UK: ThinkHouse - TUPE Club - Tricky TUPE Questions (Video)

In this webinar we focus on the tricky questions which come up in a TUPE scenario. It is suitable for all involved in these deals, whether on the legal, operational or HR side.

Our speakers, Hannah Swindle and Rebecca Jones examine some of the tricky issues and questions that people have when implementing a TUPE transfer. Common queries include data protection, disciplinary issues and share incentive plans.

Transcript

Siobhan Bishop: Good morning everyone. Welcome to our TUPE Club session. This is another one of our ThinkHouse brands and we are here today to look at some tricky issues that you have asked us to deal with.

So this is the agenda what we are going to cover today. And these are based on the questions that you have asked us in response to the webinar invite. So what we have done is amalgamated a few into four broad areas that we are going to deal with today.

The first one, will be on pre-transfer consultation which Hannah Swindle, who is a director in our team will deal with. Then we are going to look at data protection issues, which is always a really tricky one and one that people get a lot of pushback on and it is quite difficult to deal with in reality and Rebecca Jones, who is a principal associate in our team, will deal with that.

And then we will move onto share incentive plans and how to deal with those on a transfer. Especially when it is difficult to deal with it because obviously it is not possible to replicate it and then we have got our relatively large section on ongoing HR issues, which is designed to give you some top tips relating to practically implementing the 'down on the ground' problems that arise in the TUPE transfer.

I am Siobhan Bishop, principal associate in the Employment Team here at Gowling and we are looking forward to dealing with you today.

I am going to pass over to the first question, which is pre-transfer consultation which Hannah will deal with.

The questions that we had on this were about how this works in practice. So this is something that has been introduced for a while, but is it being used? Is it being dealt with? And also if you do do a pre-transfer consultation relating to collective redundancy, is the individual consultation included in that.

Hannah Swindle: Thank you Siobhan. I will start off by just explaining briefly what the pre-transfer consultation process is. Where there is a TUPE transfer, so either a business transfer or service provision change, an incoming employer may want to make redundancies after the transfer takes place.

This may be because they need to relocate a business or services to their own offices or site or they may already have their own employees to carry out the jobs that are going to transfer. Depending on the numbers of proposed redundancies, there may be a duty on the employer to collectively consult. This means a minimum consultation period before dismissals can take effect.

There are special statutory provisions in place which allow pre-transfer collective consultation if certain conditions are met. So this means collective consultation can start before the transfer and this can be really helpful to reduce the time that you have to wait after the transfer before you can actually make dismissals, saving cost.

And it also means that you can help reduce stress and uncertainty for transferring employees. They may be told that there is going to be proposed redundancies as a measure during the TUPE consultation. But then they are not provided with any further information, so that the TUPE consultation does not cut across the later redundancy consultation process.

By starting the redundancy consultation pre-transfer, the employer can provide more information about proposals at an earlier date. So as a very quick reminder, collective redundancy consultation is triggered if the employer proposes 20 or more redundancies in the same establishment within 90 days. If it is triggered, the employer has obligations around providing information to employee representatives, consulting with them about the redundancy proposals and there also need to be a minimum period of 30 days before any dismissals take effect and that is increased to 45 days if 100 or more employees are affected.

Changes were made in 2014 under the legislation set out on the slide to permit this pre-transfer consultation and the aim was to avoid some or most of that delay after a transfer by giving the incoming employer an option to start the process before the transfer, if they wanted. So in other words, they can choose to start this process before they actually become the legal employer of the transferring employees.

Pre-transfer consultation can only be used in certain situations. So there has to be a TUPE transfer or it has to be likely that there is going to be a TUPE transfer. The incoming employer needs a proposed collective redundancy process and at least one of those transferring employees must be affected by that process.

The purpose of the pre-transfer consultation is to create a legal fiction because of course the incoming employer does not actually employ the transferring employees until after the transfer. The effect of this is that the incoming employer is the employer for pre-transfer consultation purposes and the transferring employees are treated as if they are already employed in the incoming employer's business before the transfer has taken place.

This all means that the collective consultation can be affected and therefore the incoming employer can avoid the penalty for breach, which is up to 90 days gross pay per employee. But the process itself is far from straightforward I think it is fair to say. It is the incoming employer's process. They can choose whether to do it or not by way of a written election but importantly it cannot be forced on the outgoing employer so they have to consent to it and it is best to get that consent in writing so there is no later dispute about whether it was given or not.

The incoming employer is going to be reliant on the outgoing employer to allow access to the employees and to help elect any employee reps, for example. The incoming employer must also remember to complete the HR1 form to notify the Secretary of State of the proposed dismissals. Either the incoming employer or outgoing employer is allowed to give the required information to the representatives but it is usually going to be the outgoing employer who is going to probably hold all that relevant information about notice periods and enhanced redundancy entitlements in the first place.

Care also needs to be taken to make sure that there are going to be appropriate representatives in place for the transferring employees. Again the incoming employer may be reliant on the outgoing employer's knowledge of the workforce and how it works in practice. Information about how many reps are going to be needed from each area of the workforce to make sure that all employees are adequately represented.

