Reform of TUPE 2006: What Insolvency Practitioners Need to Know

If there is a relevant transfer of any undertaking (or part of one), the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) affords employees a considerable amount of protection on a sale of a business in respect of which they are employed including on the sale of an insolvent business.

The effect of TUPE can therefore have a huge bearing on the price that a buyer might be willing to pay for the business and assets of an insolvent company.  This particularly applies when the buyer wants to make changes to the workforce e.g. in terms of the size of the workforce through dismissals and/or in terms of varying employees’ contracts of employment.

Changes were made to TUPE, which came into effect on 31 January 2014, subject to transitional and saving provisions. The most significant changes for insolvency practitioners to note are:

1. Micro-businesses (with less than 10 employees) will (from 31 July 2014) be allowed to inform and consult with their employees directly where there is no recognised independent union or existing appropriate representatives. This will remove the need for an election process.
2. In the case of larger businesses, some assistance may be gained from the changes introduced to allow pre-transfer consultation to be taken into account.  This is for the purposes of complying with the collective redundancy rules provided the transferor and the transferee agree and the transferee still carries out meaningful consultation. This means that the insolvency practitioner can work with a buyer to start the collective consultation pre-transfer.
3. Whilst dismissals in connection with the transfer will remain an automatically unfair dismissal unless there is an economic, technical or organisational reason (ETO reason) entailing changes in the workforce, the ETO reason is extended to expressly include changes in location thereby preventing genuine place of work redundancies from being automatically unfair.
4. Although any purported variation to a transferring employee’s contract (that is not a permitted variation under the insolvency provisions of TUPE) will still be void, if the “sole” or “principal” reason for the variation is the transfer, contractual variations will be permitted if the sole or principal reason for the variation is an ETO reason. As long as the employer and employee agree that variation or where the terms of the contract permit such a variation.
5. With effect from 1 May 2014, employee liability information will need to be provided by the transferor to the transferee 28 days rather than 14 days before the transfer. It is therefore especially important that this requirement on the transferor’s part is expressly disapplied in any sale contract and that indemnities are sought from the buyer in respect of any breach of this requirement.  This means that it is even less likely that an office holder will be able to comply with the requirements.
6. There will be a static approach to the transfer of terms derived from collective agreements.  In addition, the buyer will be able to make changes to terms derived from collective agreements one year after the transfer as long as the changes overall are not less favourable to the employees.  This should give buyers a level of certainty.

Many of the changes made to TUPE are technical and will mostly impact on the buyer rather than the Insolvency Practitioner. The changes do not radically alter the position but to the extent that changes have been made, existing case law is unlikely to be of much help in interpreting the ‘new’ provisions which are untested. The application by the courts therefore remains to be seen. Caution should therefore be exercised and appropriate advice taken.

For more information, help or advice please contact Kelly Jordan in our Restructuring and Insolvency Team on 0191 211 7899.