What will the new Employment Rights Bill mean for TUPE?

In its pre-election manifesto Labour committed to strengthening the existing set of rights and protections for workers subject to TUPE processes. We consider the impact the new Labour government's planned Employment Rights Bill may have on those in the corporate sector looking to transfer or acquire a business or contract.

One of the complex issues that can arise on the sale or acquisition of a business, or when tendering for work, is what will happen to the individuals who are impacted by the transaction.   

The current regime under TUPE

Business owners will be familiar with TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) which requires that employees who are assigned to the business or service which is changing hands automatically transfer to the new owner or service provider on their existing terms and conditions, with enhanced protection against dismissal.  TUPE also sets out comprehensive requirements for those involved in a relevant transfer to properly inform and consult affected employees in good time before the transfer takes place.  Failure to transfer employees or to properly consult with them can result in claims being brought against both the original and new employer.  For transactions involving a high number of employees, this could result in a significant liability.

Changes post-Brexit

TUPE is derived from EU legislation and was one area that many commentators surmised may be subject to change following Brexit.  In 2023 the Conservative government passed Regulations which relaxed some of the rules around informing and consulting, and, shortly before the July election, launched a consultation on further changes, including legislating to confirm TUPE applied to employees only (not to the broader category of workers).

Following Labour’s general election win on 4 July, all of that looks set to change.  While the Conservative government had started gradually departing from the EU rules, turning the dial towards greater flexibility for businesses, Labour’s pre-election manifesto suggests the dial will turn back firmly in favour of strengthening the protections afforded to employees and workers.

Labour’s Employment Rights Bill

On 17 July the new Labour government’s plans were read by King Charles in a speech to parliament.  Those plans include the bringing forward of a new Employment Rights Bill within the first 100 days of the new parliament.  Full details of what the Bill will include are still to be confirmed, but it is likely to incorporate many of the changes proposed in Labour’s pre-election manifesto.  Among the manifesto commitments was a proposal to “strengthen the existing set of rights and protections for workers subject to TUPE processes”.

While there is no further detail at present about what these further rights and protections may entail, it is clear that the protections afforded to employees will continue to be of great significance in relevant transactions and when negotiating commercial terms.  At present, the law provides for some limited circumstances in which employers who inherit employees through a TUPE transfer are permitted to make changes to the transferring employees’ terms or carry out dismissals.  Labour’s proposals to strengthen protections in relation to redundancy and TUPE could mean that this exception is pared back further, meaning great care will need to be taken when implementing business re-organisations and/or harmonisation of terms and conditions following acquisition of a business or a contract.

Expanding the scope of individuals who may transfer?

Labour’s manifesto also proposes to create a single status of worker, which would be a significant departure from the current system which distinguishes between “employees” and “workers”.  At present there is some dubiety about whether or not ‘workers’ fall within the scope of TUPE.  If Labour’s proposal to create a single worker status is brought in, this may significantly increase the number of individuals in scope to transfer to a new employer as part of a relevant transaction. However, it will hopefully address the ambiguity that has plagued businesses and advisers alike.

A ‘day one’ right to claim unfair dismissal?

One of the headline grabbing aspects of Labour’s manifesto is the proposal to introduce a ‘day one’ right to claim unfair dismissal. At present, claims for automatically unfair dismissal because of a TUPE transfer may only be raised where the dismissed employee had over 2 years’ service.  This means businesses who inherit employees pursuant to TUPE have some flexibility to dismiss those who have short service.  Again, the devil will be in the detail as to how this change will be implemented. In the context of commercial transactions involving TUPE, it will be of critical significance to organisations to whom employees transfer. The anticipated day one right to unfair dismissal protection will result in businesses assuming greater liability at the point of transfer. It will likely necessitate enhanced due diligence exercises and specific consideration in the course of commercial drafting and negotiation.

Whether or not these changes materialise remains to be seen.  What is clear is that TUPE is here to stay and will continue to be a complex issue within the corporate sector.