Advocate John T Aycock analyses whether it would suit the Island to import stricter new rules on protection of workforces on a business transfer.

TUPE or not TUPE, that appears to be the question posed by some in this pre-election period.

TUPE (pronounced 'toopee') is the acronym given to the regulations which protect employees' terms and conditions of employment when a business is transferred from one owner to another. They are a complex set of rules deriving from European Union Directives. The TUPE regulations do not apply in the Isle of Man but some on the employee side of discussions think that they should be imported.

To consider whether TUPE should become part of Manx labour law, it is necessary first to examine what the existing position is in the Isle of Man. It is not the case, as some seem to think, that there is no protection for staff when a Manx business is transferred to a new owner. We have some transfer provisions, albeit they are watered down from TUPE. Paragraph 8 of schedule 5 to the Employment Act 2006 states that if a business is transferred from one person to another then the period of employment of an employee at the time of transfer counts as a period of employment with the transferee. Thus the transfer does not break the continuity of the period of employment and this will generally mean that staff should automatically transfer when there is a change of ownership. In practice that frequently happens with no discernable change.

There is also section 11 of the Redundancy Payments Act 1990, which was amended by the Employment Act 2006. This deals with redundancies where there is a change of employer by a transfer of an undertaking and the previous employer has terminated the employment contract just prior to the transfer. If the new employer takes on the employee then certain of the key redundancy protections such as the right to a trial period are maintained in that transfer scenario.

The current Manx position therefore is that a transfer of an undertaking does not mean that the new owner can simply dispense with the services of the existing staff. The Employment Act 2006 applies in that the employer must have a fair reason for any dismissal. Even if the dismissal is a genuine redundancy, a fair procedure must still be adopted and certain protective rights can be maintained if the new employer takes on the staff. In sale and purchase agreements, responsibility as to staff and any resulting awards is normally accepted by one of the parties as a condition of the deal.

Perhaps the key difference with the TUPE position in the UK is that TUPE dictates that any dismissal related to a transfer of an undertaking is automatically unfair unless there is an 'ETO' – that is an economic technological or organisational reason justifying dismissal, in which case the dismissal could be fair. By making a transfer connected dismissal automatically unfair, the onus is placed on the employer to show it was not unfair - i.e. there was an ETO.

TUPE sounds fine in principle. In practice, however, it has been a minefield for employers, employees and employment lawyers. Whole books are devoted to the interpretation of TUPE and there are countless reported cases involving TUPE in the UK and Europe.

To get a flavour of the complexity of situations that can arise, one only need look at some of the relevant applicable law. TUPE is in fact the Transfer of Undertakings (Protection of Employment) Regulations 2006. TUPE 2006 replaced TUPE 1981 (yes, this is hardly new). The effect of the updated 2006 Regulations included extending the key definition of "relevant transfers" to include service provision changes where serviced, outsourced or assigned to a new contractor.

In turn, TUPE regulations were introduced in the UK to comply with relevant EC Directives concerning the transfer of business undertakings principally:

• The Acquired Rights Directive (77/187/EC);
• The Acquired Rights Directive (98/50/EC); and
• The Acquired Rights Amendment Directive (2001/23/EC).

It does not stop there. Further UK statutes and regulations which have an effect on TUPE include:

• The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995;
• The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999;
• The Pensions Act 2004; and
• The Transfer of Employment (Pensions Protection) Regulations 2005.

Over the years TUPE has been found to apply to a number of situations such as mergers, sale of businesses by sale of assets, transfers out of companies in administration, contracting out of services and a change of licensee or franchisee. TUPE has been found not to apply where transfers are by share acquisition or of assets only or where the undertakings being transferred are outside the UK but these may be covered by regulations of EU member states. Because TUPE could not possibly cater for every situation, each component word and phrase of the key regulations regularly get analysed in courts, for instance the extent of the definitions of 'relevant transfer' and 'undertaking'. It is important to understand though that a mere change of owner by share transfer does not attract the TUPE protection, the employment contracts continue with the company unaffected in law.

