Lawyers involved in tendering public contracts are having a rough few months; the procurement rules are being redrawn, a radical new Fair Deal policy has been published and the NHS has new procurement rules.
TUPE has always been a key issue in tendering public contracts. Happily then, procurement lawyers have a reprieve: the amendments to the TUPE regulations which come into force next week are underwhelming.
As with Fair Deal, noises from government and associated speculation suggested far wider reforms than have made it into the amending regulations (Collective Redundancies and the Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014). The main concern with TUPE 2006 was that it was gold-plating its parent: the Acquired Rights Directive. Specifically, the government suggested it might do away with the “service provision change” limb of TUPE under which employees working on a service can transfer to a new provider when that contract is outsourced or retendered (see Legal update, BIS calls for evidence on effectiveness of TUPE 2006). However, service provision changes remain.
So what’s changing?
In many respects the changes are small beer. For example, a new regulation 3(2A) informs us that, for service provision changes, activities before and after the transfer must be fundamentally the same. But case law has made that clear for some time (see Practice note, TUPE (2): Services provision changes; Essentially the same activities).
Similarly, the ECJ’s ruling in Parkwood (see Legal update, EU prohibits “dynamic” interpretation of TUPE with regard to collective agreements) finally settled the argument that changes to terms incorporated through a collective agreement which are made after a transfer do not apply to the transferred contracts. The revised regulation 4A codifies this ruling.
Other concerns raised by the government in its response to the consultation included the application of TUPE when services were fragmented after the transfer, and the meaning of employees being “assigned” to the group being transferred. These issues have not been clarified in the 2014 amendment regulations and recent case law will continue to be key in determining such questions (see Practice note, TUPE (2): Services provision changes; Organised grouping of employees).
But some changes will be particularly welcomed, for example, the meaning of “entailing changes in the workforce” includes a change in location. This means an employer may vary terms or make dismissals for an economic, technical or organisational (ETO) reason which entail a change in location. Previously, a change in location was not a permissible ETO reason and therefore place of work redundancy arising through TUPE was not a potentially fair ground for dismissal, though it is under normal employment law. This caused confusion when evaluating bids which proposed to operate a contracted-out service from a different location as it was unclear what liabilities would arise following the transfer and how these could be assessed and allocated.
Changing contractual terms
It will also be easier to vary contracts after a transfer. Transferees can now rely on an ETO reason even if the sole or principal reason for the change is the transfer itself. Previously, transferees could only rely on an ETO reason for changes “connected to” the transfer. This may encourage more openness around transferees’ intentions for the workforce as fear of what is and what is not permissible has often led to ambiguity about which terms will be changed and when.
Transferees can also vary terms and conditions which were incorporated in the contract from a collective agreement, as long as the change is made at least a year after the transfer and the amended contract is no less favourable overall.
What about dismissals? The same changes apply as for variations: dismissals are void if the sole or principal reason is the transfer unless there is an ETO reason entailing changes in the workforce which, as stated above, includes a change of location. Normal employment law rules apply in determining whether such dismissals are fair.
BIS guidance
Last week the government published its guidance on the new-look TUPE, explaining how its changes will make a difference (see Legal update, Revised TUPE guidance published by BIS).
The guidance is helpful both in explaining the changes but, perhaps more so, for including relevant clarifications from case law and pensions rights on transfer, including auto-enrolment.
It also provides a summary of the guidance that applies in addition to the regulations to outsourcings from the public sector, for example, the application of the Cabinet Office Statement of Practice on Staff Transfers in the Public Sector for intra-governmental transfers, and, in respect of public sector pensions, the New Fair Deal (for central government, the NHS and schools) and the Best Value Authorities Staff Transfers (Pensions) Direction 2007 (for local authorities).
Will the changes impact on the tender process?
The only major change to directly affect procurement processes is the extension of time before the transfer in which employee liability information must be provided from 14 days to 28 days. On a public sector outsourcing, this is usually facilitated by the contracting authority. This change comes into effect on 1 May 2014.
The 14-day timescale has long caused problems for transferees as they make plans to integrate a new workforce within days of the transfer.
It has also caused problems for procurement practitioners who need bidders to submit pricing which takes TUPE costs into account. While this change will be welcome, its impact will be small as few contracting authorities will relish having a debate about final pricing a month before the transfer is due to take place, as much as they would 14 days before. As it is, the requirement to supply employee liability information is between the transferor and transferee; contracting authorities must still reserve a contractual right to call for it and pass it on to bidders far earlier than 28 days before the transfer to ensure it is included in bids.