Commercial solicitors Leeds

January 2014

Changes to Tupe from 31 January 2014

The new Collective Redundancies and Transfer of Undertakings Regulations come into force on 31 January 2014 and the main provisions are:

  • The rules on service provision changes will remain, but the legislation will clarify that for there to be a TUPE service provision change, the activities carried on after the change in service provision must be "fundamentally or essentially the same" as those carried on before it.
  • The requirement to provide employee liability information will be retained, but for transfers after 1 May 2014 the information will have to be given 28 days before the transfer, rather than the current 14 days.
  • There will be a static approach to the transfer of terms derived from collective agreements and transferees will be able to change terms derived from collective agreements one year after the transfer, provided that the overall change is no less favourable to the employee.
  • Changes in the location of the workforce following a transfer will be expressly included within the scope of an economic, technical or organizational reason entailing changes in the workforce (ETO reason), thereby preventing genuine place of work redundancies from being automatically unfair.
  • Micro-businesses will be allowed to inform and consult affected employees directly when there is no recognised independent union, nor any existing appropriate representatives.

Given the government's surprise decision not to proceed with its initial plan to remove the rules on service provision changes, the amendments to TUPE are less significant than had previously been expected. In fact, it is probably the amendment to TULRCA, enabling the transferee to collectively consult the transferor's employees prior to the transfer that is likely to have the most important practical impact. While there are clearly benefits for the transferee, as it will be able to start collective redundancy consultation before the transfer takes place, there may be practical issues for transferors which mean that they are unlikely to agree to such requests. For example, in relation to a subsequent generation outsourcing where an outgoing supplier will not want an incoming supplier (who may be a competitor) to have access to its premises and employees. On the other hand, pre-transfer consultation will also not be without risks for the transferee. The transferor is under no obligation to assist the transferee to comply with its collective consultation obligations; the legislation simply states that the transferor may provide information or other assistance.

From the TUPE perspective, the amendment providing for a change in location to amount to an ETO reason will be welcomed by transferees. In the light of recent court decisions transferees have had to accept the risk of automatic unfair dismissal claims on a change of location as a matter of course (and to try and negotiate adequate indemnity protection). This amendment should ensure that redundancies due to a change of location where the transferee has a different place of work to the transferor, will not be automatically unfair.

Share Purchase Agreement Penalty Clauses

In El Makdessi v Cavendish Square Holdings BV and another, the Court of Appeal considered whether clauses in a share purchase agreement were unenforceable penalties. The clauses in question provided that, on the seller's breach of a restrictive covenant the buyer would be:

  • Released from its obligation to pay certain deferred consideration.
  • Entitled to force the seller to transfer the remainder of his shares in the target company to the buyer at a price based on net asset value (which was less advantageous than the price that would apply on a sale of the shares where there had been no breach).

The court found that, taken in the context of the agreement as a whole, the relevant clauses were not a genuine pre-estimate of the buyer's loss. On the contrary, they were extravagant and unreasonable. While this was not, of itself, conclusive in determining whether the clauses were penal, the court also found that, in the circumstances, the provisions lacked commercial justification. Their predominant function was to act as a deterrent to breach. The sum the seller stood to lose under these clauses was out of all proportion to the loss attributable to the breach. This took these clauses way beyond compensation and into the territory of deterrence. Accordingly, the court held that the relevant clauses were penal and the buyer could not enforce them.

New Asbestos Code of Practice

The Health and Safety Executive (HSE) has published a new Approved Code of Practice ACoP L143 (Managing and working with asbestos), which is freely downloadable from the HSE website. The new ACoP consolidates two previous ACoPs, L127 (The management of asbestos in non-domestic premises) and L143 (Work with materials containing asbestos) to reflect the Control of Asbestos Regulations 2012 (SI 2012/632), which came into force on 6 April 2012.

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