This article was first published by Law360 in July 2024.
In May 2023, as part of its promise to cut red tape and introduce regulatory reforms to help businesses, the then-Conservative government released the paper “Smarter regulation to grow the economy,” which proposed a number of reforms on issues, such as holiday pay, informing and consulting obligations for certain transfers under Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE, and noncompete clauses[1].
By way of a brief background, TUPE implements the European Union’s Acquired Rights Directive and protects employees’ employment rights when the business they are employed by changes ownership or there is a change in service provider in relation to the services that they provide, known as a business transfer and service provision change, respectively.
The incoming and outgoing employers in the business transfer or service provision change must comply with the requirements set out in TUPE in relation to the transfer, and the affected employees are entitled to additional protection.
One of the changes to come out of the “Smarter regulation” paper was a change to TUPE, so that, for transfers on or after July 1, 2024, employers will — provided that there are no existing employee representatives in place, and the employer has not invited any of the affected employees to elect employee representatives — be able to inform and, if necessary, consult directly with employees in situations where (1) the employer has fewer than 50 employees, or (2) for employers of any size, the transfer involves fewer than 10 employees[2].This has largely been seen as a welcome change, and will simplify the process for many businesses.
Continuing this trend, the then-Conservative government launched another consultation in May that proposed clarifications on the scope of TUPE, as well as abolished the legal framework for European Works Councils, which are bodies of employee representatives in European multinational companies[3]. In this article, we will focus on the TUPE part of the consultation and explore the potential practical implications.
On this point, it’s worth noting that the consultation ended on July 11. However, well in advance of that date, the Conservative government announced a general election would take place on July 4. Given the election result and the fact that a Labour government is now in power, this casts significant doubt on whether any of these reforms will be pursued. Labour has promised other drastic changes to employment law, which include significantly strengthening workers’ rights, and pledged in July to introduce legislation within 100 days of it entering government, so it is likely its priorities lie elsewhere.
Under Regulation 4(1) of TUPE, workers employed by the transferor immediately before the transfer and assigned to the organized grouping of resources or employees that is subject to the relevant transfer will automatically transfer to the transferee[4].
The definition of an “employee” under Regulation 2(1) of TUPE is wider than the definition in the Employment Rights Act 1996 and covers any individual who works for another person whether under a contract of service or apprenticeship or otherwise, but it does not include anyone who provides services under a contract for services[5]. It is therefore obvious that it covers employees and excludes self-employed individuals, but the wording “or otherwise” causes ambiguity, as it is not clear what kind of arrangements are covered.
It had generally been the accepted position that the automatic transfer principle applied to employees only and not workers. However, in Dewhurst v. Revisecatch Ltd. (t/a Ecourier) in 2019, an employment tribunal found that workers who satisfy the “limb (b)” definition in Section 230(3)(b) of the Employment Rights Act could also fall within the scope of TUPE[6].
Under Section 230(3) of the Employment Rights Act, a “worker” is an individual who has entered into or works under (1) a contract of employment, or (2) any other contract whereby the individual undertakes to perform personally any work or services for another party to the contract, whose status is not a client or customer of the individual providing the services[7].
Individuals who do not satisfy the employee test under Section 230(3)(a), but satisfy the requirements of Section 230(3)(b), are often referred to as “limb (b) workers.” It is this decision that prompted the Conservative government to propose amending the definition of employee to clarify that limb (b) workers are not protected.
Although the proposed definition change would be a welcome clarification, there is little evidence to suggest this causes a major issue in practice. Even in the statistics set out within the consultation paper, as of 2019, limb (b) workers only represented approximately 2.6% of the U.K. working population, and only a very small share of these would ever be involved in a TUPE transfer[8].
Further, it is unlikely that many organizations have actually followed Dewhurst in practice. The decision is not binding, and while it does create uncertainty, simply proceeding on the basis that workers are included in TUPE by relying on a first-instance decision — without any appellate authority on the issue — is a big step to take. That being said, proceeding to ignore workers for TUPE purposes is not without risk.
For employers, the biggest risk relates to their informing and consulting obligations under TUPE. If workers fall within the scope, employers will need to ensure that there are arrangements to take account of those workers in terms of electing appropriate representatives, if relevant, and provide the statutory information to them or their representatives, and consult where measures are proposed.
Transferors would also need to include workers’ information within their employee liability information to be provided to the transferee. Satisfying these obligations may not always be straightforward if a worker has ad hoc hours or otherwise works flexibly.
Based on the law at the moment, the proposals would offer welcome clarification and revert to the status quo. That being said, this may be a moot point if a Labour government removes the three-tier employment status, as promised.
If all but the genuinely self-employed will be classed as workers, then there will be no need to distinguish between a “worker” and an “employee” for TUPE purposes, and all workers will fall within scope. This is likely to come with additional costs for businesses involved in TUPE transfers, and may lead to further arguments about employment status, as well as arguments as to whether those workers satisfy other elements of the definition under TUPE — such as being employed immediately before the transfer — depending on their working arrangements.