It is absolutely essential to have co-operation between the parties to make sure that the process happens as smoothly as possible and this is going to be key to determining whether it does actually work in practice. There is no legal obligation on the outgoing employer to provide any help at all to provide any information or assistance and lack of co-operation from the outgoing employer is not going to be considered a special circumstance which would provide a defence to a failure to consult claim for the incoming employer.

So to make sure that all of this takes place smoothly, it is a good idea for the parties to enter into a co-operation agreement. This will include agreement on where potential liabilities would sit if things go wrong for example, maybe if the outgoing employer does not allow time off or access to facilities for the reps. The parties may also want to include protections in there – so their confidential information. They may want to agree how the process itself will be run, what facilities are going to be provided and what access is going to be given to the employees.

And it is probably useful as well to allocate any consultation process costs that are incurred from the process itself. The outgoing employer is not without risks in this process. The incoming employer can choose to cancel it at any time. This can cause a great amount of disruption and possibly employee relations issues because any consultation done so far will not count and then the employee is going to be left in limbo until after the transfer before they know what is going to happen.

If the process is cancelled, it cannot be restarted again until after the transfer. And to answer the second part of the question, which was whether individual consultation was still needed, the simple answer is yes, it does. With any redundancy dismissal, there needs to be individual consultation beforehand. Where employees have got two years' service, an employer will risk claims for unfair dismissal if it is not carried out. As the incoming employer does not legally employ the employees until after the transfer despite this legal fiction we are creating for the collective consultation purposes only, then any individual consultation that it carries out before the transfer is not technically going to count towards consultation for unfair dismissal purposes.

Also, pre-transfer consultation does not explicitly allow the incoming employer to select individuals for redundancy before the transfer, it just allows them to consult and ACAS has previously advised that employers should not do this until after the transfer.

I now want to talk about some of the more practical issues which you need to think about before you start using the pre-transfer collective consultation process so that you can try and work these all out and make it work in practice and it can be very complicated.

First of all, just in terms of when you might use the process, given the high level of co-operation required, that may mean it is less useful in an outsourcing situation because the parties are often going to be competitors. Although the customer of the services can include a contractual requirement on the outgoing supplier to co-operate with any process on exit, practically that can be difficult to enforce. It may be that this is a more useful process in a business transfer context.

Sometime the incoming employer will want the outgoing employer to make the dismissals so that they can be made sooner, maybe before or on the transfer date but this can result in risk. Employees with more than two years' service as we know have unfair dismissal rights and in the context of a TUPE transfer, they have also got enhanced protections. Any dismissals by reason of a transfer are automatically unfair. Dismissals can only be made fairly with an economic, technical or organisational reason – an ETO reason.

But the outgoing employer cannot make these dismissals fairly before the transfer because it cannot borrow the incoming employer's redundancy reason to dismiss, so it cannot borrow the new employer's ETO reason. Any dismissals made by the outgoing employer are therefore going to be automatically unfair and the incoming employer is going to inherit all of the liability for them.

The incoming employer can only fairly make dismissals after it legally becomes the employer after the transfer. And I have already mentioned there is a risk if the incoming employer carries out the individual consultation before the transfer because it does not count and so that selection – and also that selection should not really be made.

Pre-transfer dismissals can be risky but we recognise that in reality sometimes they cannot be avoided. We need to look at a way of dealing with that unfair dismissal risk and usually this is going to be dealt with by effecting those dismissals under a settlement agreement where the employee waives their right to bring a claim.

For a fair dismissal in any redundancy process, the employer also needs to consider which employees should be pooled together. Should this process include the incoming employer's existing workforce? That is not clear from how the process is set out. They are being treated as the incoming employer's employees for the purposes of this consultation process but in reality, practically pooling all of those two workforces together may not be practical.

The next point to consider is in relation to measures or details of the proposed changes that the incoming employer wants to make that has to be fed into the TUPE consultation process. It is important not to forget that if you are intending to make redundancies post-transfer, that is going to be a measure you need to feed that into the information consultation process for TUPE transfer processes to avoid the risk of claims.

Again in any redundancy scenario, alternative employment needs to be considered. Should this be with the incoming or the outgoing employer? And it is not clear how this really is going to work. The outgoing employer may not want to offer opportunities in the rest of its workforce and it may be difficult practically for the incoming employer to offer up opportunities when they have no real knowledge of an employee's skills or experience.

As a practical point and something to agree in the co-operation agreement probably, the parties will need to consider when and who and give notice of dismissal, bearing in mind all those risks that I have just mentioned.

And then finally, what will happen if the collective redundancy process straddles the transfer date, so it has not finished before the transfer date. There could be a scenario where the employee representatives do not transfer and so they have got the problem, who are you going to consult with after them.

Does the incoming employer have to re-elect reps and start again? Or what happens if the outgoing employer was happy to negotiate with trade unions but the incoming employer does not want to engage with them post-transfer and again, the incoming employer needs to work out how it can conclude consultation effectively in these circumstances.

So in summary, the process is there. It can be helpful, but the reality is, is that it is quite complicated. If you want to use it, you need to take careful thought about how it is going to be managed so that consultation can be conducted in a meaningful way and I think probably it is fair to say it is probably only going to be useful in limited circumstances.

