TUPE and Outsourcing

David Fagan of Business Legal explains where the Transfer of Undertakings idea originates, the problems and risks associated with outsourcing arrangements and whether the TUPE regulations will apply.

David explains how the regulations in Ireland are not as strict as their UK counterparts, how this can lead to uncertainty for the service providers involved and existing staff, and offers advice on how to handle the complex set of circumstances going forward. 

Well, firstly I suppose it would  be useful to explain where the Transfer of Undertakings, or  TUPE, comes from.
Originally, it's a French idea from the 1920s, believe it or not. Essentially, the idea is that, if a company sells all its assets, that the employees are not left high and dry with all of the assets being moved out of the business, and the employees remaining in the business but with no business left.

The European Union brought that in for us in 1980. We've had it 36 years or thereabouts. So it's nothing new. Originally, it was considered that TUPE would not affect outsourcing, that is to say, the transfer of contracts between outsourcing entities or the loss of a tender. But after a series of cases known as Spijkers, Schmidt, and Süzen, the European Court of Justice has found that, as long as the work consists of a stable economic entity. And as long as it is not limited to just one works contract, then any loss of a tender can, in theory, become a TUPE.

The first problem in outsourcing is to find out, does TUPE apply or not. One of the biggest problems with TUPE, in this jurisdiction is that, by the time it is understood whether TUPE applies or not, it is usually after the point at which the tender has been submitted in an outsourcing situation. That usually means that people are pricing in the blind.

The only way that that can be resolved is if the entity that is seeking the work to be done forces the previous incumbent to set out its pricing arrangements, and so on and so forth, so that they can be publicised in the tender. This is very rarely done.

There can be a lot of risks in Transfer of Undertakings, or TUPE, for the incoming provider. It might find that it is subject to making large redundancy payments because it has no idea of the profile of the staff that it is taking over. There's no idea of any potential legal claims and it is always possible that in the course of the transfer that employees may attempt to injunct the transfer because of some failure to comply with the TUPE regulations.

So what are the solutions?

Well, in the UK, there are very detailed regulations on Transfer of Undertakings which means that, essentially, most outsourcing type arrangements are Transfer of Undertakings and everybody knows where they stand.

In Ireland, there's no Irish equivalent. So what that means, effectively, is that in Ireland, it is possible, frequently, to avoid the regulations. This creates uncertainty for business. When a business is taking over another outsourcing arrangement, it doesn't know whether TUPE applies or not, and will usually attempt to avoid it. When a business is ceasing an outsourcing arrangement, it does not know whether or not it can guarantee that the new provider will take on its staff under TUPE.

So, David, if TUPE applies, what happens?

Well, if TUPE applies, then, effectively, the employees who have been employed performing that contract, transfer from the old service provider to the new service provider, as if they had always been employed by the new service provider.

That's why it's so dangerous for the new provider. He's taking on all terms and conditions of the existing staff, and he has no ability to change those terms and conditions without negotiating with the staff in the same position, as if he had been the old provider. So it's quite a draconian thing, to be landed with another organisation's employees on their terms and conditions.

If Ireland's regulations aren't as strict as the UK,  and lead to uncertainty, how do you fix that?

It's a very difficult problem for the two service providers because, effectively, the fix is for the organisation, which is getting the work done, to sort matters out. Essentially, the easiest way of doing it is to force the new service provider to provide certain information, when their contract finishes.

If, at the start of the contract, the arrangement is that at the end of the contract that service provider has to provide all relevant details, they can then be put in the tender, so that they can be provided at a certain point to the successful, or to the bidders in the new tender arrangement.

The problem, of course, is it has to happen at a stage before the current tender. So you can't retrofit the solution very easily, but you can fix the problem going forward. But only the organization that is seeking the work done can do this.

Quite often, it has no motivation to do that, and therefore it is quite common for this problem to arise, where the incoming organisation has no idea, really, of the terms and conditions of the employees that it might be taking on, at the time when it prices for the tender.

This does lead to the situation where people have tendered for work, and found that they actually have to perform the work at a price that is more than the price they are receiving for the work.