In ISS Facility Services v. Govaerts in 2020, the European Court of Justice held that it is possible for an employee’s full-time employment contract to be split into two or more parts and transferred to two or more different employers after a transfer[9]. Prior to this decision, it had not been possible for employment contracts to be split across multiple employers, and the employee had to transfer to one transferee in full, usually to the transferee that was taking over most of the transferring services.
Splitting contracts in this way can be challenging for both employers and employees to manage. It is often impractical and can cause operational difficulties, sometimes resulting in a detrimental impact on employees’ terms and conditions, e.g., traveling between sites, managing leave entitlement or requests, etc. The consultation therefore proposes amending TUPE to clarify that an employment contract can only transfer to one employer and cannot be split.
Instead, the consultation suggests that employers taking over the transferring service or business must agree which one of them is responsible for each employee’s contract. This assessment will need to be done on an individual basis with an assessment made in relation to each affected employee, rather than taking a blanket approach.
Relying on the incoming prospective employers to agree which of them takes which employees is unrealistic. It is not clear what will happen if an agreement cannot be reached, and this could potentially lead to increased uncertainty for employees. What happens to an employee’s job if neither employer agrees to take them on? Without a mechanism in place to determine to which employer each employee transfers, it is likely to lead to increased litigation and may put employees in a worse position.
If employers do indeed agree which of them is responsible for each employee, this is likely to have a positive impact on employees. However, it may come with additional costs to the employer who is required to take on the full cost of the employee, but not all of their work.
For the other employer, while it may result in reduced costs due to no employment liabilities transferring, it also means it does not have the employee there to carry out the role and may therefore need to reorganize or recruit.
For the employer who takes on the full cost of the employee but only part of their work, it seems likely that there would need to be a change in terms and conditions, or potentially a redundancy situation. Unless an employer can show the contractual variation or redundancy dismissal is for an economical, technical or organizational reason entailing changes in the workforce, any changes or redundancies are going to be difficult to make.
Although the clarification that an employment contract cannot be split is welcomed, there must be an effective mechanism in place to determine liability if the prospective employers cannot agree which of them is responsible for each employee. The consultation does refer to its potential equalities impact and that certain groups with protected characteristics may be adversely affected by the proposals. In any event, given the election result, we will need to wait and see whether the proposals will be implemented, amended or shelved.
Although the proposed changes to TUPE would clarify employers’ obligations and would generally be welcome — subject to a mechanism being introduced to resolve any disagreements regarding split transfers — in practice, split transfers and arguments over the transfer of limb (b) workers are not overly common.
In light of the election result, it seems unlikely that these changes will be implemented. While changes to TUPE may be on the horizon — Labour’s “Plan to Make Work Pay” states that it will “strengthen the existing set of rights and protections for workers subject to TUPE processes”[10]— it is not clear what this will look like in practice.
However, if and when Labour transitions to a two-tier employment status, this will likely mean that TUPE will apply to all workers, and, therefore, any argument about excluding limb (b) workers becomes redundant. This could increase costs for businesses, and it will mean that due diligence, informing and consulting obligations, and the provision of employee liability information, will need to include all workers, and warranties or indemnities may need to be extended.
There’s likely to be increased focus on the employment status of individuals who may be subject to the transfer, as well as arguments about whether ad hoc or casual workers satisfy other elements of the definition under TUPE and are therefore subject to the transfer. Given that Labour will also introduce so-called Day 1 rights for workers, the risks and costs of TUPE transfers could increase, as all workers would be covered by unfair dismissal protection.
Ultimately, given Labour’s proposals, even if changes were made in the way proposed in the old Conservative government’s consultation paper, the effect may be overtaken by subsequent changes Labour makes to employment status in general. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Smarter regulation to grow the economy – GOV.UK (www.gov.uk).
[2] The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 amend Regulation 13A of the Transfer of Undertakings (Protection of Employment) Regulations 2006.
[3] Consultation on clarifications to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and abolishing the legal framework for European Works Councils – GOV.UK (www.gov.uk).
[4] Regulation 4 (1), Transfer of Undertakings (Protection of Employment) Regulations 2006/246.
[5] Regulation 2 (1), Transfer of Undertakings (Protection of Employment) Regulations 2006/246.
[6] Dewhurst v. Revisecatch Ltd (t/a Ecourier), ET/2201909/18.
[7] Section 230 (3) Employment Rights Act 1996.
[8] Different Ways of Working: Research on Employment Status in the UK – GOV.UK (www.gov.uk).
[9] ISS Facility Services v. Govaerts (C-344/18) EU:C:2020:239.
[10] Labour’s ‘Plan to Make Work Pay’ available at: LABOUR’S PLAN TO MAKE WORK PAY.
