TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) is a complicated set of rules that protect employees' rights during and after transfers of their employment.
TUPE applies to transfers of businesses and to changes in service providers (such as outsourcing to a contractor or a change of contractor). The case we shall be looking at this week concerns a service provision change and so we will refer to the firms involved as the ‘old provider’ and the ‘new provider’ but the principles also apply when you’ve got a seller and buyer of a business.
A brief summary of TUPE
To recap, when the conditions for TUPE apply, it operates automatically to transfer employment contracts. Employees with over two years’ service who are not taken on and anyone dismissed for a reason connected to the transfer can claim automatic unfair dismissal against the new provider (although staff can be fairly dismissed after a transfer for reasons similar to redundancy).
The one exception to the principle of automatic transfer is where an employee says they object to being transferred. If that happens their contract doesn’t transfer to the new provider and they have no dismissal rights against the old provider. But there is an exception to this exception, which we need to explore briefly before introducing the case of London United Busways.
The basic rule is that the new provider is not allowed to change terms and conditions that are to the employees’ detriment, even with their agreement. But quite often a new provider operates out of a different location which can, though not always, involve a change in terms and conditions. TUPE deals with this problem by saying that this is one change that can be agreed between employer and employee.
But that’s not the end of the story. Suddenly having to work after a transfer in a completely different location often means that an employee would have a longer commute or difficulties with school runs and so on. In TUPE terms, this is an example of a ‘substantial change to the working conditions to the material detriment of an [employee]’, a concept wider than a contractual breach. This is important because, whether or not a change in work location involves a change to contracts, an employee can resign and claim unfair dismissal against whoever was employing them at the time - which would be automatically unfair if it is connected with a TUPE-transfer.
The effect of this has been seen in a recent decision by the Employment Appeal Tribunal.
Recent case: London United Busways v De Marchi and Abellio London
In this case, Transport for London re-tendered a bus contract that was operated by London United Busways Ltd. The contract was won by Abellio London Ltd. Mr De Marchi was a bus driver employed by London United and drove the Route 27 bus out of a garage which was a 15-minute walk from his home. Abellio said they would be operating Route 27 out of a garage over an hour away from his home so Mr De Marche said that he did not want to transfer to them. He asked London United for voluntary redundancy but was not offered it. London United changed their position several times, first saying that he was effectively resigning and then that his contract was transferring to Abellio. Abellio said it didn’t transfer because of Mr De Marchi’s objection to the transfer and he agreed.
So did the Employment Appeal Tribunal, which held that Mr De Marchi did object so his employment didn’t transfer and that he had done so because he anticipated a material change to his detriment. So his dismissal rights were restored - but not against Abellio, who would have required him to make a longer commute every day, but against London United, whose depot was only 15 minutes away and who, unfortunately for them, lost a contract to a rival bus company.
What this means for employers
This decision is broadly in line with how the law has been interpreted for years but it highlights starkly what some will see as one perverse effect of TUPE.
In a business transfer situation, a seller and buyer can seek to manage the risks of employees objecting and making claims by negotiating indemnities to de-risk the transaction.
With service provision changes, that is much harder. London United Busways reminds us that a contractor can innocently lose a contract, perhaps by being undercut by a rival but, because that rival intends to introduce detrimental changes, the original contractor can be taken to tribunal for unfair and wrongful dismissal - provided only that the employee objects to the transfer before it happens. In those circumstances, the only realistic option is to attempt a settlement.
Managing TUPE risks
TUPE imposes significant risks and obligations on firms undergoing business transfers or where they are service providers to others. Employers should carefully manage these duties to minimise legal risks, operational disruption, and potential liabilities.
How 3CS can help
At 3CS, our experienced employment law team provides expert guidance, ensuring compliance and supporting your business through transactions.
