Sun, 17 Mar 2013
By Naomi Owen
Service Provision Changes – To Be or Not To Be, That is the Question
On 13 January 2013, the Government issued a new consultation addressing potential reforms to the Transfer of Undertakings (Protection of Employees) Regulations (TUPE) 2006. One of the main topics of this consultation is the future of service provision changes (“SPCs”).
The fundamental purpose of TUPE, as the name suggests, is to provide protection for employees when the business/undertaking for which they work transfers to a new employer. This objective has its roots in the EU Acquired Rights Directive (“ARD”), of which TUPE 2006 is the domestic application. It is however noteworthy that the domestic legislation regarding SPCs, found at regulation 3(1)(b) of TUPE, goes beyond the scope of the ARD’s protection. Due to the home-grown nature of these SPC provisions, concerns have been voiced that they are too bureaucratic.
Following a call for evidence in November 2011, the conclusion has been reached that changes are required in order to bring the meaning of “relevant transfer” into alignment with that set out in the ARD.
SPCs to date
Pre-TUPE 2006, the application of transfer of undertakings to SPCs was unclear, particularly in relation to so called ‘second generation’ contracting. The idea behind the changes brought in by TUPE 2006 was to provide more certainty and more protection by widening the SPC net. Regulation 3(1)(b) now provides that an SPC will arise in three situations:
1. Where the activities are outsourced to a contractor (“first generation outsourcing”);
2. Where there is a re-tender for the activities (“second generation outsourcing”);
3. Where the activities are brought in-house (“in-sourcing”).
Regulation 3(3) sets out further conditions that must be met in order for an SPC to fall within TUPE 2006.
Despite this attempt to bring clarity to the law on SPCs through TUPE 2006, the majority of responses to the call for evidence in 2011 cried out for further illumination, not least in the light of recent caselaw developments referred to in previous newsletters.
The Government’s principal recommendation was to revert back to pre-TUPE 2006 days by repealing the current SPC provisions in their entirety.
However, the Government also put forward some alternatives to this suggestion, which involve the restriction of SPCs to certain situations:
1. cover only “vulnerable” services, such as cleaning or security;
2. restrict solely to cases where services will continue to be provided at the client’s offices;
3. limit application to cases of first generation outsourcing only;
4. exclude “professional services” from the scope of SPCs.
The logic behind these alternatives is to attempt to place protection where it is really needed, and to avoid TUPE frustrating legitimate commercial objectives. For example, the drive behind a change of provider may be to obtain a new work force: under TUPE 2006, the old work force would transfer across thus negating the commercial purpose of the transfer. These alternatives are far from perfect: 1&2 provide the potential for deliberate evasion of TUPE, whilst all present the eternal difficulty of where to draw the line between cases that fall within a definition, and those that fall without (for example, what is a “professional service”?).
Currently, there appears to be no ‘magic pill’ to cure the existing uncertainties regarding SPCs and it is for this reason that the Government believes that repeal would not only simplify matters but also is consistent with its policy of reducing ‘red tape’.
However, the Government’s stance may simply have the effect of sending us back to the murky depths of pre-2006 (when the EAT described the law as “being in a mess”) and could well leave transferees, transferors and practitioners alike wondering whether the waters will ever clear.
The consultation closes 11 April 2013.
By Naomi Owen