Transfer of Undertakings (Protection of Employment) Regulations 2006

– in the House of Lords at 8:00 pm on 3rd May 2006.

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Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 8:00 pm, 3rd May 2006

rose to move to resolve, That this House calls upon Her Majesty's Government to revoke the regulations laid before the House on 7 February (SI 2006/246) [25th Report from the Merits Committee].

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I am very grateful to the Minister for coming to the Chamber today to explain the Government's position on these regulations. I declare my interest as a solicitor and a partner in the firm of Beachcroft LLP. I have been inspired to put down this Motion to revoke by the very serious concerns raised by those who are most directly affected by the regulations; namely, those involved in turning around and, in particular, rescuing failing companies where the transfer of undertakings is all-important. Above all, these highly skilled professionals need as much certainty and as little uncertainty as possible. Our concern is with the insolvency provisions of the regulations, specifically with their drafting and their practical application.

These regulations were intended to give effect to an EC directive from 2001, fully five years ago. The Government have had plenty of time to get them right, but I believe they have failed abjectly. Over a year ago, the DTI first consulted on the draft regulations and respondents included R3, the representative body for insolvency practitioners in England and Wales, whose expertise in these matters is universally recognised as being second to none. It drew attention to the unsatisfactory nature of the regulations, setting out its detailed concerns and suggesting alternative wording that would have made the regulations workable. Its advice, however, seems to have been completely ignored. Despite many subsequent representations to Ministers and officials, still nothing was done to improve matters.

In the past, the operation of TUPE has deterred potential purchasers from buying insolvent businesses because of the prospect of inheriting onerous and sometimes uncertain liabilities. One of the stated aims of the regulations is to make it easier for insolvent businesses to be transferred to new employers by reducing some of the burdens that will pass across to a purchaser. We on these Benches fully support this policy objective. Insolvency practitioners, too, are as anxious as anyone else that as many jobs as possible should be saved when an employer becomes insolvent. However, if the regulations are to have the desired effect, they must be drafted in clear, unambiguous language. Only then will those dealing with insolvencies and those acquiring businesses subject to insolvency proceedings know where they stand and precisely how the provisions of the regulations will affect transactions.

Unfortunately, the regulations, as regards the insolvency provisions, failed to achieve that. That is because they are drafted in language that is so loose and imprecise it is not possible to discern with any clarity how they are supposed to work. Instead of bringing clarity, they bring confusion to new, unprecedented heights.

My principal concerns are that these regulations, first, fail to specify the types of UK insolvency proceedings to which they are intended to apply; secondly, fail to make clear which liabilities will pass to a purchaser and which will not; and, thirdly, impose unrealistic obligations on insolvency office holders with which it would be impossible for them to comply and with penalties that will ultimately fall on creditors. The regulations transpose the vague generic language of the directive without attempting to specify how it is to apply in the context of specific UK insolvency proceedings. Only expensive and time-consuming judicial interpretation will establish the circumstances in which they are intended to apply.

The regulations seek to draw a distinction between two types of insolvency proceedings: those opened with a view to the liquidation of the assets of the transferor and those opened not with a view to the liquidation of the assets. However, that distinction makes no sense at all in the context of UK insolvency. It is unclear which of the UK insolvency regimes would fall within which provision. Assets are sold in every type of insolvency process, whether administration, administrative receivership, company voluntary arrangement or liquidation, even where the whole or a part of the business is preserved and sold as a going concern. In some cases, part of a business will be preserved while other remaining assets are disposed of piecemeal.

In that context, I ask the Minister what the phrase "[not] with a view to the liquidation of the assets of the transferor" is supposed to mean. How is it intended to apply? It is possible for a business to be sold in any of the regimes. Consequently, it is possible for employees of insolvent businesses to be affected by a transfer or proposed transfer of the business, regardless of the type of insolvency regime into which their current employer has entered. Where there is a transfer, the treatment of the employees should be the same, regardless of the insolvency process used. The uncertainty caused by ambiguous drafting will cause delays only in the administration of the insolvency and, most important of all, reduce the chances of successful rescue and preservation of jobs.