Siobhan: Thank you very much Hannah. I should have also mentioned a quick word about definitions. So when we talk about transferor, we are talking about the outgoing employer, or usually the current employer before the transfer happens. And when we talk about transferee, that is the incoming employer. So the employer who is going to take over the employee's and be the employer after the transfer.

OK so our next question relates to data protection and this is one that often is raised when we are looking at how to comply with data protection whilst giving employee information in a transfer situation. And in particular can be outgoing supplier or transferor, refuse to provide employee information on data protection grounds.

Rebecca is going to have a look at this question for us.

Rebecca Jones: Thanks Siobhan. Well I want to start by saying that GDPR compliance is really important and while it is not meant to get in the way of anything that businesses legitimately want to do in a TUPE situation, what it does mean is that we have got to focus our minds more on what information is being shared, why it is being shared and how we are going to go about doing that.

With that in mind, there are three scenarios where you are likely be thinking about the transfer of personal data in this context. Firstly there is the giving of employee liability information, known as ELI within the scope of Regulation 11 of TUPE. Now from a GDPR perspective, if you are in ELI territory, it is fairly straightforward and that is because providing ELI is a legal requirement under TUPE so as long as you provide the right information to the right person, in the right timescale then you have got a lawful basis for providing the information under GDPR – the lawful basis in that scenario being compliance with a legal obligation.

Now I mentioned the need to provide the information to the right person. What I meant by that is, that it has got to be provided directly to the incoming employer. So not to the client or another party for onwards transmission to the incoming employer. And I also mentioned that it has to be provided in the right timescale and again what I meant by that is that it has got to be provided around the period of 28 days or less before the transfer, since it has been done so in line with the timeframe for provision of ELI under TUPE.

And then I mentioned that it must be the right information. By that I meant that Regulation 11 sets out a list of the information which is covered by the duty and essentially that comprises the employee's identity and their age and information that must be included in their section 1 statement of particulars along with certain information about disciplinaries, grievances and claims. So if that is the information that is being provided, then it is being done in line with the legal obligation.

However, the information which is provided under ELI is usually only the starting point in terms of the information that the parties want to share in preparation for a transfer. Because it really only covers a minimum fallback protection for the incoming employer. It does not include all that is needed and it is required generally too late in the process to be particularly helpful.

So the second scenario is that usually there is either an agreed process or a contractual requirement to provide information which goes beyond the scope of ELI. Now most commonly where there is business transfer, employee information will be shared at an early stage through a due diligence process and where there is a service provision change it is normal for the outgoing employer to be subject to contractual obligations to provide employee information for the purposes of a tender process and that will enable bids to be targeted and costed in the right way. Where that is the case, it can mean that information is provided at a very early stage in the process, sometimes as much as 6 or 12 months before the anticipated transfer date.

And then the third scenario is when the transfer has or is about to happen and at that point it is common for detailed payroll HR information and personnel files to be handed over. And in each of those circumstances, just as a starting point you are going to need to identity a lawful basis for processing data under the GDPR as that is then going to determine the extent that the data can be shared, who it can be shared to and the manner in which that ought to be done.

So I have put on the screen here some of the potential grounds on which personal data can be lawfully processed under GDPR which might be relevant in a TUPE scenario. You will see there is a notable exception in that I have not included consent and that is because under GDPR, relying on consent is a much more restricted option and it is generally not going to be relevant in a TUPE context.

Importantly I should also add that the existence of a contractual obligation owed to a client or new provider is not in itself a valid ground for processing either and it cannot override a person's obligations under GDPR and in most cases what we find is that where there are contractual obligations to provide information, those will be expressed to be subject to GDPR.

It is also important to note that if you are looking to transfer special category data then you are going to need both a primary ground for processing and an Article 9 condition and those are quite narrow. I am not going to go into the Article 9 conditions today but if you are in the realms of special category data, for example you might be asked to disclose information about grievances, which in turn reveal an employee's race or their sexual orientation, then it will be necessary to identify an Article 9 condition as well as relying on the primary ground for processing.

Putting special category data aside, if you are looking to provide data outside of the ELI regime then you are going to have to identify what your lawful base for doing so is. The most likely one and in fact the most flexible one is that it is in the legitimate interests of you as the data controller or in the legitimate interests of a third party to whom you are providing it and that could potentially be the incoming employer in a service provision change scenario or it could be your clients at stage of the tender process.

If the data is requested by a client in a service provision change scenario, and the data is needed to gauge whether TUPE applies or what the costings might be for bids, then we can see that that is obviously going to provide a legitimate interest. Similarly, if the data is requested by a potential buyer in a business transfer scenario, then again that can enable the buyer to understand the size, shape and cost of the workforce and that is also going to provide a legitimate interest.

Legitimate interest is the most common basis for processing data in this context and in order to rely on that ground it is important to firstly identify the legitimate interest and then also work out why sharing the data is necessary for the purposes of that legitimate interest and then you need to carry out a balancing test to balance the relevant parties' interests against the interests of the data subject before deciding that the balance of interest justifies disclosure of the information.

