The International Experience - Transfer of Undertakings (protection of employment) Regulations (TUPE)
Description
The European Commission's Acquired Rights Directive 77/187 (ARD) protects the rights of employees in the event of a relevant transfer of an undertaking to a new employer. The Directive is certainly acknowledged by member countries although it seems that the vigour of promotion and the extent of monitoring compliance is variable.
The Directive was put into effect in the UK in 1981 through the Transfer of Undertakings Regulations (TUPE). Decisions from the European Court of Justice forced the widening of the interpretation of the Directive in the UK.
Over the years there has been extensive debate and confusion over the application of TUPE in tendering. Escott and Whitfield reported in 1995 that the government sought to minimise the application in local government tendering, although it appeared to more readily accept that TUPE applies in market testing in the civil service. Loopholes in the original TUPE regulations have been addressed over years - specifically the application of TUPE to labour intensive service contract and the transferability of pensions.
It appears that TUPE was relatively 'dormant' in the UK until the early 1990s when the unions 'discovered' it as a useful tool when negotiating staff conditions on transfer from being employees of local authorities to the employees of the successful contractor.[24]
This interest in TUPE arose because of concern about the development of a 'two tier workforce' as an outcome of competitive tendering.
Compulsory Competitive Tendering (CCT) was first introduced as part of the Local Government Planning and Land Act 1980. This required authorities to tender an increasing proportion of building repair and maintenance and highway work. By 1992, the requirement for competition was considerably extended. Building cleaning and catering were the two female dominated work areas most affected. UK[25], Canadian[26] and Australian [27]studies have documented significant negative impacts on pay and working conditions of women as well as impacts on service delivery.
Northern Ireland research[28] examined 20 contracts for health and education services. It found that that competitive tendering had an adverse impact on female employment. This was due to two factors. First, the majority of the services selected for tendering were female dominated. Secondly, there was a gender differential in the reduction of employment, hours of work and wages brought about by the process. Competitive tendering resulted in a higher rate of job loss, a greater reduction in working hours and a larger decrease in wages for women than men.
Overall it appears that the competitive tendering process in the UK and Canada, particularly when it led to the awarding of contracts to private companies, resulted in less access to both statutory and contractual benefits.
There have been two significant recent amendments to the TUPE regulations - after a very long consultation process. These are the development of a clearer definition of a relevant transfer (i.e. when TUPE applies) and changes to the rules around the transfer of pension rights . These were implemented in 2005.
'Relevant transfer' applies when the following two questions are answered in the affirmative:
- Is there a 'stable economic entity' that is capable of being transferred?
- Will the economic entity retain its identity after the transfer in question?
TUPE applies to (amongst other situations) contracting out of services and changing contractors. The law on relevant transfers in the case of contracting out and changes of contractors for labour intensive activities such as cleaning, catering and security has given rise to much confusion. The amendments of April 2006 clarify this and confirm that TUPE does apply in these situations.
When a TUPE transfer applies:
- All terms and conditions of work and continuity of employment
should be preserved.
The transferor has a responsibility to conduct a full and meaningful consultation of staff at the earliest practicable time. Failure to do so results in liability for the payment of compensation by the transferor, which may be up to 13 weeks pay.
- The transferee takes over all the liability for all statutory rights, claims and liabilities arising from the contract of employment.
The new regulations do not allow changes to contracts for 'a reason connected with the transfer' unless this is for an 'economic, technical or organisational reason entailing changes to the workforce'. The phrase 'connected with the transfer' captures many more situations than the one it replaces, 'by reason of the transfer'.
The Agenda for Change programme in the UK Health Sector resulted in new pay scales and relativities between health occupations. Health authorities were partially funded by the government to meet the extra costs of the pay rises. However a similar commitment was not made when pay and relativities were reviewed in local authorities, resulting in reluctance by some authorities to embrace the new pay process and outcomes.[29]
UK commentators suggest that when authorities are not funded for an increased wage bill and have to make economic trade offs then fair pay is unlikely to be the winner and low bidding contractors will seem attractive.[30]
Pensions/superannuation
From April 2005 the TUPE regulations also apply to pension rights. This means that if the previous employer provided a pension scheme then the new employer has to provide some form of pension arrangement for for employees who were eligible for, or members of the old employer's scheme. It does not have to be the same as the arrangement provided by the previous employer but will have to be of a certain minimum standard specified under the Pension Act 2004.