It is unbelievably complacent of the Minister's colleagues, by their own admission, to leave it to the courts to sort this mess out, ultimately at the expense of creditors and to the detriment of employees. Either the regulation should be amended to make it clear explicitly which provisions apply to which types of insolvency process or they should simply apply to all insolvency proceedings equally without distinction.

Regulation 8 says that where the transferor is subject to insolvency proceedings which have been opened—

"not with a view to the liquidation of the assets of the transferor"— certain accrued liabilities will be paid from the national insurance fund with the balance of any liabilities passing to the transferee. Reference is made to the debts payable by the Secretary of State under the redundancy and insolvency provisions of the Employment Rights Act 1996. However, the interpretation of this provision also is uncertain.

On a straight reading, the regulation seems to provide for the payment out of the national insurance fund only of the debts payable under the insolvency provisions. This makes it difficult to understand the reference to the redundancy provisions. First, the guidance note issued by the DTI in February indicated that payments would be made out of the national insurance fund in respect of both the redundancy and the insolvency provisions. On 3 April, only three days before these regulations were due to come into force, the Redundancy Payments Office issued a statement of its own. It suggested that where there is a transfer or an unfair dismissal made in connection with a transfer, it will pay only the arrears of pay and accrued holiday pay, which are often minimal or even non-existent. There would be no termination or redundancy payments at all.

So, again, the Government have added to the confusion. The left-hand appears to contradict the right-hand which, I believe, is unacceptable and must be resolved as a matter of urgency. It is difficult to see how these provisions should or could be amended until Ministers explain exactly what the Government were seeking to achieve by these provisions and which liabilities the Secretary of State is prepared to permit the national insurance fund to meet.

Before closing, I would like to raise another problem. The regulations include, first, a requirement for the transferor to provide the transferee with information regarding the employees to be affected by the purchaser with a potential liability of at least £500 per employee for a failure to comply and, secondly, joint and several liability between transferor and transferee in the event that employees are not properly consulted prior to the transfer taking effect. These provisions fail to take into account the unique circumstances in which transfers of businesses are affected in the insolvency arena. Within the very tight timeframe of a live insolvency, it will not usually be possible to comply with this requirement and the insolvency practitioner will usually not have enough information to do so in any event. Insolvency practitioners, attempting to act in the best interests of creditors by effecting a swift sale, should not be exposed to the potential costs and delays of defending claims in a tribunal by purchasers on the basis that full information was not given.

Furthermore, any award made by a tribunal could have a significant impact on the return to unsecured creditors. Should not the regulations have excluded the application of these provisions to insolvency-related transfers? If these regulations stand, it will arguably be impossible for any insolvency practitioner, prospective purchaser of an insolvent business, employee or any of their professional advisers to ascertain with certainty what they mean, what they are intended to achieve and where they should apply.

The practical effect will be that fewer jobs and businesses will be saved, and that is surely precisely the opposite of everything we are seeking to achieve. The insolvency provisions of the 2006 regulations are uncertain and ambiguous. They even conflict with the Government's own guidance notes. What a mess!

Many of us have been inundated with representations urging the amendment of these regulations. I have been greatly assisted by my noble friend Lady Miller of Hendon and R3—the Association of Business Recovery Professionals—the Insolvency Lawyers' Association and some of the leading law firms. All of us believe that these regulations are wholly unacceptable, should be withdrawn, reconsidered and redrafted. I beg to move.

Moved to resolve, That this House calls upon Her Majesty's Government to revoke the regulations laid before the House on 7 February (SI 2006/246) [25th Report from the Merits Committee].—(Lord Hunt of Wirral.)

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour

My Lords, I welcome the opportunity to speak on this Motion. My interest, as I am sure a number of noble Lords will understand, is to ensure that the rights of employees in merger and takeover situations are fully protected. As a former trade union official, it is not surprising that that should be my viewpoint. We already have the TUPE regulations, providing some protection for existing employees when a business is taken over. It is important for industrial relations generally that employees should continue to feel that protection exists. Job insecurity is not helpful in any industrial or commercial environment, particularly in a situation created by globalisation.