Importantly it is necessary to consider each category of information and apply these tests separately to each category. So in many cases it will be possible to identify a legitimate basis for providing things like details of remuneration and other terms and conditions of employment. But there will not necessarily be a legitimate interest for revealing things like employee names and addresses or their payroll data until a time which is more closer to the transfer date.

When you are looking at transferring entire personnel files at the point of transfer, again it is necessary to consider each piece of data to decide whether there is a legitimate interest in sharing it with the new employer and make sure that you prune the file accordingly.

For example, there is probably not going to be a legitimate interest in sharing details of expired disciplinary warnings or ancient recruitment documentation, that sort of thing. So when you are going through that process, it is useful to consider what your own retention policies say and make sure that they have been applied and if they have not, then apply them at the time of sharing that information.

To build on that, there are some other considerations to bear in mind even when you are satisfied that there is a valid legitimate interest ground which enables the data to be shared.

Firstly where possible it is advisable to anonymise or pseudo anonymise personal data before it is shared. And if that can be achieved, then it will not be for personal data. However in many cases bear in mind that removing names is not sufficient an anonymise data because the employee's identity can often be pieced together from other sources, such as piecing together the job title from a contract together with publicly available information like their profile on Linked In which will then piece together the information and identify them and where that is the case, the requirement for a lawful ground of processing remains key.

I focussed this session on considerations around the lawful ground for processing but do not forget that the other data protection principles have also got to be complied with. That means that it is advisable for an employer to obtain agreement from the party to who it is disclosing the data regarding their subsequent use of the data along with assurances regarding storage and retain of data and when information is shared of course, do not forget to encrypt and protect it.

If you are a recipient of personal data, you will need to make sure it is only used for the legitimate interests which have been identified and again the appropriate data security, storage, retention and other policies are required.

And lastly, you should check that your staff privacy notice anticipates the fact that you might need to process and share personal data in a TUPE situation and if it does not then obviously make sure that that is updated.

The next point that I just wanted to flag quickly is just to be aware that there is some new ICO guidance for employers on processing worker's health data which was published at the beginning of September and you can find that on the ICO website, so do go and have a look for that. It is quite a useful reference point for the general GDPR principles and it steers employers through the essentials of processing health data which of course is special category personal data and has that enhanced protection.

That is a canter through the GDPR considerations about sharing employee information in connection with a TUPE transfer, I just wanted to circle back now to answer the question that we posed at the beginning of this session as to whether an outgoing employer can refuse to share employee information on GDPR grounds.

And the short answer is, well yes they can albeit that that might put them in breach of Regulation 11 of TUPE and it might put them in breach of their contractual obligations. But there are some practical steps that can be taken to try and get them comfortable with sharing it. The first step to consider is whether they are subject to any contractual obligations or whether the obligation to provide ELI has been triggered because the transfer is within that 28 day period and if that is the case, then the first thing to do is to remind the party of that to try and see if that gets them comfortable in sharing the information.

And beyond that, if that does not work then the most practical step that we can suggest is to carry out your assessment regarding the lawful ground for processing. Keep the request that you are making as narrow as possible and do share your thought processes with the reluctant employer to try and get them comfortable that the legitimate ground is there and that the information can be shared.

You can also volunteer agreement regarding policies about use, security and retention of the information so again that might give them sufficient comforts that they feel able to go ahead and share the information.

And then the last point to mention is that sharing of employee information is often crucial to achieving a smooth transfer, so another option is to appeal to the employers better judgment by explaining why it is to the benefit of the employees that you do have that information and again that may be enough to get them comfortable with providing it to you.

Siobhan: Thank you very much Rebecca. So the next topic or area, is relating to share incentive plans although a lot of the issues that are raised here relate to the difficulty perhaps in replicating benefits post-transfer. So Hannah is going to have a look at that. So the first question relating to share incentive plans is do they actually transfer and then how are we going to make this work in practice. Thank you Hannah.

Hannah: Thank you Siobhan. Some of you may be aware of a very recent court of session case we have got – Ponticelli UK Limited and Gallagher which deals with many of these issues. This case was about share incentive schemes where the rights to participate in the share incentive plan were given to employees under a collateral contract. So one sitting outside of the employment contract and the question that had to be considered by the court of session was whether those rights transferred under TUPE.

Just so you get a very brief recap on the facts of the case, we have Mr Gallagher who was employed by Total Exploration, the outgoing employer and he was a member of a share incentive plan. The share incentive plan was operated under a separate trust deed and plan rules. This stated that it was not part of his employment contract. On the transfer his participation in the Total Exploration share incentive plan, ended. Ponticelli was his new employer. They did not provide share incentive schemes but they had offered to pay Mr Gallagher a one-off payment as compensation for this.

Mr Gallagher was not happy with that offer. He argued that his right to participate in an equivalent share incentive plan transferred to Ponticelli under Regulation 42A of TUPE and so under that he was entitled to have an equivalent plan.

As we know, under TUPE the relevant employees transfer with their employment rights and they are essentially protected. The specific wording in the TUPE regulations is that all of the outgoing employer's rights, power, duties and liabilities under or in connection with a transferring employee's contract pass to the transferee.

