Outsourcing - becoming more common
As businesses become increasingly dynamic, the issue of outsourcing services or taking over a service for a new client is one addressed by more and more employers. Under the Transfer of Employment (Protection of Employment) Regulations 2006 (“TUPE”), outsourced employees have rights to retain employment terms and benefits. There are additional obligations on employers to provide information about their employees and also to inform or consult their representatives.
What should HR managers ask about new employees, before the company takes over the service contract for a new client? Does it have to consult those employees before the services start? What information should be provided when the company’s existing employees transfer to another employer under TUPE?
Identifying the employees
Before a company (the “new employer”) starts providing services for a new client, there are a number of factors to consider:
Does the client have an existing service provider and, if it does, does that service provider have employees providing the same or very similar services (the “old employer”)? As the new employer will have a contractual relationship with the client, not the old employer, the new employer should consider the issues below and either obtain indemnity protection against any identified liabilities or factor the likely costs of the liabilities into its pricing of the services.
If there are existing employees, is the old employer going to redeploy its employees or will they transfer under TUPE to the new employer (the “transferring employees”)? If the new employer is not intending to take on the transferring employees, it will need to agree that the old employer will redeploy or dismiss the transferring employees. As any dismissals are likely to be unfair, unless the old employer has its own lawful reason for dismissing them, the new employer should obtain an indemnity against any pre-transfer liabilities related to the transferring employees or calculate the cost and factor it into its pricing of the services.
Terms & conditions of employment
If the transferring employees are going to transfer to the new employer, what are their terms and conditions of employment? Full details of employment contracts, benefits and working arrangements should be obtained in good time before the transfer takes place. This is because the new employer must provide the same terms and conditions of employment as the old employer except for pension benefits and share incentives. Under regulation 11 of TUPE, the new employer has a right to see some terms and conditions of employment but the new employer should ask for more detailed information, covering all benefits, as well as contracts of employment.
The new employer has to put in place a minimum pension benefit if the old employer offered an occupational pension benefit. Most new employers offer a defined contribution pension (with a minimum 6% matching contribution). If the old employer provided a share incentive scheme to the transferring employees, but the new employer cannot provide the same incentive because it does not, for example in relation to a tax approved share incentive plan, have the same benefit in place for other employees or because the new employer is not a listed company and so does not have a public market in which to sell its shares, the new employer should provide a “substantially equivalent” scheme, with a similar approach to rewarding the participants but based on a suitable method of tracking the profits of the new employer. This could be a cash bonus scheme based on the profits of the new employer or a phantom share incentive scheme.
Potential employment liabilities
Do any of the transferring employees have any existing liabilities against the old employer? Full details should be obtained and an indemnity should be obtained from the client or an adjustment to the pricing of the services should be considered.
Do any of the transferring employees have any grievances or claims against the old employer? Details should be obtained to enable the HR managers of the new employer to take on these matters after the transfer.
Has the old employer dismissed any transferring employees because of the transfer of services to the new employer? Were these dismissals for redundancy or were they unfair and connected to the transfer? If the dismissals were unfair and connected to the transfer, the new employer is potentially liable for the costs. The new employer should obtain information about these matters to deal with any future claims. An indemnity or price adjustment should also be considered.
Does the new employer propose making any changes to working conditions, terms of employment, pension or other benefit changes after the transferring employees start work for the new employer? Details of its “measures” need to be provided in writing to the old employer before the transfer takes place. This is to enable the old employer to complete its information and consultation process under TUPE.
Changes such as salary payment dates, different healthcare benefit coverage, different pension benefits or different travel policies, training entitlements or time off polices or details of any proposed redundancies as the new employer will have too many employees for the services it will provide to the client should be communicated to the old employer in writing. If the new employer does not have any proposed changes, and is able to take on the transferring employees on the same contracts, then the fact that there are no proposed measures should be communicated to the old employer in writing.
Does the old employer recognise a trade union representing any or all of the transferring employees? Collective agreements will transfer on their terms, usually terminable on notice. The new employer may not recognise trade unions or may have its own collective agreement with a different trade union. In either event, the new employer will need to decide whether to keep the collective agreement or terminate it in favour of its own existing trade union or an alternative way of negotiating with staff collectively, such as a non-unionised staff council.
Changes after the transfer
Will the transfer affect any of the new employer’s existing employees? If it will, for example because redundancies will need to take place, then it should inform and consult representatives of its affected employees about these matters and follow a similar process to that outlined below regarding election representatives if they are not already elected.
Preparing for employee transfer
If the old employer has lost a service contract or the services are being taken in-house by the client, there are a number of steps to take regarding the transferring employees.
1. Electing representatives
As soon as it is decided that the transferring employees will be moving to the new employer, it should notify all of them and, if they do not already have elected representatives for TUPE purposes, inform them of their right to hold an election to elect a specified number of representatives. One or two representatives for each 50 to 100 employees should be sufficient.
If an election needs to be held, a timeframe should be set and a ballot held. Forms should be circulated to all transferring employees asking them to nominate the specified number of representatives. The election papers should be anonymous but numbered, so that employees cannot submit more than one nomination each, and returned by a specified date to an HR manager.
If no nominations are made, the old employer should inform the employees that it will inform and consult with them directly. If more nominations than requested are received, the old employer should ask the transferring employees to vote again on the nominations or, instead, it can opt to elect all the nominations received. It should not, however, select certain individuals from those nominated.
Follow up meetings & consultation
2. Information & consultation
The new employer should then hold a meeting with the representatives (or the employees themselves, if none are elected) to tell them about the TUPE transfer and what it means for the transferring employees. It's usually a good idea to have some prepared Q&As for this meeting and distribute these at the meeting. The transferring employees should be told the date the transfer is likely to take place, the name of the new employer (or the client, if applicable), details of any measures received from the new employer and whether any changes will take place before the transfer date.
A follow-up meeting or two may need to be held, depending on the extent of any measures received from the new employer and on any questions raised by the representatives or the transferring employees. The minutes of the meetings should be circulated to the representatives or the transferring employees.
The new employer should send a letter to the representatives, or the transferring employees themselves in there are no representatives, confirming the matters discussed in the meetings (when they have taken place) and details of any measures from the new employer. The date of the transfer, name of the new employer and any other points raised in meetings should also be summarised in the letter.