As I understand it, there has been a view that the regulations need some revision, particularly on insolvency, as the noble Lord, Lord Hunt of Wirral, explained. However, there has been a long period of consultation. Since 2001, I believe, the DTI has consulted the CBI, the TUC, the Business Services Association and the Engineering Employers Federation. Of these, only the EEF, as I understand it, has raised strong objections. The CBI has accepted in principle with some reservations. There has also been a report from the Merits Committee. The CBI has apparently objected to the regulations on the grounds of the changes to provisions on service provision, and argues that they would create inflexibility in contract provision, reducing competition and innovation.

However, the regulations, in changing service provision, are of value and improve protection for employees. In those circumstances, the regulations as a whole should be accepted. I support the Government's position on this, and oppose the Motion of the noble Lord, Lord Hunt, despite the clarity with which he spoke to it. I am not convinced that the employee rights that concern me would be adequately protected if his Motion were carried.

I note what the noble Lord says about the language, and am sure that the Minister will deal with that when he comes to reply. In the light of my reading of the regulations, and the position I take on the protection of employee interests, however, I do not feel, in the circumstances, that I am able to support the Motion of the noble Lord, Lord Hunt.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury 8:15 pm, 3rd May 2006

My Lords, I am grateful to the noble Lord, Lord Hunt, for moving this Motion. I will not repeat his clear description of why the practitioners in this area are so unhappy with the regulations, or underestimate the difficulties that the DTI has clearly faced in drafting the regulations in a clear way. It has obviously been difficult to get it right. Although we on these Benches have no problems with the principles that lie behind the regulations, it is clear that, in certain limited respects, the DTI has not got it wholly right.

The Association of Business Recovery Professionals, as we have heard, has serious concerns that the regulations as drafted will cause confusion and make its job more difficult. This is not a body given either to political posturing or to taking matters into its own hands when it does not feel seriously about them. It is a highly technical trade association. Interestingly, the noble Baroness, Lady Turner of Camden, did not mention it as being one of the groups that has been consulted. However, it has, as we have heard, two complaints.

The first relates to definitions of the types of proceedings to which the regulations apply and the liabilities which will pass to a purchaser. These are not matters of principle, but technical issues. Secondly, R3 has concerns about the mechanics relating to the provision of information and consultation. As the noble Lord, Lord Hunt, made clear, as currently drafted, they do not seem to be practical to put into operation in the circumstances of some insolvencies. It is strange, given the long period since the directive was passed and the fact that there have been significant consultations, that we still have this difficulty.

I suspect one reason is that the Government do not always mean what the man or woman on the street means by "consultation": if you ask people their views and they give them to you and are standing on firm ground, you amend your proposal. I deal more with Treasury than DTI matters, but it is now commonplace for the Treasury either not to consult or, where it does, to ignore what is said. As a result of that, we have had a string of tax measures in recent years which have had to be reversed because they have proved to have perverse and unintended consequences. I slightly fear that this is what has happened in this case.

I therefore ask the Minister—I am sure he is going to enlighten us anyway—whether the Government believe that the concerns expressed by insolvency practitioners are simply unfounded. If so, will he explain to the House why that is? If not, will he explain why a little further time was not taken to resolve these points? Clearly, this directive was passed in 2001. It does not desperately matter whether these regulations are passed tonight or in a month or two's time. There is no overriding time constraint to get it right.

Noble Lords will have heard me make my final point in debates about secondary legislation in your Lordships' House. Here we are, yet again, having a debate about statutory instruments over which we have no control whatever. Whatever we do tonight—whether we vote or not, whether the Motion is passed or not—will not have the slightest practical effect. Although we feel that we are fulfilling a function in shining a spotlight on to what may be inadequacies of legislation, as a legislature, that seems to be an inadequate function. We ought to be able, where there are problems, to cause regulations to be reconsidered.

There are two ways in which we could do that. One is to follow more regularly—although I am not suggesting in every case—the precedent which I believe has been set in the Identity Cards Bill, under which regulations can be amended by Parliament. Another suggestion is that in a case such as this, where real problems arise—not imagined problems, put forward by vexatious people—the House ought to be able to refer the statutory instrument in question back to the department for further consultation in specific areas. Just as we return legislation to another place and ask the Government to look at it again, we might be able to do that with statutory instruments, within a set and tight timetable.