So the wording about rights in connection with the employment contract were really the central issue here because it was a non-contractual scheme. The case confirms that the right to participate in a share incentive scheme was part of Mr Gallagher's overall financial package and it was caught by the wording under Regulation 42A. They said that the share incentive plan rights and obligations such as deducting wages to buy shares clearly arose in connection with his employment contact and also he was only eligible to join the scheme because of his employment.

After the transfer to Ponticelli, the court of session decided that Mr Gallagher was entitled to participate in a share incentive plan of substantial equivalence or comparable value to the share incentive plan operated by Total Exploration. This case just gives us an important confirmation that keeping share schemes separate from the employee's contracts of employment may not work for TUPE purposes.

While scheme rules often say that they are not contractual and participation in the share scheme specifically excluded from the employment contract, it can still be in connection with the contract and the transfer under TUPE.

The principle of substantial equivalence comes from a previous case of MITIE which deals with the issue where the incoming employer cannot provide the same benefits to transferring employees as those they currently have pre-transfer. This could be a share incentive plan or it could be, for example, a staff discount scheme which is linked to the outgoing employer's business.

In this case, in the MITIE case, the employee originally transferred from Sainsbury's with an Inland Revenue approved profit-sharing scheme. It just was not possible for the incoming employer to provide this in the same way after the transfer, so on the face of it, would have been a breach of contract which the tribunal decided would have been absurd.

If an arrangement is non-contractual, there is no obligation on the incoming employer to continue to provide the same or similar arrangement for transferring employees. Even if an arrangement is stated to be non-contractual, it may result in employee relations issues if it is just removed or it might become an implied contractual term by its regular use over a long period of time. So this does need to be considered carefully.

If a benefit is a contractual right for transferring employees, it is a little more complicated to change it because of the TUPE protections around varying terms and conditions. Here in the MITIE case, the tribunal said that the incoming employer has to offer a substantially equivalent scheme which is free from unjust, absurd or impossible features rather than the exact same scheme. The tribunal expects the incoming employer to negotiate what that might be with unions or employees are relevant and if it cannot be negotiated and the parties cannot come to some sort of an agreement over what this might look like, the parties do have the option of making an application to the tribunal to determine what the particulars of employment might be. I have not heard of this being used and I think generally it is going to be considered quite an unattractive option because of the uncertainty of what a tribunal may decide.

This MITIE case, it was applied in Ponticelli so we have confirmation that this is the principle that we are still needing to use and although it gives a solution, it causes its own problems because it is not really clear how we measure equivalence.

Now some practical tips on how to deal with this if you are faced by problem of a transferring employee having this type of benefits.

To work out what benefits transferring employees have in the first place and to be able to assess costs attached to those properly it is essential to get the right information. Rebecca has already touched on ways to get employee information under ELI – Employee Liability Information – that TUPE requires the outgoing employer to provide. This may help but it may not go far enough so we would always check whether there are other contractual obligations on the outgoing supplier to provide more detailed employee information.

We need to make sure this information is correct and is complete as possible so warranties around accuracy and completeness may also be helpful. It is important for an incoming employer to remember that once you have decided what you are going to do and what scheme or benefit you are going to be proposing – any changes you are proposing post-transfer – are going to be a measure for consultation purposes.

This means they need to be passed onto the outgoing employer so they can be included in the consultation process with employee reps. It is really important for the incoming employer to get involved directly in the consultation process if possible and as early as possible so that you can start to speak directly to employees about these proposed changes and try and iron out any issues that might come up as a result.

You may need to get the employees or trade union to buy in to the whole issue and to understand that the same benefit or scheme cannot be provided and to then, in good faith, negotiate a new arrangement that is going to be substantially equivalent if possible. Providing the benefit may be a significant cost burden for the incoming employer. There may be difficulties in setting up a scheme of substantial equivalence. I have mentioned it may be difficult to actually work out what is going to be considered equivalent in the first place.

We do not really have any guidance on this. You would be looking at questions of whether the tax advantages have to be the same as those provided under the original scheme. Do the terms for vesting or rights on termination have to be the same? Can cash be provided instead of shares where the incoming employer is not a listed company?

Practically it is going to require discussion, consultation with transferring employees, looking at what is within the realms of possibility as to what can be provided and looking at the cost of doing so and then negotiating with those employees and maybe the trade union to try to agree what is going to be consider an equivalent benefit.

Usually it is fair to say that they are going to be expecting a potential financial benefit that is as good, if not better, than what they currently enjoy. If it is not possible to set up an equivalent scheme, the only real option is to buy out those employee's rights and perhaps you may be wanting to consider adding in a right for the employer to require payment if the employee seeks to enforce their original rights.

The Ponticelli case leaves open the situation for a discretionary benefit that can be terminated at any time so here the incoming employer would have an obligation to establish a scheme of substantial equivalence but it may be able to then terminate the scheme on or following the transfer but of course as I have mentioned, even where you have got a scheme described as discretionary you need to establish just what part of the scheme is in fact discretionary. The employer may have discretion to remove the scheme overall but once it is in place for any particular year, an employee may have a right to participate, or the decision to make awards or the level of awards may be discretionary, but not the actual fact that the scheme is in place.

