Deborah Moon, HR consultant, provides a summary of the key aspects of some recent government publications and considers the workforce issues arising from them.

Introduction

The start of 2013 has provided no respite for busy HR professionals in seeking to keep up with the Government’s programme of employment law reform. January saw the publication of a number of documents, including those providing the Government’s response to earlier consultations, calls for evidence, and proposals on how it is intended to take forward the particular issues. Areas covered by these include further details on the introduction of settlement agreements (which will supersede the current compromise agreements), a change to the cap on the compensatory award for unfair dismissal, the introduction of a process of early consultation through the Advisory, Conciliation and Arbitration Service (Acas) as a potential means of settling employment disputes, and proposed changes to the Transfer of Undertakings (Protection of Employment Regulations) 2006 (TUPE).

All of these measures need to be seen within the context of the Government’s overall policy objectives of streamlining and simplification, the “Red Tape Challenge”, and broader programme of legislative reform. A number of other employment law changes have either already been made, eg the increase in the qualifying period for bringing a claim of unfair dismissal, or are currently in the pipeline, for example, amendments to the Equality Act, other changes to the employment tribunal system, and the introduction of fees for bringing a tribunal claim.

In addition, the proposed changes to TUPE stem, at least in part, from concerns that UK domestic legislation goes beyond the requirements of the relevant European legislation (often referred to as “gold-plating”), as well as seeking to address some of the complexities and practical difficulties arising from the Regulations, which are encountered by employers when managing business transfers. Given the growth in contracting activity, these proposals are likely to be of particular interest to employers in the public sector. Along with other organisations, they will, no doubt, be keen to assess the extent to which the proposed changes may provide additional flexibilities in relation to such issues as the post-transfer variation of contracts of employment, and harmonisation of terms and conditions.

Ending the employment relationship: Government response to consultation

The Enterprise and Regulatory Reform (ERR) Bill, currently progressing through Parliament, contains a provision to amend the Employment Rights Act 1996, so that an offer of settlement would not be admissible as evidence to an employment tribunal in any subsequent unfair dismissal claim (other than claims of automatically unfair dismissal). This effectively extends the existing “without prejudice” regime to situations where no formal dispute has yet arisen.

The consultation previously undertaken by the Government on this proposed change sets out 12 possible underpinning “principles”, and the current document summarises respondents’ views to these. The Government has confirmed that settlement agreements are intended to offer a “consensual and mutually beneficial solution” to end the employment relationship and that employees will be able to decline an offer if they want to.

There is an expectation that most employers will use settlement agreements within the context of good management (and that would generally be the expectation within the public sector, where established policies and procedures for managing employment “disputes” exist). In addition, the accompanying Statutory Code of Practice and non-statutory guidance should provide adequate clarity for employers (but without being overly prescriptive) and appropriate protections for employees. The Government intends to work with Acas to set out in this guidance how the appropriate use of settlement agreements sits within broader good management practices, and the type of good practice it is expected employers will normally follow.

Employees’ existing safeguards, including the requirement to receive independent legal advice, will continue to be upheld, and both parties will be protected against any “improper” behaviour by the other. In such instances, the rule on inadmissibility of the settlement offer will not apply.

In response to employer concerns about the potential for constructive dismissal claims as a result of offering a settlement agreement, the Government intends to clarify in the guidance that the offer would not be admissible as evidence in such cases. This means that an employee who chose to resign rather than accept a settlement offer would not be able to use that offer in an unfair dismissal claim, unless they could show the employer’s behaviour to be improper. The new legislative measure will not apply to contractual disputes, such as wrongful dismissal, so the fact that a settlement was offered would remain admissible in the wrongful dismissal part of any claim, ie a claim for payment for the employee’s notice period.

Statutory Code of Practice

This legislative change will be underpinned by a Statutory Code of Practice, which Acas will be consulting separately on, together with accompanying guidance. These are intended to give employers and employees certainty about how to approach negotiating a settlement agreement. The document summarises the range of responses to the earlier consultation on the nature and content of the Code of Practice — clearly, there is a balance to be struck between the differing views expressed, for example, between that of businesses wishing to ensure the Code is not overly prescriptive, and trade unions wishing to ensure sufficient protection is given to employees’ rights. It is intended that the Code will include template letters, although use of these will not be compulsory. Again, Acas will be consulting on these. A model settlement agreement will be included in the guidance, not the Code of Practice.

