TUPE Regulations Are a Stumbling Block to New Logistics Contracts

UK – Workers rights are often a controversial subject with zero hours contracts and living wages often upsetting labour and employer alike but one logistics boss claims that Transfer of Undertakings (Protection of Employment) rules, TUPE Regulations, are restricting the ability of 3PL’s to bid successfully for contracts which could cost potential clients money.

Under the TUPE rules if a service company, such as a 3PL, wins a new contract, it inherits relevant workers from the previous contractor, and their existing terms and conditions, if they have been part of a group that has served that particular customer. This can mean becoming responsible for a group of workers’ accrued service and employment rights. Walker Logistics Head of Sales and Marketing, William Walker comments:

“Walker Logistics has pitched for and won new accounts from several 3PLs operating in the UK on the basis that we have been able to demonstrate that the contract can be serviced by, say, five workers, only to be told that the incumbent 3PL operated employed double that number of staff to undertake the same level of activity. The cost implications of taking on the extra staff that would be ‘Tuped over’ to our business undermines the proposal and, in a number of cases, has left the client with little choice but to remain with the existing service provider, even though switching would have brought a significant benefit to its bottom-line as well as increased service levels.

“Because TUPE laws were introduced to protect workers’ rights, TUPE issues are often perceived as a problem for the Human Resources department to contend with. However, they are clearly a key commercial issue and a company’s potential obligations under TUPE must be considered when tendering for new business. From a 3PL’s point of view, it is quite easy to see how the anticipated profit from a new contract can be eaten into by costs incurred under TUPE obligations. These should be factored in to any new business tender from the outset, but for many users of 3PL services TUPE rules are being used to ‘lock’ users of contracted services in to relationships that are not financially beneficial and, in my experience, this is causing significant frustration to many companies.”

Any union official would argue that the rules are a common sense solution to potential problems when a business changes hands, with the new employer bound to honour the contracts of the firm’s employees. The situation of a third party logistics provider however is somewhat different, the incumbent group of personnel have generally reached the end of a term contract and the very fact the client is looking around is probably indicative that all is not well.

In this case William Walker may have a point but not one which will be well supported if it is used merely as a tool to drive down workers’ benefits in order to obtain a contract. As to reducing the workforce, one could argue there is a clause in TUPE which states *‘any purported variation of the contract shall be void if the sole or principal reason for the variation is - a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce’. This presumably gives some leeway if the economics of the situation are the driving reason for the change, but this of course is for other finer minds to judge and will probably vary from case to case – and what 3PL wants to test this through the Courts?

*paragraph 4 (4) (b)