And also of course as I have mentioned, even if it is described as discretionary, a scheme can become contractual by reason of customer practice. The possibility of an employer deciding to suspend vary or terminate one of these schemes may lead to more cases.

Just to touch on a couple of other issues that might arise from this topic, there are also important non-legal considerations in changing benefits, whether they are contractual or discretionary they may be an important part of the transferring employee's benefits package. As an employer you need to consider carefully how changing those benefits are going to affect employee relations and how to make sure employees are reassured that the substituted benefits are in fact equivalent.

When changing terms and conditions, as you may be aware, TUPE gives employees enhanced protections which mean it is more difficult to do this validly. This could affect the later enforceability of any negotiated substantively equivalent scheme benefits or maybe a buy-out of the benefits for example. This could result in uncertainty for the employer if an employee can later go back on any agreement they have made to accept alternatives. So you need to also consider ways of mitigating that risk. I am not going to go into any detail today about changing terms and conditions in a TUPE context but please do see our webinar from June 2022 if you would like to hear more about that. In any event risk is likely to be mitigated if there is genuine buy-in to the alternative provided and they feel that the scheme is offering them as good benefits if not better.

Siobhan: Thank you very much Hannah. So we have got a bit of an amalgamation of issues relating to HR issues on the ground here such as how to deal with an ongoing disciplinary process. What happens if an employee appeals a dismissal for example and is reinstated following the TUPE transfer? And finally having a look at some of the issues around long-term sick leave. So Rebecca is going to deal with all of those for us, thank you.

Rebecca: Thank you Siobhan. So we are going to start then by looking at the issues which arise where there is a disciplinary process that is ongoing at the point of the transfer. If the employee is assigned for the purposes of TUPE then their employment will be in scope to transfer regardless of whether there are any ongoing disciplinary proceedings and obviously that could raise a number of practical issues as well as the risk of potential liability for an incoming employer. So we will go on to have a look at those issues on the next slide.

If we are looking at the disciplinary process the first point to consider then is the type of transfer and the relationship of the parties to the transfer. If there is a contractual relationship between the outgoing employer and the incoming employer which will usually be the case where the transfer is happening on the sale of a business or a first generation outsourcing then there will usually be a greater degree of co-operation and the ability to resolve the situation through contractual mechanisms. Where there is not a contractual relationship between the parties then the legal position under TUPE is going to be more relevant to determine what actually happens.

So firstly how and when will this matter come onto the new employer's radar? Again this is going to depend on the type of transfer. So where there is a relationship between the parties we would expect a question to be asked early on through the due diligence process regarding any recent comment or potential disciplinary action and that should flush out those issues and any risk associated with the process such as the allegations against the individuals or if there have been any errors in the disciplinary process which has been taken so far and that will then enable the incoming employer to consider any risks and the approach that it wants to take to deal with them.

Where the transfer is taking place by way of a business sale then we would also expect an obligation to provide updated information as part of the disclosure process against warranties in the period leading up to signature of the business transfer agreement.

As a minimum if we do not have that sort of due diligence process the incoming employer will have the information which the outgoing employer is required to provide as part of the duty to provide ELI that we looked at earlier and just remember that that information is only required to be provided 28 days before the transfer but it is particularly helpful for an incoming employer where it doesn't have that direct contractual relationship with the outgoing employer, so particularly in a second generation outsourcing scenario.

The obligation to provide ELI includes information about disciplinaries or grievances and any claims that we brought by or against the employee in the last two years. The outgoing employer must also provide information about any claims that it has reasonable grounds to believe that the employee may bring against the new employer and that for example might include the possibility of an unfair dismissal claim if the outgoing employer is aware that there are flaws in the disciplinary process that it has followed.

So once the incoming employer becomes aware of an issue then it can consider what approach it wants to take to deal with it. There are two likely scenarios, so firstly the incoming employer might ask the current employer to resolve the situation before the transfer is due to happen and that is going to likely depend on the nature of the issue, the timescales involved and the parties' respective bargaining positions.

So for example if the allegations are potentially gross misconduct and the new employer is in a strong commercial position then it might be able to request that the current employer dismisses the individual before the transfer takes place. The current employer may be able to expedite the disciplinary process to achieve that or alternatively they might look to enter into a settlement agreement with the individual to resolve the matter. But either way in this scenario the incoming employer will also want to make sure that they have a contractual indemnity to cover any liability arising from the situation.

The alternative is that the incoming employer is not in a position to request that the matter is resolved before the transfer either because it does not have the bargaining power or if there is no contractual relationship between the parties or perhaps the matter might involve allegations which are only likely to attract a lower level warning and then the default position under TUPE in that scenario is that the individual will transfer and the new employer will then become responsible for the ongoing process.

So where that is the case the new employer then needs to give some thought to the practical implications and it might be that that is no too problematic for the new employer so if the people that were dealing with the disciplinary process and all of the relevant witnesses are all in scope to transfer then actually the process can simply continue without need for any disruption pre and post transfer. However, particularly if we have got a Service Provision Change scenario, then that might be more difficult and the new employer might need to take steps to try and ensure that it has access to the relevant information and witnesses if they are not in the group of employees that are in scope to transfer and that might mean that it needs ongoing co-operation from the outgoing employer.