Failure to follow the Code will not, in itself, make a person or organisation liable to proceedings. However, tribunals will take the Code into account when considering relevant cases. The current uplift in awards/costs of up to 25% (where there is an unreasonable failure to follow the relevant provision in the Acas Code of Practice on Disciplinary and Grievance Procedures) will not apply in the case of settlement agreements.

The accompanying guidance will explain the process in more practical detail and consideration is given as to how this might be disseminated. Acas will have an important role here, and there will be a need to make information and any supporting tools easily and widely accessible.

The following are some of the issues intended to be covered in the guidance.

  • “Improper behaviour” and “undue pressure”.

  • What the new provision will mean in practice.

  • “Good practice” for employers, for example, using informal processes and the payment of individuals’ legal costs.

  • The relationship between settlement agreements and redundancy procedures.

  • A template agreement that can be easily updated to reflect any changes in the broader regulatory framework.

The Government has decided not to take forward a guideline settlement tariff, but will provide guidance on the factors that both parties may consider when negotiating a financial settlement.

Cap on the compensatory award for unfair dismissal

The document also summarises responses to the previous consultation on this issue, for example, in relation to creating a more realistic perception among employers and employees of tribunal awards, encouraging the earlier resolution of disputes, creating more certainty on the likely cost of disputes, and the impact of any pay cap on claimants and employers. On balance, the Government considers that the benefits and support for the introduction of a pay-based cap outweigh the possible risks and disadvantages. Subject to the Parliamentary process, the Government therefore intends to introduce a 12 months’ pay cap on the compensatory award for unfair dismissal.

However, it has decided not to make any change to the overall cap at this time and the overall limit (previously £72,300, but increased to £74,200 on 1 February) will therefore remain unchanged. This means that the limit for a successful unfair dismissal claim would be whichever is the lesser of these two amounts.

A number of commentators have predicted that this compensation cap, together with the new employment tribunal fee system, could reduce the number of claims that are made.

Next steps and implementation

Both these measures are being taken forward in the ERR Bill — it is expected that this will receive Royal Assent in the spring of this year. The measure, which makes settlement offers inadmissible in unfair dismissal cases, will not come into force until the Statutory Code of Practice is in place.

It is expected that Acas will shortly publish a draft Code for consultation. Once this is finalised, it will be laid in draft before Parliament and should come into effect around 40 days later, at the same time as the relevant measure in the Bill. It is anticipated this will be in the summer of this year.

Any offers of settlement and related negotiations which take place after the Code comes into force will be subject to the “inadmissibility provision” in the Bill. Offers of settlement and related negotiations which take place before the Code and measures in the Bill come into force, even if they take place after the Bill has received Royal Assent, will not be covered by the provision. It would seem that any party who wishes to avail itself of the new protection will need to check their dates and ensure careful timing in respect of any offers or negotiations around this time.

It is expected that the changes to the unfair dismissal compensation award will also come into effect in the summer of this year, subject to the relevant Parliamentary process.

Early Conciliation: A consultation on proposals for implementation

In November 2011, the Government announced its intention to introduce Early Conciliation (EC) as part of its overall approach to simplify and streamline the employment tribunal process. This means that there will be a requirement for most potential tribunal claims to be referred to Acas in the first instance, allowing the parties to be offered the option of resolving their dispute through conciliation before a claim is made.

The ERR Bill provides the legislative foundations for this EC process, but its implementation requires secondary legislation and the development of the necessary administrative processes. The consultation document now published indicates there has been broad support from a wide range of stakeholders for the concept of EC. It sets out how the Government intends this process should operate, provides a draft set of Rules of Procedure, and raises some other issues on which views are sought.

