Navigating Employment Law: From Restrictive Covenants to TUPE Regulations

Critically evaluate the extent to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 provides effective protection for employees.

Transfer of Undertakings (Protection of Employment) Regulations 2006 (here referred to as “TUPE Regulations”) provides for reorganisation of companies, offering crucial law dissertation help. The aim of TUPE Regulations is to place the new transferee company in the same position as the transferor company. This is to protect employment rights and obligations of the employees and ensure they are passed to the transferee company. It provides for fair provisions for both the employer as well as the employees. Transfer of an undertaking takes place when there is a transfer of the organisation from one employer (outgoing employer) to the other (incoming employer). The regulations apply when there is a ‘service provision change’ or when there is a business or undertaking is transferred. TUPE Regulations implement Directive 2001/23/EC safeguards employees’ rights when such a transfer takes place. The regulations apply when there is a ‘service provision change’ or when there is a business or undertaking is transferred. With respect to ‘service provision change’, the applicability of the regulation is subjected to certain factors. A functional link between elements must be maintained to protect the transferee with the same economic activity. The regulation ensures that the client remains the same even after the transfer. Even though the regulation aims for protection of the employees, it is not clear as to how it will protect an employee who works for the holding company and the subsidiary.

Service provision change is known as “contracting out’ or ‘outsourcing’. In such change, a contractor undertakes a service contract provided earlier by another contractor. When the change involves a subsequent re-tendering of the contract to a new contractor, it becomes ‘contracting in’ or ‘insourcing’. There is a possibility of a complicated situation in case a former company loses the service contract to another competitor. This transfers the employees who are providing the service to the new company. It leads to an issue to determine in case where client intends the transferee to carry out the service for a short-term duration. In such a situation, the issue become complex to determine the applicability of TUPE Regulations vis-à-vis whether a service provision change leads to a transfer to a new contractor. Some answer may be found under Section 3(1)(b) of TUPE Regulations that provides for a service provision change: a) when a client stops activities and instead a contractor undertakes the services on behalf of the client; b) when another contractor carries them out on behalf of the client when the contractor stopped the service; c) the client carries them out activities on its own behalf when the contractor or the subsequent contractor, which is applicable here, stops the service. Further, Section 3(1)(c) states that for this Section 3(1)(b) to apply, immediately prior to the service provision change, client intends that the transferee of an organised grouping of employees carries out the service activities, with the main purpose of carrying out the activities on client’s behalf. This rule does not apply to a single specific event or task of short-term duration, These provisions could lead to problematic interpretation, is seen in Metropolitan Resources v Churchill Dulwich, when EAT suggested that for applying service provision change the services undertaken by the transferee has to be “fundamentally and essentially the same”. The issue will be in determining what is fundamentally and essentially the same, or whether this test will apply generally. TUPE will not apply in case of significantly fragmented services, where service provision change will not have taken place. This shows there is a potential of creating opportunities for service providers to avoid TUPE Regulations by restructuring and repackaging their services. Instances of fragmented services a result of a transfer were also allegedly reported, and there were cases of non-payment of redundancy payments. Protections provided under TUPE Regulations are subject to various criticisms because of their alleged “gold-plating” of EU case law, which basically requires approach oriented on fact-based detail to determine application of the regulations.

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1. Ian Smith, Aaron Baker and Owen Warnock, Smith and Wood's Employment Law (Oxford University Press 2017) 627.
2. Ian Smith, Aaron Baker and Owen Warnock, Smith and Wood's Employment Law (Oxford University Press 2017) 627.
3. Klarenberg v Ferrotron Technologies GmbH [2009] ICR 1263.
4. McCarrick v Hunter [2012] EWCA Civ 1399.
5. Sunley Turriff Holdings Ltd v Thomson (1995).
6. Ian Smith, Aaron Baker and Owen Warnock, Smith and Wood's Employment Law (Oxford University Press 2017) 627.