So obviously in an SPC situation – that is the Service Provision Change – then there is unlikely to be an obligation on the outgoing provider – the outgoing employer, sorry – to provide that co-operation and that could cause practical difficulties for the new employer. Indeed there are going to be inherent risks if the new employer decides to dismiss the employee after the transfer because at that point they are going to be on risk and in circumstances where for example it has not been able to fully investigate because the relevant witnesses have not transferred then obviously we can see that the risk of an unfair dismissal claim is going to be more pronounced in that scenario.

And then the last point that I wanted to flag regarding contractual liability is that even where the matter falls to be dealt with by the incoming employer after the transfer the incoming employer should check that it has indemnity protection irrespective of anything that's happened before the transfer. So that is usually going to be the case either by way of a contractual indemnity from the outgoing employer to the new employer if we are in a business transfer scenario or it will be present through a chain of contractual indemnity by the customer if we are looking at a Service Provision Change.

Such an indemnity would protect the employer if the employee was subsequently to bring a claim alleging for example that the process that had been followed by the outgoing employer up to the point of the transfer had been flawed, so that is something that the new employer wants to make sure that it has cover for.

And the last point that I wanted to touch on here is the risk of claims for automatic unfair dismissal in this context. So you might recall that a dismissal will be automatically unfair where it is by reason of the transfer. Now ordinarily that is not going to be the case where the dismissal arises from the disciplinary process because the dismissal is by reason of the disciplinary allegations and not the transfer. But do just be aware that an employee could allege that the disciplinary process has been a sham and that the real reason for their dismissal is actually the transfer and in order to defend that type of allegation it is going to be important that the outgoing employer and/or the new employer depending on who has dealt with which bit of it has kept sufficient paper trail to be able to evidence that the disciplinary case is in fact genuine.

So that's the first stage of disciplinary processes and now I wanted to focus on the position in relation to disciplinary appeals, so specifically where an employee has been dismissed before the transfer and as at the date of the transfer there is either a live appeal process or the employee is still in time to lodge an appeal.

There have been a number of cases which have looked at the implications of this and the most notable one is the 2014 case of Salmon and Castlebeck Care and Danshell Healthcare and this gives us the following guidelines. So firstly unless an appeal is successful then the position is that the dismissal was effective when it was implemented and what that means is that any appeal against the dismissal will be made to the outgoing employer and unless the parties have agreed between themselves that it will be done differently it will also be dealt with by the outgoing employer. If the appeal is unsuccessful then the dismissal remains effective when it was implemented as the employee will not have been employed immediately before the transfer neither their employment nor any liability relating to it would transfer to the new employer.

As we touched on when we looked at the last slide there is an exception to that where the employee alleges that the real reason for the dismissal was in fact the transfer in which case in that scenario the employee could have a claim for automatic unfair dismissal and if they are successful in that claim then the liability for that will have transferred to the new employer.

Now complications can arise where an employee is reinstated following an appeal against dismissal because in this scenario the original dismissal basically vanishes. What that means is that the employee would have been assigned at the point of the transfer and so the effect of a successful appeal is that they are treated as having transferred to the new employer. The new employer then becomes responsible for the revived employment contract and as we saw in the last slide the type of transfer and the relationship between the parties is going to have a material impact on how an appeal is going to be dealt with.

So where there is a direct contractual relationship between the parties, which is usually the case in a business transfer or a first generation outsourcing, then the new employer would be well advised to seek contractual control regarding any appeal process. Given that the effect of a successful appeal is that the dismissal disappears the issue becomes a matter or a problem for the new employer, an outgoing employer may be inclined to uphold an appeal where they would not otherwise have done so, so that is something that the new employer is going to want to avoid.

So if we move on then from disciplinaries, another HR issue which we often encounter when we are advising on TUPE is long-term sickness. The first important point to consider about employees on long-term sickness absence is whether or not they are assigned and therefore whether or not they transfer under TUPE. So in the majority of cases if you have got an employee who is off sick, that is not going to mean that the employee is not assigned to the relevant undertaking or services.

But the case on the slide here established quite an important point. So essentially where there is no prospect of an employee returning to work then they will not be assigned to the organised grouping which is subject to the transfer and their employment will not therefore transfer. So in this case the employee had been off work for six years, they were in receipt of PHI benefits and there was actually not prospect of them returning to work and it was held in this case that the only connection that the employee had to the organised grouping was an administrative connection. So it was simply that they had to remain on the books in order to get PHI cover but they were not assigned to the organised grouping.

So what we can see from that is that looking at the nature of the sickness absence is going to be very important. In many cases the prognosis of an employee who is on long-term sickness is going to be unclear and if that is the case then the employee will remain in scope to transfer but where an employee is permanently incapacitated then they will not and in that scenario regardless of whether they are in receipt of PHI benefits or they are simply still absent as long-term sick then they will be... not be assigned.

So where the employee does remain in scope to transfer then there can be some practical issues of dealing with ongoing sickness absence and that can create problems for the incoming employer so we will come on to have a look at those on the next slide.

So if you are the new employer coming into a situation where somebody has had historical absence and may still be on long-term sick leave then you need to bear in mind that you inherit that person as you find them. So you are going to be responsible for managing the future sickness absence and you will want to make sure that you have got an indemnity which provides protection with any issues that have arisen before the transfer date.