The requirement for prospective claimants to contact Acas before they can lodge tribunal proceedings will be mandatory, but the decision, either by claimants or respondents, to accept EC will be entirely voluntary. Clearly, resolving disputes in this way is far less costly, time-consuming and stressful, and can deliver more positive outcomes for those involved. In addition, it may lead to reduced Exchequer costs in relation to the tribunal system (although, presumably, any additional demands on the services of Acas will have increased resourcing implications). It is therefore hoped that the parties recognise these potential advantages and respond positively to the offer of conciliation. The recently published 2011 Workplace Employment Relations Study, reported an increase in the number of businesses using the services of Acas for advice on employment issues. This suggests that there is a recognition among employers of the value and importance of ensuring that workplace relations are properly managed.

The issues covered in the consultation document include the following.

  • Commencing the EC process: there will be a requirement for a prospective claimant to complete and submit a form to Acas before they can lodge their claim with a tribunal. The document considers the extent of the information which will need to be provided at this stage, in particular whether claimants should provide any information on the nature of their claim, concluding this is not necessary at this stage . A copy of the draft form is included as an Annex to the document.

  • Jurisdictions: the Government intends that, other than in very limited circumstances, all prospective claimants should have to comply with the EC requirement. Another Annex to the document sets out the jurisdictions not considered appropriate for EC, and views are invited on this.

  • Exemptions to the requirement to make an EC request, for example, prospective claimants who are part of a multiple claim, where another person in that claim has complied with the requirement, or where the prospective respondent has contacted Acas and asked them to conciliate.

  • Presenting the EC request: prospective claimants will be encouraged to submit the EC form online but hard copies will also be available. The proposed process and timescales, which will then be followed by Acas in making contact with the relevant parties, is also set out. Claimants will remain responsible for ensuring that any tribunal claim is presented within the statutory time limit.

  • The EC certificate: this will be issued to confirm that the claimant has satisfied the requirement to first contact Acas.

There will also be provision for requests for EC from prospective respondents (although the expectation is that the majority of requests will come from prospective claimants), and the proposed approach to this is also set out.

The consultation closes on 15 February 2013.

Proposed changes to the Transfer of Undertakings (Protection of Employment Regulations) 2006 (TUPE)

Over the years, the workforce implications arising from the outsourcing and in-sourcing of services and competitive tendering of contracts has probably proved to be one of the most challenging and complex areas of employment law. This has a long history in the public sector, stemming back to the days of compulsory competitive tendering (CCT) in the1980s, the “commercialisation” of services such as refuse, grounds maintenance, catering and cleaning, and, more recently, the outsourcing of “back-office” and other professional services, driven by the desire to achieve greater effectiveness and efficiency, including cost savings. The development of “shared services” across organisations, either within the public sector and/or with commercial partners, has also been an increasing phenomenon. The Government’s intentions with regard to reform of the public sector and the opening up of public services to other providers mean that the issue of TUPE is likely to be a continuing and, indeed, growing consideration.

The Regulations stem from the EU Acquired Rights Directive (the Directive), the provisions of which were originally implemented in the UK by the 1981 TUPE Regulations. These were replaced by the current 2006 Regulations, which contained a number of changes from the previous regime, including bringing “service provision changes” within the scope of TUPE. This was intended to give greater certainty in terms of the circumstances in which TUPE would apply. A significant body of case law, both at national and European level, has also built up over the years, with a number of leading cases providing further guidance on the interpretation and application of the Regulations.

Particular considerations have also applied within the public sector. Under the Cabinet Office Statement of Practice, Staff Transfers in the Public Sector and the accompanying annex A Fair Deal for Staff Pensions, there was an expectation that TUPE principles would normally apply to transfers within, to and from, the public sector, even if the Regulations did not apply in strictly legal terms. In addition, the Code of Practice on Workforce Matters in Local Authority Contracts (commonly referred to as the “two-tier code”), provided that the respective parties should proceed on the basis that TUPE applied, and that new employees recruited after the transfer by the successful contractor to work alongside the original transferring public sector employees should be employed on terms and conditions which were, overall, no less favourable (a similar Code applied to central government). However, in March 2011 the Government withdrew this Code with immediate effect (this followed the earlier withdrawal of the central government Code), although this did not apply retrospectively. The withdrawal of the Code did not affect the overall applicability of TUPE and the Cabinet Office Statement of Practice has continued to apply, meaning that most public service outsourcing/contracting processes continue to be managed in accordance with the provisions of the Regulations.

