welcomes the proposal to make express provision forcontinuity of employee representation in respect of CAC declarations.

With regard to Article 6(1) we believe that to comply with this continuing recognitionarrangements should be binding on the transferee unless and until such time asthe procedures in the Employment Relations Act 1999 are exhausted.

With regard to Article 5(1) we welcome provisions whichreinforce representation rights at a time when employees are particularlyvulnerable.

Paragraph 36: Information and consultation of employee representatives(Paragraphs 109 111 Background Paper)

36. The provisions on information and consultation ofemployee representatives in the revised Directive differ from those in theoriginal Directive in three relatively minor respects. The Government proposesto amend the Regulations to remove any possible doubt that they comply fullywith the Directives requirements in this regard.

GMB Response

GMB welcomes the proposal to incorporate the amendments tothe TUPE Regulations as set out in paragraph 109 of the Background Paper i.e.in respect of the timing and reasons for non-disclosure and non-consultation.

GMB also believes that the proposal in paragraph 111 of theBackground Paper should be taken up. This will place the transferor under anobligation to provide employee liability information to employeerepresentatives. This will enable the employee representatives to check theaccuracy of the information, and allow them to play a full part in theinformation process. GMB believes this is consistent with the primary objectiveof the ARD.

GMB believes that there should be a minimum period withinwhich the information should be disclosed, building on the model for collectiveredundancy consultation. We believe that the minimum period should be not lessthan 30 days before the transfer in thecase of a transfer involving up to 100 employees, and not less than 90 days inthe case of a transfer involving 100 or more employees. The longer period canbe justified as the greater volume of information disclosed will takeadditional time to absorb.

GMB believes that there are no grounds for a transferor toobject to disclosure to employee representatives on the basis of commercialsensitivity when the transferor has already disclosed similar information to aprospective transferee.

GMB has made a number of comments on in this response on the general proposal to oblige a transferorto disclose information in paragraphs 20 22 of the Consultation Document, andrepeats those comments in relation to paragraphs 36:

Clarification of the information to be disclosed isrequired

Adequate safeguards need to be in place in relation tothe use, disclosure, and retention of information in relation toconfidentiality and Data Protection

The party awarding the contract must be brought intothe obligation to provide information in respect of contracting out

A minimum time period for disclosure should apply (seeabove)

Effective sanctions should be in place to securecompliance against the transferor and the party awarding the contract toinclude power to prevent a transfer from proceeding until compliance hasoccurred.

Paragraph s 37 38 Employers liability compulsory insurance (Paragraphs112 115 Background Paper)

37. Private sector employers carrying on any business inthe UK are legally obliged to insure themselves against liabilities to employeesfor bodily injury or disease arising from their employment. It has beenestablished in case law that such liabilities automatically pass from thetransferor to the transferee in a TUPE transfer. It has also been establishedthat the benefit of the insurance cover bought by the transferor in compliancewith the legal requirements similarly passes across in a transfer, so that thetransferee is able to call on that cover to meet any such liabilities incurredwhile the business was in the hands of the transferor. The Government considersthat this position is satisfactory as far as transfers between private sectoremployers are concerned: public sector employers are generally exempted fromthe requirement to effect insurance cover and, other than in exceptional caseswhere they have insured themselves on a voluntary basis, there is no cover totransfer.

38. The Government therefore proposes to introduceprovision for the transferor and transferee to be jointly and severally liablefor liabilities to employees for injury or disease arising from theirpre-transfer employment in those cases where the transfer was a public sectoremployer exempt from the legal insurance requirement.

GMB Response

GMB believes that it is necessary to amend TUPE to make it explicitthat joint and several liability arises in both the private and public sectors.Liability should be joint and several to allow an injured employee to claimagainst either the transferor or transferee. This should still be the caseregardless of any contractual arrangements made between the transferor andtransferee. If liability is only jointthe employee will have to claim against both transferor and transferee, andthis may be difficult if the transferor is insolvent. The appropriate insuranceinformation will need to be included in the information provided by thetransferor.

Paragraphs 39 40: Territorial extent etc (Paragraphs 116 118 BackgroundPaper)

39. The Governmentproposes to

remove thecurrent limitation of rights under the TUPE Regulations to employees whoordinarily work in the UK; but

retain the effectof the current provision restricting seafarers ability to qualify to caseswhere the ship on which they are employed is registered as belonging to a portin the UK, they are ordinarily resident in the UK and the work is not whollyoutside the UK.

40. This would bring the position into line with thatunder other aspects of the employment rights legislation, in relation to whichsimilar amendments were made by the Employment Relations Act 1999. In future,whether or not an individual working outside the UK could potentially qualifyfor rights under the Regulations would depend (except in the case of seafarers)on the normal operation of international law.

GMB Response

GMB welcomes the proposal to extend the territorialjurisdiction of TUPE. In particular the GMB believes that TUPE should coverworkers who work on the Continental Shelf. Such employees may already have someprotection as a result of the Employment Protection (Offshore) Employment Order1976.

Paragraph 41: Ships

41. Regulation 2(2) excludes the transfer of a shipwithout more from the Regulations coverage.Ship has been interpreted in case law as meaning a ship and its crew.The Government considers that where there is a transfer between employers of aship and its crew as part of a business, the Regulations do in principle apply.As some uncertainty has arisen over this point, the Government proposes toamend the Regulations, to make their intended meaning clear.

GMB Response

GMB welcomes this proposal which it is hoped will addressthe issue that arose in Addison v DenholmShip Management, which held that the exclusion of seagoing vessels fromTUPE included the crews of the vessels.

Pre-Determination Procedure (paragraphs 119 123Background Paper)

GMB Response

GMB believes that the most effective way of addressing theuncertainty that surrounds the application of TUPE is by preparing a widerdefinition of when TUPE applies. In addition to this there should be afast-track system for claims relating to a failure to inform and consult priorto the transfer. This system should include a sanction which prevents the transfer from proceeding until such time as theinformation and consultation process has taken place. The present remedy of upto thirteen weeks pay for affected employees, whilst helpful, takes effect inmost cases some time after the transfer has taken place.

GMB

National Office Legal and Pensions Departments

December 2001