Not everyone has been happy with the TUPE amendments. For example, 'The new Transfer of Undertaking ...Regulations will significantly strengthen the rights of staff involved in a transfer and will be a bitter blow to employers, lawyer's warned'. [31]
Impact
Where TUPE has been applied it has provided continuity (although not improvement) for pay and working conditions. The recent amendments have strengthened its impact.
However, TUPE does not apply to contracting situations where there is no transfer of the function or the staff.
Possible relevance to New Zealand
The Employment Relations Act provides employment protection for employees if their job is affected by the sale or transfer of their employer's business or if their work is contracted out. However, currently some people in precarious work are not protected.
On 1 December 2004, a new Part 6A Employment Relations Act 2000 came into effect. Subpart 1 of Part 6A was designed to protect a listed group of 'vulnerable workers' (including cleaners, food catering workers, laundry workers and caretakers) in "restructuring" situations. Restructuring situations included contracting out, contracting in, sales and successive contracting. Subpart 2 of Part 6A covered all other non-vulnerable workers and simply required provisions dealing with restructuring situations to be agreed in employment agreements.
The provisions of subpart 1 required any incoming employer to employ those workers who wished to transfer their employment to the incoming employer, and to employ them on their existing terms and conditions, including recognising their previous service.
However, in early 2005 a successive contracting situation occurred when Dunedin Association changed the cleaning contract company from Southern Cleaning to Crest Commercial Cleaning. Crest refused to employ the cleaners employed by Southern Cleaning to clean the kindergartens on the grounds that the legislation did not cover successive contracting situations.
In a decision of the Full Court of the Employment Court, dated 18 July 2005, (Gibbs & Others v Crest Commercial Cleaning Ltd, CC 10/05) the Court held that the definition of restructuring in the Act did not cover successive contracting situations. Therefore, there was no obligation on Crest to employ any of the cleaners.
The Court stated (para 75) - "The extent to which a court can divine and apply Parliament's true intended meaning to ill-expressed legislation is at the heart of the case." Essentially, the Court accepted that it was the intention of the proponents/drafters of the Bill as introduced into Parliament to cover succession to contracting, but that continued intention could not be sufficiently ascertained following its exit from the Select Committee process, as changes had been made to the definition of restructuring at that stage of the process.
As of 18 July 2005 the situation reverted to the pre-1 December 2004 status. In other words, there was and remains, currently, no legislative protections for these vulnerable workers in change of contract situations.
At present, the government is working on introducing a Bill to protect these vulnerable workers.
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[24] Personal communication with Dexter Whitfield of Centre for Public Services, UK.
[25] Escott, Karen & Whitfield, Dexter. (1995). The Gender Impact of CCT in Local Government. Centre for Public Services, for the Equal Opportunities Commission.
[26] Armstrong, Pat., Amaratunga, Carol., Bernier, Jocelyne., Grant, Karen., Pederson, Ann & Willson, Kay. (2001). Exposing Privatization – Women and Health Care Reform in Canada. Ontario, Canada.
[27] Frazer, Lyn. (1997). Impact of Contracting Out on Female NESB Workers: Case Study of the NSW Government Cleaning Service. Ethnic Communities Council of NSW Inc.
[28] Northern Ireland Equal Opportunities Commission. (1996). Report on Formal Investigation into Competitive Tendering in Health and Education Services in Northern Ireland.
[29] Personal communication from Sue Hastings, Pay Equity Consultant/Expert, UK.
[30] Personal communication from Dexter Whitfield, Centre for Public Services; and Escott, Karen & Whitfield, Dexter. (2002). Promoting Gender Equity in the Public Sector. Centre for Public Services.
[31] Thomas, Dan. (21 February, 2006). Updated TUPE Puts Employers in Contractual Straightjacket. Personnel Today.
