• K***************** D*****************
  • 10 September 2001


New proposals to improve the law covering employees' rights when the
business they work for transfers to a different employer were
announced today by Trade and Industry Secretary Patricia Hewitt.

The changes to the Transfer of Undertakings (Protection of
Employment) Regulations 1981 - commonly known as the TUPE Regulations
- aim to make the process of business restructuring and public sector
modernisation less threatening for employees and smoother to operate
for employers.

The main proposals in the consultation document include:

- Options for new rules on when the TUPE Regulations apply,
particularly in cases where services are contracted out;

- Proposals for better protection of employees' occupational pension

- Greater flexibility when applying the Regulations to transfers of
insolvent businesses, to make it more attractive for potential buyers
to rescue those businesses and save jobs;

- Better guidance for both employees and employers on the extent of
protection against transfer-related dismissals or changes to terms
and conditions; and,

- A legal requirement for the old employer (transferor) to give the
new employer (transferee) proper notification about the rights and
obligations being transferred.

Outlining the proposals in her speech to the TUC conference today,
Patricia Hewitt said:

"Workers need reassurance that their rights will be safeguarded in
the vital process of public sector reform and in business
restructuring in the private sector. That's why today I am announcing
proposals for the reform of the TUPE arrangements, including looking
at occupational pensions.

"The Government recognises that the existing Regulations are not
working as well as they might do. Employers and employees,
contractors and clients have all been pressing for change. The new
proposals will provide greater assurance for employees and help to
ease the process of change."

The consultation will involve representatives of all those whose
interests the Regulations affect, in both the private and public
sectors. This includes the main social partners (such as the TUC and
the CBI) and TUPE specialist groups (including the TUPE Forum, which
represents all major parties with an interest in public sector
service contracting). The deadline for comments is 15 December 2001.

Real-life examples of improvements that the proposals would bring:

1) A London company had a contract to provide cleaning services for a
financial institution. When the contract ended, another firm won the
tender. The first company claimed that a transfer had taken place and
that the employees had therefore transferred to the new contractor.
The new contractor disagreed and denied any responsibility for the
employees, who were then left "in limbo" for months until the dispute
was resolved at an employment tribunal.

- Under an option put forward in the new proposals, the Regulations
would be much more likely to apply in these circumstances, and
disputes much less likely to occur. Other than in exceptional cases,
the employees assigned to work on the contract would transfer to the
new contractor.

2) A printing firm took over a contract for office supplies from a
stationery company. The stationery company had a good occupational
pension scheme for its employees, but the printers had no such
scheme. Although the benefits the transferred employees had accrued
under the stationery company's occupational pension scheme were
protected under social security legislation, they had no rights under
TUPE to ongoing membership of an occupational pension scheme.

- The new proposals would include options to give employees
protection for ongoing occupational pension rights.

3) An East Midlands company won a contract for catering services but
the previous contractor refused to provide any information about the
terms and conditions of the employees being transferred. The new
contractor therefore had no idea how much to pay the employees (to
match the salaries they had been paid by the previous contractor) or
what their exact duties were. The directors were very concerned that
they should do the right thing, but had no way of finding out what
the right thing was. They were also concerned that the employees
might take them to an employment tribunal for constructive unfair
dismissal, if they failed to pay them the right rate or asked them to
do something that was not in their original contract.

- The proposals place a legal requirement on the previous employer
to notify the new employer of the relevant liabilities.

4) When a security company became insolvent, another company was
interested in buying its business as a "going concern", but was put
off because this involved taking on the liability for significant
sums of unpaid wages to the employees. The business was wound up
without being rescued, and all the employees lost their jobs.

- Under the new proposals, the liability for the employees' unpaid
wages (up to a statutory limit) would transfer to the National
Insurance Fund and be met under the insolvency payments provisions of
the Employment Rights Act 1996. This would make the purchase of the
insolvent business a much more attractive prospect for other

Notes to editors

1) The TUPE Regulations were originally introduced in order to
implement the EC Acquired Rights Directive (77/187/EEC) (sometimes
known as the Business Transfers Directive), adopted in 1977. They
have been amended on a number of occasions since their introduction.
They provide, briefly, that when an undertaking or business, or part
of one, is transferred from one employer to another:

- the employment contracts of the employees, along with all the
rights, powers, duties and liabilities of the transferor (i.e. the
current employer) under or in connection with those contracts (other
than certain rights and obligations under occupational pension
schemes) pass automatically to the transferee (i.e. the new

- employees of the transferor or of the transferee may not be
lawfully dismissed in connection with the transfer unless the
dismissals are for economic, technical or organisational reasons
entailing a change in the workforce (generally referred to as ETO
reasons) and the employer has acted reasonably in the circumstances;

- both the old and the new employer must inform employee
representatives and consult them about the legal, economic and social
implications of the transfer and any measures envisaged in relation
to any of the employees affected by the transfer.

The employees concerned therefore become employees of the transferee,
but under the same terms and conditions (except as regards certain
rights under occupational pension schemes) as applied to them as
employees of the transferor, and are treated as if they had been the
transferee's employees all along.

2) In 1994 the European Commission issued a proposal to revise the
Directive. Negotiations on that proposal proceeded slowly, however,
owing partly to the difficulty of reaching the required unanimity
amongst Member States and partly to a delay in the European
Parliament giving its opinion

3) The Government made it a social affairs priority for the UK
Presidency of the EU Council during the first six months of 1998 to
bring to a successful conclusion the negotiations on the Commission's
proposal. The DTI issued a public consultation document (URN 98/513)
dated December 1997 seeking the views of interested parties on the
objectives that the UK ought to be pursuing. These views were then
taken into account in the course of the negotiations.

4) Member States' unanimous agreement to the text of the new
Directive resulting from the negotiations was secured on 4 June 1998,
and the new Directive was formally adopted on 29 June 1998. A
consolidated version of the Directive was adopted by the Member
States earlier this year.

5) Since 1998 the Government has been discussing the issues with the
main social partners and TUPE specialist groups to ensure that our
proposals meet the needs of all those whose interests the Regulations
affect, in both the private sector and the public.

6) In the public sector, these proposals also underpin the
Government's Statement of Practice "Staff Transfers in the Public
Sector". Published in January 2000, this sets out the standards of
good practice that the Government already expects all public sector
employers and contractors to meet, as a matter of policy.