De-regulation for the sake of it?

March 14, 2013 at 12:10

The Government’s ‘red tape challenge’ sounds like some sort of physical assault course; conjuring images of hapless workers wading through paperwork, red tape tied round their ankles, tripping over giant copies of the tax code and stumbling into open filing cabinets spilling over with old employment contracts.  Underneath the rhetoric, the implication is that the current state of ‘regulation’ hinders business and innovation; the Government wants us to tell them what bits to scrap.  Unless talking about bankers, the idea that regulation is a catalyst for fair business is all but lost.  This is despite the fact that we have seen that a lack of it doesn’t always lead to the most, ahem, ‘ethical’ business behaviour.

When the red tape challenge first opened the issue of TUPE stood out as an issue for a range of business.  TUPE is about when services are transferred from one entity to another, ensuring that employees caught in the middle are not unfairly left without a job or with dramatically different conditions.  The TUPE 2006 regulations are based on an interpretation of an EU Directive.  This all seems fair enough, but there is often a lack of understanding as to where TUPE applies.  Some parts work better than others, and this has a huge impact on business transactions because it can conceal some hefty employee related liabilities.

The recently released Government consultation on TUPE demonstrates the age of de-regulation we’re in. If an element within a set of regulations is complex or difficult to understand then let’s revoke it – there, problem solved?! Not always.

At first glance there are two groups to consider, the employers, and the employees.  Responses to an initial call for evidence from the department for Business Innovation and Skills (BIS) in 2012 reflected this.  Unsurprisingly, Unions are quite happy with the interpretation of the Directive in TUPE 2006, which possibly errs on the cautious side.  If anything, they want greater clarity and security for the employee.  Business representatives have a few more issues.  TUPE negotiations and the associated costs can be painful for business and charities alike.  The importance of protecting employee rights is recognised across the board; however, when there is uncertainty around liabilities, the risk profile of a contract quickly goes through the roof doing little to help the employer or employee.

So in the vein of cutting red tape, the Government have signed up to the idea that TUPE 2006 has ‘gold-plated’ some or all of the requirements of the Directive, and they have opted to ‘de-regulate’.  The problem is it’s not actually what was asked for, or at least not everywhere.

All but ignored is the fact that employers also consist of two separate groups, that is, the transferor (previous employer) and the transferee (new employer).  While some de-regulation will support swifter movement of staff and assets from one to another, it is less helpful in other areas.  Critically it is least helpful in areas where those taking on employees as part of a contract are reliant on the provision of timely and accurate information from others – a familiar situation for charities delivering public service contracts.  The BIS summary of responses to their initial call for evidence clearly stated ‘Nearly 20% of respondents…indicated that the current requirement to provide Employment Liability Information (ELI) at least 14 days before the transfer is insufficient’; note that these statements were un-solicited. It also summarised that responses felt the 14 days ‘should be increased, as it is felt that it is too close to the transfer…’

There is little incentive for the transferor to provide ELI at an earlier stage than required by the regulations, why would they? The other business might be a competitor and it opens them up to a degree of commercial vulnerability.

A year later, the new proposals for TUPE, made in the recent BIS consultation, will hopefully afford some flexibility to the transferees.  However, when it comes to improving the flow of information to the new employer the Government have dealt a bit of a blow, proposing to repeal the requirements around ELI altogether, ‘but making it clear that the transferor should disclose information to the transferee where it is necessary for the transferee and transferor to perform their duties….,’ although it seems highly unlikely that the two organisations will agree when this time has come.

Justification backing up the repeal is based on assumptions that information transfer is only an issue where Service Provision Changes have occurred – and these have also been repealed – but this provides little reassurance.  There is a real risk that this measure will increase rather than decrease the level of dispute around information transfer.  This will increase the level of uncertainty and risk for charities that are tendering for public sector contracts, meaning that they will still potentially be in a position where they are taking on liabilities that they did not know about and cannot afford.

De-regulation for the sake of de-regulation does not necessarily lead to smooth business.  Instead regulatory and de-regulatory measures should both enable flexibility and faster, more efficient, more transparent business transactions.

In the case of TUPE, the challenge is getting this balance right, where you cut the tape, and where you might stick a bit more on; less of an assault course and more of an intellectual puzzle.  This could not only make the situation clearer for the two employers and for the commissioner, but it will also provide much greater reassurance for the employee and ultimately provide better continuity and protection for the service.