And again as we saw with disciplinary matters the new employer will want to do what it can before the transfer to identify any circumstances where there might be sickness-related issues and as with disciplinary matters again where there is a direct contractual relationship between the parties we would expect that to happen at a fairly early stage through the due diligence process.

We would recommend that the incoming employer asks for information about any employees who are currently absent or who have recently experienced periods of long-term sickness absence and also any employees who are considered to be disabled along with details of the reasonable adjustments that have been made for them and can then ensure that those are maintained following the transfer.

Just a note of caution to remember there that as we saw earlier that is going to be special category data so it is important that the information is provided on a fully anonymised basis unless there is an Article 9 Condition that permits the processing there.

There is however an important distinction where issues relating to long-term sickness absence differ from those that we looked at with disciplinaries and that is that the ELI process does not assist here. So because... unless the sickness issue has manifested itself either through a disciplinary or grievance process or there has been a claim relating to it then it is not going to be caught by the ELI obligations and so if an incoming employer is in a situation where it is relying on ELI to provide the employee information then it is going to find itself at the whim of the outgoing employer as to the level of information and co-operation that is provided.

So once the incoming employer does know about the situation, of course how the incoming employer wants to deal with an employee on long-term sickness will then again partly depend on what cover there is under the contract for past and future actions or potentially for dismissing the employee and it might be that the new employer can successfully follow a process and the employee returns to work or that the new employer can fairly dismiss the employee on grounds of incapacity although it will take time and care to complete the process to do that.

And then as we saw with disciplinary cases again where there is a direct contractual relationship between the parties and the incoming employer has got sufficient bargaining power it is also possible that the incoming employer might then ask the outgoing employer to resolve the situation of long-term sickness absence before the transfer. Again that is most likely to happen where there is no foreseeable prospect of the employee returning to work but it is also unclear that the permanently incapacitated and hence that they have remained in scope.

And of course where we are looking at issues of long-term sickness there is going to be a greater risk profile particularly where disability issues are involved and so it might be that actually the scope to agree things with the outgoing employer is reduced because that outgoing employer is going to be reluctant to agree to facilitate any alternative outcome for the new employer where that might result in significant liability for it.

So moving on this slide, there is one final point that I wanted to look at which is a particular issue that often arises where employees who have long-term sickness or medical conditions are in receipt of private healthcare or PHI benefits which might be impacted by the transfer.

So as we know employees will transfer under TUPE on their existing terms and conditions of employment and participation in discretionary benefit arrangements will also transfer unless the new employer exercises a discretion to change or withdraw a benefit and it is therefore common for an incoming employer to seek to replicate existing benefit arrangements with its own providers or potentially with new providers if it does not have an equivalent scheme after the transfer.

However where there is a change in provider that can obviously impact on an employee's cover for pre-existing conditions including any conditions for which they are currently receiving treatment and it could also impact if they have got live claims that are being made either in payments or being made through the PHI scheme.

So in most cases the terms of any benefits arrangements are most likely to allow the incoming employer to change the identity of the provider and so usually this is actually a practical or an employee relations issue rather than a legal one though I would just add a note of caution there about the potential for Regulation 49 claims which present a risk where there is a substantial change to the materials... to the employee's material detriment.

But subject to that caveat where the flexibility is there to change the provider that can obviously create this issue and what we have seen in the past is the parties looking for creative solutions to avoid any detriment to the employee and that can include things like firstly the new employer might engage with the same benefits providers deliberately so that the employee has continuous cover and the pre-existing conditions are not impacted or the new employer might engage a new benefits provider or use its own current benefits providers but provide that they will accept cover for those pre-existing conditions. But obviously just to bear in mind of course that that is going to come usually at quite a significant cost.

And lastly what we have seen a few times is that the parties might be able to agree that the current employer will redeploy the individual to enable them to remain in the same employment and therefore continue to receive their existing package. So that is going to need the employee's agreement but as it is being done for their benefit it is not usually an issue to get that agreement and where this might be useful where the current employer is agreeable to facilitate that process there might be a scenario where actually it is a relatively low cost for them because the employee is in or expected to be in receipt of that PHI benefit or if they are on long-term sickness they are receiving care under the private healthcare, actually they are not necessarily in receipt of sickness pay so it might be that that is something that the current employer can facilitate without actually too much cost to them.

So that is everything that I wanted to cover on those issues. I will hand back to Siobhan now who is going to wrap things up for us.

Siobhan: So thank you very much to both Hannah and Rebecca and thank you to you for joining us and to those of you who have submitted your questions we really appreciate that. Apologies to anyone whose question we have not had time to look at today but we will bear those in mind when we are planning for our next year's sessions.

So a quick reminder that all of our previous webinars are available on our website, so we have talked about the change in terms and conditions one and the back to basics one mentioned in your reminder email, they are available for you to look at at your leisure and a recording of this one will also be available shortly on the website.

If you have got time please do fill in the feedback questionnaire, we really appreciate that and otherwise if you have got questions please do get in touch and we look forward to seeing you next year on TUPE Club.

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