The Regulations are often cited by the Government as a prime example of the so-called “gold-plating” of European legislation, in that the domestic provisions go beyond that required by the Directive, eg in relation to the “service-provision” aspect. For some time now, the Government has signalled its intention to make changes to them. Following a Call for Evidence which concluded in 2012, the Government is now proposing a number of changes, which it believes will improve and simplify the position for all parties. It has issued a consultation document summarising the responses to the Call for Evidence and setting out the proposed changes, together with a number of other related issues on which it is seeking comments and views.

The document provides an overview of TUPE and the current legislative framework, its principal purpose and the circumstances in which it may apply, as well as the number of TUPE transfers and staff affected by them each year. It indicates that TUPE is generally considered complex and that a number of practical difficulties have been identified by businesses, for example, in relation to achieving efficiencies from outsourcing, harmonising terms and conditions and use of the Economic, Organisational and Technical (ETO) reasons provision in relation to dismissals. Other areas of concern include uncertainties around service contract “fragmentation” and determining whether/which employees are “assigned” to a particular service and should/should not transfer. However, views from the trade unions on the current legislation were generally more positive.

It sets out the main considerations the Government has taken into account in deciding whether to reform TUPE, wishing to ensure that the Regulations properly implement the Directive, but without unnecessary “gold-plating” and balancing the interests of small and large businesses. It also confirms that there are some aspects of the Regulations where the Government believes no action is required, eg provisions relating to insolvency, the interaction with the Agency Workers Regulations, awareness of liabilities, and liability for pre-transfer employment obligations.

The following summarises the main aspects of the proposed changes on which the Government is now consulting.

Service provision changes (SPC)

The document summarises the circumstances in which an SPC may occur, including the position both under the Directive and the 2006 Regulations (although, it notes that the position under the Directive is now more settled since the judgment of the European Court of Justice (ECJ) in the Suzen case, which set out the principles for determining whether a SPC is covered by it). It goes on to consider the difficulties and problems identified by respondents regarding the 2006 Regulations, concluding that it is not clear that the intended benefits of the changes made by them have been realised. In the light of this, the perceived “anti-competitive” effects of efforts to avoid TUPE in this context, and its wish to remove unnecessary “gold-plating”, the Government confirms its proposals to reverse the 2006 amendments relating to SPCs and align the definition of a transfer with that of the Directive. In addition, the Government is seeking views on whether any provisions of the earlier case law on the 1981 Regulations should be reversed if the repeal of the SPC provision proceeds.

With regard to the timing of this proposed change, given existing contractual arrangements/commitments and the potential overall length of the outsourcing process, the Government recognises the importance of a lead-in period prior to any repeal or other change taking effect, enabling service providers and recipients to plan accordingly. It asks for views on a number of issues, including how long any lead-in period should be before any changes take effect, with options of between less than one year and five years or more.

The provision of employee liability information

The current Regulations provide that certain information must be provided by the transferor to the transferee and by when. A number of practical difficulties with this were identified by respondents and, having considered these, the Government believes there is a case for “de-regulatory alternatives”, leaving the exchange of information to be resolved between the parties. This would be in combination with guidance and model terms for contracts, but could also be supported by an amendment to the relevant regulation to make clear that the transferor should disclose information to the transferee, where that is necessary for both parties to perform their duties regarding information and consultation. The Government believes that, in most business transfers, there is usually co-operation between the parties, thus questioning the need for prescription on this issue.

Restrictions on changes to terms and conditions

One of the key concerns (and frustrations) for employers is the restrictions the Regulations place on them with regard to making post-transfer changes to terms and conditions, and there have been a number of cases which have examined this issue. Terms and conditions cannot be varied, even if both parties agree to this, if those variations are connected with the transfer, unless they are due to an ETO reason entailing changes in the workforce, ie a change in workforce numbers or functions.