The UK Government, identifying the loophole, suggested that there is lack of transparency with respect to the applicability scope of economic, technical or organisational (ETO) defence of employer-company at the domestic and EU levels. Consequently, such loophole created uncertainty for employers while determining status of dismissal and contractual variations for a transfer under TUPE Regulations. Earlier, the UK Government considered repeal of TUPE Regulation, or stripping atleast the concept of “service provision change” to basic requirement laid down by the European Union's Acquired Rights Directive in respect to service outsourcing. But, instead it decided to retain the concept, with basic modification. Instances of loopholes could be found in TUPE Regulations where it provides for protection of transferred workers of their wage levels and employment terms and condition even after the transfer. But, such protection could not protect pension arrangements consequently leading to a two-tier workforce that do not provide same levels of protections to new recruits. Such disparity leads to growing wage gap and differential treatment between the permanent and other employees. The Commission on Vulnerable Employment, in a recent report, provides evidence of such disparities in respect to casual workers and second tier labour force. In such two-tier workforce two workers undertake the same job undergoing differential treatment vis-a-vis different wages, and other employment terms and conditions. Such system places permanent employees working within the realm of employment contract giving them security of work and rights, along with “vulnerable atypical workers” who fall outside employment laws and thereby deprived of employment securities. Vulnerable workers, for instance immigrant labour, are deprived of employee rights and statutory protections. Even self-employed and casual employees are deprived of basic rights such as paid sick leave. In James v Greenwich LBC, statement of Mummery LJ indicated such differential treatment and deprivation in respect to vulnerable workers. One can see obvious legal issues, including the definition around the term ‘employee’ and qualification to be termed employee from the perspective of protection of employee rights. Such disparities should be minimised and associated legal risks and issues be mitigated by legislative and judicial attempts. Attempted response of the UK parliament is to majorly focus on statutorily recognising new contract types possessing intermediate position between employment contract and services on contract. Such intermediate position could be: i) a fixed term contract, which provides employees certain statutory rights, and forms a atypical service contract; and ii) statutory worker contract and self contract, which provides employees better statutory protection than the former.


7. Metropolitan Resources v Churchill Dulwich [2009] IRLR 700.
8. Ibid.
9. Ibid.
10. David Cabrelli, Employment Law in Context: Text and Materials (Oxford University Press, 2016).
11. Ibid.
12. John Kew, John Stredwick, Business Environment: Managing in a Strategic Context(CIPD 2005)30.
13. John Kew, John Stredwick, Business Environment: Managing in a Strategic Context(CIPD 2005)30.

In Print Factory Ltd v Millam, it was ruled by the Court of Appeal that TUPE Regulations could be applied to transfer of share where the transferee company takes effectively control of the running of transferor company and as a result they could be applied to a substantial proportion of share transfer, including private equity buy-outs. As such, TUB Regulations should be amended in line with this ruling. TUPE Regulations should also apply to certain other similar transactions, such as takeovers and mergers as they could have devastating consequences on the workers. But, this is not the case. There is limited protection of employment conditions, or employees’ right to information and unions’ rights to consultation that give favourable mileage to them to put forth their negotiations in case of any changes to their employment contracts.

14. Ibid.
15. James v Greenwich LBC [2008] EWCA Civ 35, [59], [60].
16. David Cabrelli,Employment Law in Context: Text and Materials (Oxford University Press 2014).
17. Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2002/2034).
18. Robert Upex, Richard Benny, Stephen Hardy, Employment Law (Oxford University Press 2009).
19. Ibid, 108.

Cases

Clearsprings Management Ltd v Ankers and ors, UKEAT/0054/08/LA, 24 February 2009.

ICTS UK v Mahdi [2016] ICR 274.

James v Greenwich LBC [2008] EWCA Civ 35, [59], [60].

Klarenberg v Ferrotron Technologies GmbH [2009] ICR 1263.

McCarrick v Hunter [2012] EWCA Civ 1399.

Metropolitan Resources v Churchill Dulwich [2009] IRLR 700.

Sunley Turriff Holdings Ltd v Thomson (1995).

Bibliography

Books

Cabrelli D, Employment Law in Context: Text and Materials (Oxford University Press, 2016).

Kew J, Stredwick J, Business Environment: Managing in a Strategic Context (CIPD 2005).

Smith I, Baker A and Warnock O, Smith and Wood's Employment Law (Oxford University Press 2017).

Upex RV and Ryley M, TUPE: Law and Practice (Jordans Pub 2006).

Upex R, Benny R, Hardy S, Employment Law (Oxford: Oxford University Press 2009).

Journals

John McMullen,‘An analysis of the Transfer of Undertakings (Protection of Employment) regulations 2006’

(2006) 35 (2) Industrial Law Journal 113

Others

Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2002/2034).

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