I realise that this is neither the time nor the place for a full-scale debate on these rather more far reaching changes, but this House needs always to look at how it can operate more effectively. In terms of statutory instruments, we do not operate in an effective manner.

I have great sympathy with the noble Lord, Lord Hunt, and will support his Motion.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, I shall add two brief points relating to procedure. I listened with some care to the noble Lord, Lord Newby, but would say that we have improved procedures for scrutiny of statutory instruments. It is precisely because of concerns of the type which have been expressed that the Merits Committee was set up only a year ago. We now have its report, which goes into some detail about who was consulted and when. I am sorry that the Insolvency Practitioners Association does not think that it was listened to, but it is surely rather wide of the mark for the noble Lord, Lord Newby, to say that the Government ignored what it said. I do not know whether the Insolvency Practitioners Association was slow off the mark, but all of these matters have surely been considered in great detail. We cannot have it both ways. We cannot say, "This thing has been going on for a long time. Why haven't they got it right?" when some of these considerations are now on the table—at least they are on the table before us today—and the statutory instrument is in front of us. It states:

"Made 6th February 2006 . . . Laid before Parliament 7th February 2006 . . . Coming into force 6th April 2006".

A wide range of people has been consulted and not everybody is over the moon about the regulations. However, as I understand it, we cannot just make our own transfer and insolvency arrangements as if there are not 24 other countries in the European Union. Will the Minister comment on that? We do not want to jump from the frying pan into the fire by having some system that looks somehow perfect so far as the traditions of our insolvency practitioners are concerned only to find ourselves trying to find some certainty within a range of different traditions to reflect continental subsidiaries of UK companies and vice versa. This goes back to the argument about why we entered Europe in the first place. We know that it is overwhelmingly to the advantage of industry that regulations of this type have been made in Europe going as far back as 1977. They are among the earliest and most time-honoured of all the social-dimension regulations in the European Union.

The Insolvency Practitioners Association perhaps needs to gain some further understanding about how it will do its work against the background of the procedure being done and dusted and having been carried out correctly and with great care.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, the Transfer of Undertakings (Protection of Employment) Regulations 2006 are unquestionably important. The Merits Committee has also noted their significance. I am therefore pleased that we have had an opportunity to discuss these new TUPE regulations today. As we know, these regulations implement the Acquired Rights directive in the UK. They are therefore made primarily under Section 2(2) of the European Communities Act 1972 via the negative resolution procedure.

I say to the noble Lord, Lord Newby, that we have consulted extremely widely, including with the Association of Business Recovery Professionals. We have listened to its views. If we had thought that its views and the proposed course of action would improve the situation, we would have amended the regulations and taken account of that. However, it is our view that they do not and that they merely would have replaced one kind of uncertainty with another, as I shall explain. We therefore felt that we should go forward on this basis.

I was asked why we did not take more time to get these regulations right. It has taken a very long time to bring these regulations forward. Work started in 1997, and we have been pressed to finalise the regulations and improve the protections provided by them. Against that background, it would have been a grave mistake to delay them further.

The original TUPE regulations were introduced in 1981. They have given rise to large amount of litigation and have been repeatedly tested in the tribunals and courts. This new set of regulations represents a major revision of those 1981 regulations. They have been in preparation for many years and have been the subject of three rounds of public consultation.

Our aims in revising the 1981 regulations were several. We needed to update them to reflect the changing face of our labour market, in particular the greater use of outsourcing and similar practices. We also needed to clarify the law, both to reflect important developments in case law across the 25 years or so during which the 1981 regulations were in force and to address some of the inconsistencies that had arisen between domestic and European interpretation of the directive and the regulations. We wanted to revise them also to take account of changes to the Acquired Rights directive.

The revised Acquired Rights directive provided new possibilities for member states to develop their law on transfers. We have taken advantage of those possibilities. For example, the 2006 regulations place a new obligation on the transferor employer to provide information to the transferee employer about the employees who are transferring. That information, which should normally be provided in advance of the transfer occurring, should help the new transferee employer to prepare for the responsibilities and obligations that he will inherit. It should therefore help ensure a smoother transition, benefiting both the new employer and the transferred employees.

