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TUPE - What businesses need to know about the retention of employment model

Dean Fuller, Fox, solicitors

November 1 2012 - The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) give domestic effect to the EC Acquired Rights Directive (ARD) on "the approximation of the laws of Member States relating to the safeguarding of employees' rights in the event of transfer of undertakings, businesses or parts of undertakings or business."

In essence the underlying purpose of TUPE is to protect employee rights in the event of a transfer or service provision change. This is secured by the statutory novation of the employee's contract of employment.

The RoE Model

The Retention of Employment model (RoE) was originally developed by the Department of Health (DoH) in response to UNISON campaigning several years ago on Private Finance Initiative (PFI) schemes. UNISON negotiated the RoE model as a means of limiting the number of non-clinical staff forced to transfer to the private sector from the NHS under PFI.

In summary the RoE model works as follows:

Stage 1

Employees opt-out of the transfer of their employment under regulation 4(7) of TUPE. The employees must be properly informed of their situation and be freely objecting (see Senior Heat Treatment -v- Bell [1997] IRLR 614, EAT). The objection can be given either to the transferor (generally the public sector employer) or to the transferee (the incoming private sector provider). A model Notice of Objection appears in the box below.

Stage 2

If employees opt-out under TUPE, their employment terminates immediately by operation of law and automatically on the date of the transfer. They have not been dismissed and are legally in the same position as if they had resigned.

Stage 3

However, under RoE the employees are then immediately re-employed by the public sector employer on the same terms and conditions of employment as they previously enjoyed with continuity of service preserved for all purposes, including pension rights.

Stage 4

The final stage in the RoE model is for the employees to be seconded to the private sector provider, but remain employed by the public sector employer. It may be necessary to change the relevant employees' terms and conditions of employment to make express provision to allow for secondment.

In theory the development of the RoE model allowed employees to remain members of the relevant NHS pension scheme, which would not have been possible had they transferred to the private sector under TUPE. Further it was expensive for private sector bodies who were taking on ex-NHS employees under TUPE to provide them with a Government Actuary's Department certified pension scheme, as required under the Cabinet Office Statement of Practice "Staff Transfers in the Public Sector".

Stage 4 is problematic. The RoE model was designed to fit in with the long-term nature of a PFI contract which typically can last for up to 30 years. Is it really feasible to expect the public sector employer to retain responsibility for such core matters as pay, discipline and approval of holidays yet at the same time devolve day-to-day management responsibility to the private sector provider?

Dear Sir/Madam

Notice of Objection to transfer

I, the undersigned, hereby register my objection to my employment being transferred to [name] under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

I understand that as a result my employment will terminate on the date of transfer as if I resigned. I understand that I will not receive any redundancy or severance pay, and that I may not be eligible for Jobseeker's Allowance. I confirm that these consequences have been explained to me by a Human Resources manager.

Yours sincerely, etc.

What do the Courts say?

The case of Celtec -v- Astley [2006] IRLR 635(HL) involved the transfer of vocational training staff to Training and Enterprise Councils (TECs) in 1990. As civil servants the vocational training staff continued to be employed by the Department of Employment until 1993, working under secondment arrangements for the TECs. In 1993 the staff became employees of the TECs. The question for the European Court of Justice (ECJ) was what was the date of transfer of employment?

The ECJ held that the date of transfer for the purposes of the ARD is the particular point in time when responsibility for carrying on the business of the undertaking passes. The House of Lords, applying that decision to the facts in the case, held that the employees were transferred from the Department of Employment to Celtec when it took over responsibility for vocational training in 1990, despite the fact all of the parties believed that they were only seconded on a voluntary basis to Celtec until 1993. The employees' continuity of employment was preserved.

In Celtec Lord Hope said " is a fundamental right of the employee to be free to choose his employer. So he cannot be obliged to work for an employer whom he has not freely chosen. From this it follows that it is open to an employee whose contract of employment would otherwise be transferred automatically from the transferor to the transferee on the date of the transfer of his own free will to withdraw from this arrangement by declining to enter the employment of the transferee...It does not enable effect to be given to an employee's wish to continue to be employed by the transferor while continuing to be employed in the unit to which he has been assigned after its transfer to the transferee."

Is this the death of the RoE model? The answer is probably not provided that the following conditions are satisfied:

  1. The employee is given a free choice as to whether or not to transfer.
  2. The employee freely decides not to transfer.
  3. The employee objects to transferring (preferably in writing).
  4. The employee enters into a new contract permitting secondment.

Celtec did not directly consider the RoE model and therefore, did not rule on its effectiveness. To date there has been no appellate decision on the RoE model but Celtec continues to cast a shadow.

The DoH agreed that RoE survived Celtec but there was clearly some discomfort with the RoE model. This was evidenced in a letter from Clare Chapman, Director-General, Workforce of the DoH to the Chief Executives of NHS Trusts dated 13 January 2009 in which she commented " The Department has agreed with HM Treasury that it will review the use of RoE in the NHS with a view to identifying the uses the arrangements may have in the NHS going forward...Until this review is completed the Department will be taking steps to ensure that no unauthorised uses of RoE including access to the NHS Pension Scheme take place."

Following the review in 2009 the use of the RoE model by the NHS is now specifically restricted to soft facilities management in PFI schemes (e.g. catering, cleaning, security etc.) and staff working in Independent Sector Treatment Centres.

The RoE model remains feasible but not without legal danger. Parties seeking to adopt the model away from the NHS must carefully document each stage of the process and consultation with the elected representatives of the affected employees is likely to be a key consideration.

The rationale for the RoE model may have become diluted in recent years (at least in the NHS) but perhaps an opportunity for protecting the pension rights of affected employees in other settings is being overlooked.

Dean Fuller, Fox, solicitors based in the City of London

Dean Fuller


Telephone: 020 7618 2400

Fox are a boutique law firm based in the City of London, specialising in contentious employment and partnership issues swiftly and effectively.

Dean Fuller Dean is a senior associate. He advises on contentious disputes and is a trial lawyer. He has acted for respondent employers and claimants alike on injunctions, restrictive covenants, team moves, wrongful dismissal, breach of contract, discrimination and whistleblowing claims e.g. defending multiple high value race, sex and disability discrimination and harassment claims for a well-known insurance company and most recently pursuing an age discrimination claim. He also has extensive experience advising on the employment aspects of a wide variety of M&A, private equity and outsourcing transactions, as well as workforce restructurings and corporate insolvencies. Dean has a keen interest in corporate governance issues and has advised both companies and directors on their responsibilities under the UK Corporate Governance Code, the FSA Remuneration Code, the Takeover Code and recommended best practice.

Dean advises on service agreements, bonus schemes, disciplinary and grievance matters and the termination of employment of senior executives, including the tax rules for severance payments. He has most recently been involved with negotiating exit packages for FSA registered senior executives of UK, US and European banks and other financial institutions. In addition he has presented client seminars and delivered keynote speeches on topics such as TUPE and the Bribery Act 2010.

Dean's professional duties include sitting as a non-Council member of the Law Society Remuneration Committee and membership of the Industrial Law Society, the Employment Lawyers Association and a peer review panel for Oxford University Press. Outside work Dean is Chairman of the Royal Automobile Club Pall Mall Billiards Committee.



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