The majority of respondents confirmed that the lack of provision for post-transfer harmonisation was a significant burden (although the trade unions tended to disagree), with the tendency for transfers to lead to “two-tier” workforces also alluded to.

While appreciating this is a significant problem, the Government has concluded that there is a high risk that any provision allowing parties to agree to variations in terms and conditions for the purposes of harmonisation would be incompatible with the Directive (although it indicates that it will keep this issue under review and still “tackle it” should the opportunity to do so arise).

The Government has therefore considered whether there are other amendments that could be made. It sets out potential amendments to the wording of the relevant regulation (Regulation 4) to more closely reflect the wording of the Directive and EU case law. Changes by reason of the transfer itself would still be prohibited, but the parties would be able to agree any change that they could have agreed had there not been a transfer. The parties could still agree a variation for an ETO reason (see below). The document notes that, if this proposal were to be implemented, the new provisions would have to be interpreted in line with EU case law.

TUPE and collective agreements

In its call for evidence, the Government asked whether it should limit the length of time that a transferee must honour the terms and conditions agreed as part of a collective agreement (such as that through the National Joint Council (NJC) for Local Government Services) made prior to the transfer. (The Directive does provide some limits on this requirement. It also gives Member States scope to limit the period for observing terms and conditions in a collective agreement, provided that is not less than one year, but TUPE does not contain any such limit.)

As with other areas of TUPE, this is an issue which has been considered by the courts on a number of occasions, in particular whether the requirement should be given a “dynamic” interpretation (where employees are entitled to the benefit of future collective agreements relating to their original employer), or a “static” one (where employees are only entitled to the terms of the collective agreement(s) applicable at the time of transfer). This is the issue which arose in the case of Parkwood Leisure v Alemo-Herron, upon which judgment by the ECJ is currently awaited. (This case involves an employee who worked for the London Borough of Lewisham and who transferred to a private contractor. Following the transfer, a revised rate of pay was agreed by the NJC, but the contractor refused to pay this. The Court of Appeal held that the new employer was not bound by the increase as it had been negotiated after the relevant transfer. The Supreme Court has referred the issue to the ECJ.)

The Government considers that a static approach should apply and is considering limiting the future applicability of terms and conditions derived from collective agreements to one year from the transfer. After that point, variations to those terms and conditions, where the reason was the transfer, would be possible provided that, overall, the change was no less favourable to the employee. However, it also indicates that this matter may be deferred until the outcome of the Parkwood Leisure case is known.

Protection against dismissal

The Government is also proposing to amend the wording of Regulation 7 (dismissal of an employee because of a relevant transfer) for similar reasons to those relating to terms and conditions changes, ie that the wording in TUPE takes a wider approach than that provided for in the Directive. This would mean that dismissals that are only “connected” to a transfer, and not by reason of the transfer itself, may not be automatically unfair. (Although how this difference would play out in practice is unclear.)

Substantial change in working conditions

Currently, where a relevant transfer involves, or would involve, a substantial change in working conditions to the material detriment of the employee whose contract is, or would be, transferred, the employee may regard the contract as terminated and is treated as having been dismissed by the employer. The document considers the problems which can arise from the current wording. The Government therefore proposes to narrow the scope of this provision so that it reflects more closely the wording of the Directive.

Economic, Technical or Organisational reason entailing changes in the workforce

Currently, the Regulations provide for an exception to the restrictions on dismissals, and changes to terms and conditions for an ETO reason entailing changes in the workforce. A substantial body of case law has built up, in particular regarding the meaning of “entailing changes in the workforce”. As indicated previously, interpretation by the courts has generally confined this to changes in the numbers employed or changes in the functions performed. The document considers the effect of this in relation to changes in workplace location, particularly in comparison with the definition of redundancy in the Employment Rights Act. This can be a particular problem in outsourcing situations where a change in workplace location is likely to occur and where there may be no easy, or practical, way of overcoming this. The Government is therefore considering amending TUPE so that a change in workplace location would come within the meaning of “entailing changes in the workforce”. In these circumstances, the usual protections against unfair dismissal would still apply.