Another major set of changes flowing from the new directive concerns the treatment of transferors subject to insolvency proceedings at the time of transfer. It is this element of the new regulations, which is in Regulations 8 and 9, that has attracted speakers in this debate. In explaining our position on these two regulations, it is fair to say that our objective in making these changes is shared by most, if not all, of us. Regulations 8 and 9 aim to make it easier for a new transferee employer to take on all or some of the business from a transferor employer who is insolvent or, more precisely, is the subject of insolvency proceedings. In other words, it aims to support the "rescue culture", preserving as many jobs as possible in the difficult situations which can arise when businesses face extreme financial difficulty.

Regulation 8 assists by relieving the transferee employer of some of the debts owed by the transferor to the transferring workers. Under the 1981 regulations, most of those debts would have been transferred to the transferee, creating a disincentive for a new employer to step in. Under the 2006 regulations, we have relieved the new employer of some debts that will now be met through the National Insurance Fund. For example, the fund will meet arrears in pay owed to the transferring employees up to the statutory maximum that can be paid under the Employment Rights Act 1996. This provision applies where the transferor is the subject of insolvency proceedings which have been opened not with a view to the liquidation of the assets of the transferor.

In addition, Regulation 8(7) disapplies Regulations 4 and 7 in those extreme cases where the transferor is subject to "bankruptcy or analogous" insolvency proceedings which have been opened with a view to the liquidation of the assets. This means that if a transfer occurs in those circumstances, the TUPE provisions concerning continuity of employment and the maintenance of contractual terms and conditions do not come into play.

Regulation 9 assists the rescue culture by creating room for the transferred employees to agree new terms and conditions with the transferee or the insolvency practitioner. Under the 1981 regulations, the transferee employer would have to have taken on the employees under their old terms and conditions. Regulation 9 loosens that arrangement and, in effect, permits the parties, subject to particular safeguards, to agree to transfer on different, perhaps inferior, terms and conditions. The safeguards limit contractual changes to permitted variations of contracts that are designed to safeguard employment opportunities by ensuring the survival of the undertaking. They also involve the participation of union or other representatives in the process and the provision of information on proposed contractual changes to the affected employees. In cases where bankruptcy or analogous proceedings are taking place, there is even wider scope to apply new conditions because Regulation 4 does not apply.

There have been two broad criticisms of these insolvency provisions and they were made by the noble Lord, Lord Hunt, this evening. First, it has been suggested that Regulation 8 and our guidance are insufficiently clear in identifying which debts are met from the National Insurance Fund. Secondly, doubts have been expressed about our approach to copying out the directive when defining how the various categories of insolvency proceeding are covered.

Let me start with the debts issue. The National Insurance Fund will be able to play a role where employees transfer within the scope of the regulations and they are owed certain contractual debts by the transferor. The fund will cover any arrears in pay and holiday pay owed by transferor, subject to the statutory limits. Statutory redundancy pay does not come into play for those employees because they have not been made redundant during the transfer process and TUPE regulations have the effect of deeming such employees not to have been made redundant on the date of the transfer.

The situation is different for employees who would have physically transferred had they not been dismissed in advance of the transfer. Such dismissals may be lawful under TUPE where the dismissals were connected with the transfer and were made for an,

"economic technical or organisational reason entailing changes in the workforce".

Those employees are entitled to statutory redundancy pay, and the National Insurance Fund will meet those debts.

Where employees have been dismissed because of the transfer itself or for a reason connected with the transfer that is not an economic, technical or organisational reason, that dismissal is unfair under the TUPE regulations. Employees in that position must complain to an employment tribunal of unfair dismissal, seeking the standard compensation for their loss. The liability in that situation could pass to the transferee, but it will be for the tribunal to decide where liability falls. The fund is not responsible for the debts arising from tribunal awards against the transferee.

The Insolvency Service has provided a detailed note to insolvency practitioners that sets out the various ways in which the fund can assist. That detailed note clarifies the position adequately and it is clear what the situation is. It is complicated, but we are dealing with a complicated situation involving TUPE regulations in an insolvency. There is no getting away from that complicated situation, but it is clear what the National Insurance Fund can do.

