Select Committee on European Communities Report


Letter from Ian McCartney MP, Minister of State, Department of Trade and Industry, to the Right Hon the Lord Hoffmann, Chairman of Sub-Committee E (Law and Institutions)

  I am writing to thank the Committee for its report Acquired Rights Revisited (HL Paper 98) and to offer a brief response on behalf of the Government.

  As you will no doubt be aware, the UK Presidency succeeded in its aim of gaining Member States' agreement to the revision of the Acquired Rights Directive. The new Directive was formally adopted on 29 June, and I enclose for the Committee's information a copy of the final text (not printed), along with a question and answer briefing note prepared by my Department for the benefit of interested parties.

  The new Directive represents a significant improvement over the original in a number of important respects and meets many of the Committee's concerns as expressed in its report. In particular, it:

    —  introduces a broad new definition of the transfer of an undertaking, drawing on wording from a number of the European Court of Justice's key judgements without relying on any of them exclusively, in order to clarify the Directive's scope without in any way reducing employees' existing rights;

    —  gives Member States a clear option to require transferor employers to pass employee liability information to transferee employers in a relevant transfer;

    —  leaves it for Member States to decide whether or not to introduce a system of joint and several liability, rather than making this mandatory; and

    —  gives Member States new options for applying the Directive more flexibly in insolvency situations, with a view to preserving jobs.

  We had already indicated in our Fairness at Work White Paper, published on 21 May, that we intended to amend the UK's implementing legislation, the Transfer of Undertakings (Protection of Employment) Regulations 1981 (commonly known as the TUPE Regulations), in order to improve its operation. Our success in securing this revision of the Directive will give us a much sounder basis for doing so than would otherwise have been the case.

13 July 1998



Q.   What does the Directive cover?

   It protects employees in undertakings transferred to a new employer as follows:

    —  no redundancies (unless there is an economic, technical or organisational requirement to change the workforce);

    —  no changes allowed in terms and conditions; the new employer takes on liabilities;

    —  workers' representatives must be consulted.

Q.   Why has the Directive been amended?

  A. The original Directive, as implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (commonly known as the TUPE Regulations), is some 20 years old and has been the subject of much controversy and uncertainty as to its application.The Government agreed with the European Commission that it needed improving and updating to suit modern circumstances. Ministers made this one of their social affairs priorities for the UK's six-month Presidency of the EU (January to June 1998) and secured political agreement to the amending Directive at a Council of Ministers meeting in Luxembourg on 4 June. The text was finally adopted at a further meeting on 29 June and Member States have three years in which to implement it.

Q.   Will this result in a reduction of protection for employees?

  A. No. The new definition of a transfer of an undertaking is a very broad one and includes all transfers that have any substance. Far from reducing protection for employees, the new Directive actually assures it, and in some respects enhances it. All Member States were very concerned that there should be no reduction in protection as a result of the amendment, and they have made this clear by including a Recital which explicitly states that the scope remains unchanged—as an indication that the protection it gives is not to be reduced. This will guide the European Court not to impose more limited conditions in future judgments.

Q.   But doesn't the new Directive include a narrower definition which limits its application to contracting out?

  A. No. On the contrary, it contains for the first time an explicit statement to the effect that the Directive does apply to contracting out in principle. This confirms that the Directive can apply both to first generation and to second generation contracting, throughout the EU. There still needs to be an identifiable economic entity transferred—the mere assignment or reassignment of a contract without an accompanying transfer of significant staff or assets would not be covered—but that has always been the case, as the European Court has indicated in its case law.

Q.   But what about the Su­zen case?

  A.  Existing case law will continue to be recognised; the new definition of a transfer of an undertaking draws on wording from European Court judgments in past cases (including Su­zen and Henke) but it must be taken as a whole—it gives a broad description of when the Directive applies. The main point is that it will continue to apply, as now, wherever an organised grouping of resources which has the objective of pursuing an economic activity is transferred. In practice this means any situation where something that can be identified as the same economic entity continues after a transfer. The new definition should help to confirm this and ensure that the legislation is applied both broadly and consistently in all relevant situations, without however excluding the possibility that a contract could be awarded on a different basis.

Q.   But isn't there a provision excluding transfers in public authorities?

  A.  The new text contains for the first time an explicit statement to the effect that the Directive does apply to public as well as private undertakings engaged in economic activities whether or not they are operating for gain. It distinguishes this from purely administrative reorganisation of public administrative authorities, or the transfer of administrative functions between public administrative authorities, which are not and never have been covered by the Directive. The Directive will continue to apply to non-administrative or support functions throughout the public sector, including local government. Nor has the Government any intention of reducing the rights of employees who are transferred within public administration.

Q.   What does the new definition actually say?

  A.  The text of the new definition agreed by the Council of Ministers will be published in the Official Journal shortly. It adds to the existing Article 1(1) a short definition based on words from a number of European Court cases, without relying exclusively on any of these.

Q.   What other changes have been made to the Directive?

  A.  Amongst other things, the new text gives Member States options to:

    —  allow (but not require) independent workers' representatives to negotiate changes to terms and conditions in order to save jobs when the undertaking of an insolvent employer is transferred (just as they can in cases of insolvency where no transfer is involved);

    —  provide that, in order to save jobs when the undertaking of an insolvent employer is transferred, the transferor's outstanding debts in relation to the employees do not pass to the transferee;

    —  ensure that the transferor notifies the transferee of all the rights and obligations that will be transferred in a relevant transfer (so far as they are or should be known to the transferor); and

    —  include all occupational pension rights within the terms and conditions that pass from the transferor to the transferee in a relevant transfer.

Q.   Has the Government taken account of the views of UK employee and business interests in negotiating these changes?

  A.  Yes. The DTI carried out between January and March 1998 a thorough public consultation exercise on this issue. The responses received have been taken into account during the negotiations and the outcome is in line with the views expressed by most of those consulted.

Q.   What does the Government intend to do now about the UK's own TUPE Regulations?

  A.  The Fairness at Work White Paper, published at the end of May, made clear that the Government intended to improve the operation of the law in this area. The new Directive will provide a much sounder basis for doing so than would otherwise have been the case. The Government will now be preparing new Regulations. In doing so it will not only take account of responses received in the public consultation exercise earlier this year but will continue to consult on the drafting of the Regulations, with the aim of ensuring that they meet the needs of those who have to use them; in particular that there is as much clarity and certainty as possible. It is not expected that the new Regulations would come into force before 1999.

Q.   Can the Government apply TUPE more widely than the Directive?

  A.  Yes. The Directive does not affect the right of Member States to introduce regulations which are more favourable to employees. This means that it would be possible to try to limit "grey areas" by drafting Regulations which apply rights more inclusively.

Q.   How does this affect current guidance on TUPE given by Government departments?

  A.  It does not affect current guidance, which should be followed. The guidance will be reviewed as necessary once new Regulations are determined. Any changes will not reduce the existing scope of TUPE or the rights which it gives to employees.

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