The Brexit bolt: HR contingency planning for relocating business functions overseas

According to recent news reports, both sides in the Brexit negotiations hope to have finalised a transitional deal, covering arrangements for the two years after the UK leaves the EU, by this March. If this comes to pass, it should provide a degree of certainty to UK businesses, at least in the short term. However, international businesses with operations in the UK are already starting to trigger contingency plans which may see the transfer of functions to mainland Europe and large-scale reductions in UK staff numbers.

Swiss bank UBS, which has 5000 employees in the UK, announced in its fourth quarter earnings report that it would trigger its contingency plans early this year, having previously suggested that it could move up to 1000 roles out of the country. Whilst financial services is one of the most talked-about sectors when it comes to contingency planning, all international businesses with UK operations will need to be considering how they can best preserve their ability to access the single market, hire and retain staff from the wider EU talent pool and navigate the legal and regulatory difficulties that will inevitably arise from the EU/UK divorce. Undoubtedly, these deliberations will include whether or not their UK workforces need to be reduced in size, potentially with an equivalent increase in staffing numbers elsewhere in Europe.

HR professionals in these businesses will therefore need to dust off their UK redundancy know-how, as well as considering whether the transfer of roles to other EU jurisdictions is covered by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and/or equivalent legislation elsewhere in Europe.

Is it a TUPE transfer?

An employer who plans to transfer entire functions or parts of its business to another part of its "empire" outside the UK may be caught by TUPE, which provides that where one employer transfers a business or part of a business to another entity, any employees who are assigned to that business will automatically transfer on their existing terms and conditions of employment and with their continuity of service preserved. TUPE also provides enhanced protection against unfair dismissal for qualifying employees, and requires any employer of affected employees to inform and, potentially, consult with appropriate representatives of those employees in advance of the transfer. In businesses without recognised unions, elections generally need to be held to elect employee representatives. This is key, because a failure to comply with the information and consultation requirements can result in an award of up to 13 weeks' actual pay for each affected employee. If the affected group is large, this liability could be very significant.

To assess whether TUPE applies, an employer must make a careful assessment of what is being transferred – does it fall within the definition of a business transfer under TUPE? - and then analyse which employees are assigned to the transferring business and therefore "in scope" to move across. There are huge amounts of domestic and European case law on these issues and much of it is very fact-specific; businesses will need to be confident in applying the legal principles to their own particular circumstances.

What about a transfer out of the UK? It is generally accepted that even where a business situated in the UK is transferred outside the UK, TUPE can still apply. Where the business is being transferred elsewhere in the EU, local legislation on the transfer of undertakings may also apply. The information and consultation requirements, and consequences of failure to comply with these, can be more stringent than under TUPE n the UK, so careful advice needs to be taken in the "recipient" country.

In a transfer from the UK to another jurisdiction, it is likely that the "in scope" employees will automatically transfer to the new employer on their existing terms, including terms as to workplace, with the result that immediately following the transfer their roles will be redundant (because the transferee no longer requires employees to carry out work of the type they are employed to carry out at their existing workplace). However, this doesn’t meant that pre-transfer dismissals are safe. The outgoing employer cannot rely on the incoming employer’s redundancy situation, so pre-transfer dismissals carried out by the outgoing employer in reliance on a redundancy situation that will arise immediately following the transfer are likely to be automatically unfair, and should therefore be approached with caution. Helpfully however, following amendments to TUPE in 2014, it is now possible for the outgoing and incoming employers to agree that the incoming employer can carry out collective redundancy consultation with in-scope employees in advance of the transfer date, even though it is not yet the employer of those people. This is well worth considering in an intra-group transfer, where the outgoing and incoming employers are likely to have a common interest in ensuring the smoothest possible transfer at the lowest possible cost.

Redundancy – Some Reminders

Whilst some senior and highly skilled or specialised workers may be lucky enough to be offered the opportunity to relocate along with the business they work in, others will not be so fortunate. Redundancies may well be necessary. If 20 or more redundancies are proposed by a single employer at one establishment within a 90-day period, collective consultation obligations will be triggered and dismissals will be prohibited for a prescribed period after the start of that consultation process (the length of the period depends on the numbers to be dismissed). As with TUPE consultation, the penalty for failure is significant – in this case up to 90 days' actual pay for each affected employee. Some key issues that HR will have to examine are:

  • Is the "20 or more" threshold triggered, taking into account all of the employer's plans? The redundancies are looked at over a rolling 90 day period so it is necessary to look back as well as forward to see if this threshold is crossed. Redundancy covers any dismissal for a reason not connected to the individual (except the ending of fixed term contracts in specific circumstances) so the reasons for any recent or proposed future terminations need to be examined carefully.
  • Are all redundancies proposed at a single "establishment"? There is a great deal of case law on the meaning of "establishment". Recent UK appellate authority in the Woolworths / Ethel Austin litigation clarified that if the staff are not all based at a single establishment, it is not necessary to aggregate all redundancies across the workforce to determine whether the threshold for collective consultation is crossed. However there is still a lack of clarity as to the meaning of this term and careful thought will need to be given to this issue in businesses which have multiple locations.
  • When should we start consulting? This will depend on business objectives as well as how many employees are expected to be made redundant and over what period. There is no prescribed trigger point in law and timelines are typically dictated by commercial or accounting pressures. However, some key legal points should be remembered and factored into planning:
    • Consultation must cover the business reasons for the proposed redundancies and ways of avoiding them. In light of this, it is necessary to start consultations before the business decision which will inevitably lead to redundancies is made. Communications with affected staff need to be carefully timed, and worded, to reflect this.
    • There is an the obligation to notify the Secretary of State (on form HR1) of collective redundancies prior to commencing consultation. This should be done at least 30 days before the first dismissal in the case of 20-99 redundancies and at least 45 days in the case of 100+ redundancies. Failure to do so is a criminal offence, which may result in liability for the employer and members of senior management. Any HR professional advising management on redundancy obligations omits this at their peril

If the government is to be believed, Brexit will bring many exciting opportunities for UK businesses. However, it is clear that international companies are now looking at their options, and those undoubtedly include reductions in UK headcount. HR professionals in those businesses will need to know their way around TUPE and redundancy law to ensure that any such reductions are carried out smoothly, humanely and, of course, in accordance with the law. 

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