Let me now turn to the set of questions concerning our decision to copy out the relevant parts of the directive. As a result, we have not specified how each of the many types of insolvency proceeding would be treated. The main reason for adopting our preferred approach was to be sure that we implemented the directive correctly. Had we adopted a different approach, errors might have been made. We are often criticised in this or other places for failing to implement our EU obligations correctly. On this occasion, we have sought to avoid that potential error.

It has been said that our approach creates uncertainty because it fails to specify how each type of insolvency proceeding is to be treated. Some argue that it is unreasonable to leave such matters to the courts. However, it is impossible to give absolute legal certainty when applying European directives of this kind. If we had chosen other wording for our regulations—for example, if we had listed each type of insolvency proceeding covered by Regulation 8(6) and 8(7)—we would potentially have created scope for legal challenges about our implementation of the directive. It is not possible to get rid of all uncertainty. Either there is uncertainty about how the general point in the directive applies to particularly circumstances in this country or, if that is specified, there is the uncertainty of that method being challenged because it does not properly implement the European directive.

Furthermore, the listing of insolvency proceedings would have made the regulations much more complicated. This point was raised by my noble friend Lord Lea this evening. How would they deal with the transfer of an undertaking located in the UK that was part of a French or Italian business entity that was the subject of insolvency proceedings in its home country? To cater for those circumstances, it might be necessary for Regulations 8(6) and 8(7) to specify how each of those foreign insolvency proceedings were to be treated. That would clearly be ludicrous, but it is a problem that can arise when regulations are drafted in fine detail.

I recognise that some insolvency practitioners are concerned about the regulation. In our judgment, the generic descriptions of relevant insolvency proceedings in Regulations 8(6) and 8(7) are reasonably clear. In our view, there are unlikely to be significant problems.

Let us look at the position of administrations, the main category of insolvency proceeding. Regulations 8 and 9 were drafted with the intention that where there was a transfer in a business or undertaking, and the transferor was in administration under the Insolvency Act 1986, employees engaged in that business should be transferred to the acquirer of the business or undertaking. In other words, we intend that Regulation 8(7) should not apply in that situation, but the other provisions in Regulations 8 and 9 would apply. It is our view that the regulations have the intended effect. The key words in Regulation 8(7) are "bankruptcy proceedings" and "analogous". The expression "bankruptcy proceedings" is to be interpreted as meaning proceedings that have as their main or only purpose the realisation of a debtor's assets with a view, after payment of the associated costs and expenses, to the distribution of the proceeds to the debtor's creditors. A key feature of bankruptcy proceedings is that they are collective proceedings; in other words, they are for the benefit of all creditors. Administration does not fall within the expression "bankruptcy proceedings". The key question is whether administration is analogous to bankruptcy proceedings and it would appear that it is not. The principle or main purpose of administration is not the realisation of the debtor's assets with a view to distribution among creditors. The statutory purpose to which administrators are obliged to have regard first is the rescue of the company. However, the interpretation of the regulations is ultimately a matter for the tribunal and the court.

The noble Lord, Lord Hunt, made the point that few transfers of insolvent businesses involve the sale of all assets to the transferee. This is another area where there has been concern. Some assets are simply sold off to the highest bidder as in a liquidation. Just because some assets are liquidated, it does not follow that Regulations 8(6) and 9 do not apply. The regulations refer to the "liquidation of the assets". They do not refer to "the liquidation of some assets" or to "the liquidation of any assets". It is therefore very difficult in our judgment for the tribunal and courts to conclude that the wording of the regulations and the directive means that where some assets are liquidated, Regulations 8(6) and 9 do not apply.

I do not pretend that the regulations are completely certain in their effect and in their capture. That is inherent within much new legislation. Complete or near-complete certainty cannot be found in these situations.

