A leading article in the Times of 23 February 2011 was headed “The TUPE regulations are a barrier to open services that needs to be removed”. The Times was making the point that the TUPE regulations make it practically impossible for local councils to achieve efficiency savings by outsourcing functions but there are also serious implications for business.

A main effect of the TUPE regulations is that they automatically transfer contracts of employment of staff performing a particular function to any another enterprise which takes over that function. The regulations make it unlawful for the new operator to dismiss any of the transferred staff, to reduce their wages or otherwise impose less beneficial terms of employment (even if the staff agree, which they might well do if the alternative is redundancy). One effect is that it is practically impossible for a private enterprise taking on a staff intensive function from a local authority to do the job at lower cost. It is not hard to see that the end result of a well meaning attempt to protect employees can thus sometimes be to create even bigger problems than it solves.

Although not referred to, the Times article may have been prompted by a decision of the Employment Appeal Tribunal just a week earlier. That decision has effectively blocked what for a while appeared to be a loophole in the TUPE Regulations. The Regulations apply, of course, to commercial organisations as well as to local authorities and the possible loophole which has been blocked was one which could be relevant for them rather than for local authorities.

The new EAT decision is OTG Ltd v Barke and ors on 16 February 2011. The “loophole” which it has blocked was opened by a previous EAT decision (Oakland v Wellswood on 5 November 2008). The 2008 decision appeared to enable administrators of a company which was in difficulty to set up a “pre-pack administration” arrangement which would enable them to sell the business of the company as a going concern without TUPE being applicable. This was on the basis that use could be made of an exemption from TUPE designed to protect jobs when a company is put into liquidation. In 2008 the EAT had held that this exemption applied not only when a company is put into liquidation but also when administrators sell the business of a company as a going concern. For technical insolvency law reasons the point was a difficult one but the Court of Appeal later hinted that the 2008 EAT decision was probably a wrong interpretation of the law. The EAT has now, in February 2011, confirmed that.

The result is that “pre-pack” sales by company administrators are caught by TUPE in the same way as other transfers of undertakings.

While not knowing whether this result has had any part in the recent failure by administrators of the Cheshire based company Auto Windscreens to find a buyer for the business as a going concern, the fact that the possible TUPE loophole has now been blocked cannot have helped. It is reported that as a result over 1,000 staff are being made redundant (see BBC News 25 February 2011).

It is important to note that the TUPE regulations are there to implement an EU Directive and in one form or another TUPE has been in place for many years. The latest 2006 version is a possibly unfortunate example of “gold-plating” by Britain of EU requirements. Notwithstanding that, and notwithstanding a recent Government promise not to “gold-plate” EU Directives when transposing them into British law, the Government indicated in November 2010 that it had no plans to make any changes to TUPE. Whether a combination of matters such as the recent EAT decision noted above, the Times leading article and the redundancies at Auto Windscreens may cause the Government to think again is an open question.