As you can imagine, there is considerable online and other guidance as to how TUPE operates but for the average business it remains something of a mystery generally unravelled only by very specialist employment lawyers and judges.

As with much legislation, the effect can sometimes lead to unintended consequences. Because the 2006 TUPE Regulations extended relevant transfers to a service provision change, this would cover for instance a local education authority outsourcing to a private company the provision of school meals which it previously provided by its own staff, such staff would transfer in those circumstances. But the same rule can lead to an oddity. If, for instance, a service provider such as an advertising agency or law firm takes over a client from another firm following a tender process the new firm may also be under an obligation to take on the staff who were the dedicated team working for that client at the previous firm!

TUPE will also apply where a lessee of a restaurant gives notice to its staff on termination of the lease and the lessor then grants a new lease to a third party which continues to run the business - the staff would transfer (as held by the European Court of Justice in the famous Daddy's Dance Hall case).

It was because of such complications that in May this year the UK Government announced a review to examine possible reforms of TUPE as part of its general effort to reduce employment red tape. The "gold plating" of European Directives (where governments exceed the terms of the EU Directives when implementing them into international law) is also under the radar of the coalition government in the UK. The 2006 TUPE Regulations (which widen the definition of 'relevant transfer') are an example of "gold plating" as they went further than required by Brussels.

The Isle of Man employment law on transfers of business is therefore easily understood and appears to work in practice. In fifteen years practice in the Isle of Man, I have frequently advised on the employment aspects of business transfers but in my experience few disputes have arisen. This is largely because new owners of businesses generally aim to respect the current workforce and maintain their terms and conditions irrespective of TUPE not applying. But in tighter times cuts are made and business transfers sometimes trigger such measures. In those circumstances however redundancies or other dismissals must be conducted lawfully pursuant to the Employment Act 2006. The Manx Employment Tribunal recently heard a case involving some transfer arguments and looked at section 11 of the Redundancy Payments Act. In a short, clear judgment, correctly made without reference to TUPE, the tribunal found there to be no transfer in the circumstances and consequent redundancy payments were due.

In the UK, on the other hand, the complexity of TUPE provides a layer of uncertainty which sometimes assists neither employee nor employer. When I practised as an employment lawyer in England I saw cases where TUPE deterred the proposed acquisition; and without a buyer, the target business can sometimes fold altogether. The Chartered Institute of Personnel Development gives this view on its website:

"TUPE is a complex area so it is essential to seek legal advice for individual circumstances. Where a business, or part of one, is being transferred, both parties (that is the transferor and the transferee) should seek such advice at the earliest possible stage."

There may be justification for TUPE in a large jurisdiction trading in a larger common area. In a much smaller non-EU jurisdiction such as the Isle of Man where business transfers are not daily occurrences, I struggle to see the rationale to introduce a new layer of law, bureaucracy and paperwork, particularly at a time when corporate activity and its consequent job creation need stimulating not stifling. The phrase 'Freedom to Flourish' comes to mind (although I have not heard that much in the hustings so far). It is self evident that the introduction of TUPE would spawn related regulations and secondary legislation and would have an effect on other existing law. Moreover the extent of TUPE to be adopted in the Isle of Man would doubtless be subject to extensive debate in Tynwald, the result of which might be that minimal changes were made.

To answer the question in the opening paragraph therefore it seems there is a reasonable argument to leave matters as they are. The slings and arrows of the current system can be suffered as opposed to taking arms against the sea of troubles that might arrive with the introduction of TUPE to the Isle of Man.

Advocate John T Aycock is joint managing director of M&P Legal and head of the firm's employment unit. M&P Legal has been chosen as the winner of the Corporate International Magazine 2011 Global Award for 'Employment law firm of the year' in the Isle of Man, the second year running it has won such an award.

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