Consultation on collective redundancies

The document considers the situation which may arise where the new employer (the transferee) is proposing to make post-transfer redundancies (a potentially legitimate ETO dismissal) and the interaction between the collective redundancy rules, and TUPE information and consultation requirements. It considers the practical difficulties which can arise from this, including the somewhat uncertain position of the transferee who is not yet the actual employer of the affected staff. It indicates that a number of respondents, including the Local Government Association, have highlighted this as a problem.

The Government is therefore proposing to amend the Regulations, which would allow consultations by the transferee on collective redundancies with staff who are due to transfer, to count for the purposes of the statutory obligation to consult on such proposals.

Pensions

TUPE does not generally cover pensions but the document indicates that many respondents to the Call for Evidence raised concerns about their treatment when a business transfer occurs. It also goes on to consider the position of workers in the public sector, in particular, the application of the Fair Deal policy. This requires that, where staff are compulsorily transferred out of the public sector to an external provider, the new employer must provide a broadly comparable pension. Accrued pension rights are also protected.

In 2011, following the Interim Report of the Independent Public Service Pensions Commission, which found that pension structures, combined with Fair Deal requirements, were a barrier to the plurality of public service provision, the Government launched a consultation on a review of the Fair Deal policy. This took place, of course, at a time of broader public service pension reform. The Government has subsequently confirmed that the overall approach to the Fair Deal would be retained, but in future this should be delivered by offering access to public service pension schemes for compulsorily transferred staff. It has published a response to the consultation on the Fair Deal policy, together with draft guidance on how this new approach will work, along with some further consultation questions. Responses to this are required by 11 February 2013.

Responses to the consultation on the proposed TUPE changes are required by 11 April 2013.

Assessing the practical impact

Employers, including those in the public sector, will no doubt welcome the provisions regarding settlement agreements and the facility for early conciliation through Acas, as measures intended to provide a more consensual and positive route for ending the employment relationship, thereby avoiding costly and time-consuming litigation (although, of course, any monetary offer of settlement within the public sector will need to be appropriately justified and capable of satisfying the appropriate audit/regulatory tests).

The change to the cap in unfair dismissal compensation may have more limited practical effect, particularly as statistics show that very few awards approach the current maximum level, with the median award standing at less than £5000.

The proposed TUPE changes are, perhaps, less radical than might have been expected, given the stance initially taken by the Government on this issue. There is clearly a desire to address a number of perceived “problem areas” and simplify the current legislative provisions, but also an acknowledgment of the constraints the Government is working within, with limited “room for manoeuvre” on certain issues, eg the post-transfer harmonisation of terms and conditions. The repeal of the service provision change would appear to signal a return to the pre-2006 position, with the question of whether or not TUPE applies to a particular transfer, being a question for consideration against the various case law tests/factors. It is to be hoped that this does not bring with it further uncertainties and create a field day for the lawyers. In this context, a reiteration by the Government that it still expects the Cabinet Office Statement of Practice, Staff Transfers in the Public Sector (and the accompanying annex A Fair Deal for Staff Pensions) to apply (if that is indeed the case) might be helpful to public sector employers.

The inclusion of a change in workplace location within the scope of the ETO exception will, no doubt, be welcomed as an additional flexibility by employers, along with the proposed changes to the information and consultation requirements.

Ultimately, of course, it will be the practical application of the revised provisions and their effect on the management of employment disputes and of business/service transfers which will demonstrate whether or not the desired improvements have been achieved.

References

  • Ending the Employment Relationship: Government Response to Consultation

  • Early Conciliation: A Consultation on Proposals for Implementation

  • Transfer of Undertakings (Protection of Employment Regulations) 2006 (TUPE) Consultation on Proposed Changes to the Regulations

All the above documents are available on the Department for Business Innovation and Skills website at www.gov.uk.

HM Treasury Consultation on the Fair Deal Policy: Response to the Consultation is available at www.hm-treasury.gov.uk.

Author

Deborah Moon is a Consultant in Human Resources and is a regular contributor to Croner-i HR for Local Government. Croner-i HR for Local Government is an on-line employment law and practice reference source designed specifically for HR managers and their teams in local government.

Last reviewed 6 February 2013