Vol 3 (2006) - Issue 4

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TUPE 2006 – A Missed Opportunity

The Transfer of Undertakings (Protection of Employment)
Regulations 2006 have been presented as allowing insolvency practitioners more opportunity to save businesses and removing the risk that potentially viable businesses will be shut down because purchasers are unwilling to assume the TUPE liabilities associated with them. Unfortunately, the legislation does not go nearly far enough to achieve this. This article discusses the changes that might have been made to the Regulations in order to assist formal or informal restructuring of distressed companies.
What could have been done
Unfair dismissal and protective awards The single biggest step towards reassuring purchasers that they will not inherit a substantial liability which was not of their making would have been to stop unfair dismissal awards resulting from the actions taken before/during the insolvency passing to any purchaser. The worked example below shows the types of calculations
that purchasers will make following the new Regulations, and it is obvious that unfair dismissal and protective awards are the two most material items.
Other liabilities which transfer under TUPE
It would have been helpful had other employee liabilities ceased to pass to the purchaser (although length of service should continue to accrue, so that employment rights are preserved). Set against unfair dismissal, most other amounts are relatively small, but in a labour- intensive business the total can be substantial. From the worked example below, it can be seen that on the basis of the average wage, the concession made in TUPE 06 is to remove slightly over half of the cost, excluding protective and unfair dismissal awards. Although this concession becomes less valuable as wage levels increase, it is in principle helpful. It appears that the purchaser and the Redundancy Fund will have to keep records of transferred employees so that should they subsequently become redundant or be dismissed, the correct amount can be paid from the Redundancy Fund and the correct amount by the then employer.