I turn to one or two specific points that were raised. The noble Lord, Lord Hunt, said that it is impractical for insolvency practitioners to supply the level of detailed information required in the short time periods within which they typically operate. Regulations 11 and 12 have flexibilities within them. In general, the information must be supplied at least 14 days before the transfer, but this can be relaxed when it is impractical for the transferor to do so. It is perfectly possible for an insolvency practitioner to argue that he should supply the information later because he is new to the business. The tribunal can also waive the minimum compensation for a failure to supply the information where it considers it just and equitable in all the circumstances to do so. Again, the insolvency practitioner could argue for this discretion to be used where it was impossible for him to assemble the necessary information. That said, we believe that in most cases the information can easily be assembled by the insolvency practitioner and most information will be located on payroll and in other personnel information, which should be readily accessible.

The noble Lord, Lord Hunt, said that the DTI guidance on the provisions is unclear. The statement in the response document is factually correct, although I concede that it might potentially confuse the reader. Where a statutory redundancy payment is made, the individual who receives that payment would need to build up his entitlement from zero. The phrase was not meant to imply that all transferring employees should receive such a payment on a transfer, whether or not they lost their job. Indeed, the opposite is the case where employees take out employment with the transferee because, in general, they will not be made redundant by the transferor in the lead up to the transfer. However, there will be some cases where affected employees are made redundant for an economic, technical or organisational reason connected with the transfer in anticipation of the transfer or afterwards. Those employees are entitled to statutory redundancy payments so long as they meet the standard and other criteria. The position on that is set out very much more fully in the guidance issued by the Insolvency Service.

The noble Lord, Lord Hunt, spoke about the justification for making the transferor and the transferee jointly and severally liable for a failure to consult. He asked whether that would inhibit the rescue culture and deter potential employees from taking on an insolvent business. There is no reason why consultation cannot be carried out properly in extreme situations of insolvency. We would want parties to ensure that they occur in practice. Joint and several liability provides an incentive to both employers to ensure consultation occurs. Good prior consultation usually smooths the way for transfers by reducing employee resistance. So our proposals would in fact provide a stimulus to business rescue.

The 2006 TUPE regulations have taken many years to produce. They have been the subject of an enormous amount of prior consultation. We believe that we have implemented the directive correctly and have updated the regulations to reflect the way our modern labour market works. We had to make a decision about whether to copy out how the directive was produced, or, alternatively, try to specify the provision in greater detail in terms of the UK and then face the situation of uncertainty because of challenge that it did not properly implement the directive. We have taken the first course because we think that will lead to greater certainty. I think that is the right course to take.

However, we will monitor closely how the new regulations operate in practice. If problems emerge we will consider the case for amending the regulations. With those assurances and explanations, I hope that the noble Lord will feel able to withdraw his Motion.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I thank the noble Lord, Lord Newby, for his support. I agree that the Government have not got this right—it is certainly not wholly right. I very much agree with the noble Baroness, Lady Turner of Camden, and the noble Lord, Lord Lea, in wanting to make sure that as many jobs as possible can be saved in a simple and effective way. I am rather disappointed with the Minister, as he would probably anticipate I would be disappointed. He said, "Well, it is going to be uncertain. It is a matter for the courts and tribunals". I do not know whether the Minister has read the advice of the Insolvency Service. It says that it is uncertain. I am sorry, but it is. The Insolvency Service says in its letter:

"It is inevitable that an employment tribunal will eventually determine this point".

I do not think that it is good to pass legislation which requires courts and tribunals to interpret it so that it can be put into effect.

I must say to the noble Lord, Lord Lea, that our three correspondents were not slow off the mark. On 7 June 2005, they submitted a greatly detailed response that stressed that the drafting was unsatisfactory. On 23 November, when they had heard very little from the department, they telephoned the department, spoke to the lead official and asked whether they could come in to explain why they were so concerned. The official said no; the department did not want a meeting. Declining that offer of a meeting probably lies at the heart of all this; we would get this right if only the Government listened a little more. I really think I should test the opinion of the House.

On Question, Whether the said Motion shall be agreed to?

Their Lordships divided: Contents, 77; Not-Contents, 79.

Division number 1 Private Parking: Ports and Trading Estates — Transfer of Undertakings (Protection of Employment) Regulations 2006

Aye: 75 Members of the House of Lords

No: 77 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the negative, and Motion disagreed to accordingly.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I beg to move that the House do now adjourn during pleasure until nine o'clock.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.55 to 9 pm.]