ABG Commercial Newsletter – February 2014


Changes to TUPE Regulations

Changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE Regulations’) came into force on 31st January 2014. 

The TUPE Regulations apply, when a business or part of a business is sold, or where there is a service provision change, e.g. when outsourced services are transferred from one contractor to another or taken back ‘in house’.  These events are defined in the TUPE Regulations as ‘Relevant Transfers’.  

Under the TUPE Regulations, when a Relevant Transfer takes place employees will automatically transfer to the new employer on the same terms and conditions of employment as they had with the original employer.

The key changes to the TUPE Regulations which came into force on 31st January 2014 are:

  1. Where there is a change of contractors carrying out services, this will only satisfy the ‘service provision change’ test (and therefore be classed as a Relevant Transfer) where the services being provided by the new contractor are fundamentally the same as those carried out by the previous contractor.  
  2. The TUPE Regulations restrict changes being made to employees’ terms and conditions in anticipation of, or as a result of, a relevant transfer.  The restrictions have now been relaxed slightly to bring them in line with EU law.  The TUPE Regulations now provide that a change to terms and conditions will be void if the main reason for the change is the relevant transfer unless the reason for the changes is an economic, technical or organisational reason entailing changes in the workforce and the changes are agreed by both the employer and employee.
  3. A new provision has been introduced which confirms that a change of location following a relevant transfer will fall within the economic, technical or organisational exception.  This allows employers to make changes to the terms of conditions of employment where there is a location change.  This should mean that genuine place of work redundancies will no longer be automatically unfair.
  4. Under the TUPE Regulations, the new employer is required to consult with employee representatives in relation to their employees who may be affected by redundancies as a result of a relevant transfer.  The TUPE Regulations have been amended to allow the new employer to carry out the consultation before the transfer takes place providing both the original employer and new employer agree.  This resolves the uncertainty that existed previously as to whether a consultation conducted prior to the transfer was valid.
  5. On a transfer, the original employer is required to provide certain employee liability information (such as name and age of employee, disciplinary record etc.) to the new employer.  For transfers that take place before 1st May 2014, this information must be provided at least 14 days before the transfer.  For transfers taking place after that date, the information must be provided at least 28 days before the transfer takes place. 
  6. The TUPE Regulations require employers to consult with representatives of employees that are affected by the relevant transfer.  As a result of the amendments, micro-businesses (businesses with 9 or fewer employees) will be exempt from the requirement to elect employee representatives.  This means that businesses with 9 or fewer employees can inform and consult with employees directly.
  7. Where there is a collective agreement in place prior to a relevant transfer, the collective agreement will transfer with the employees.  The new provisions confirm that only collective terms agreed before the date of the relevant transfer will be inherited by the new employer.  This follows recent case law and provides clarity with regard to collective agreements.

Trade Secrets – draft directive proposed

In the UK, trade secrets are protected by common law which is advanced on a case by case basis.  The level of trade secret protection throughout the EU varies hugely which can cause  uncertainty for companies who operate throughout the EU.

The proposed draft directive will seeks to unify the level of protection across the EU and create a common definition of trade secrets.  It will also set out the measures, procedures and remedies that member states should make available. 

Although the provisions of the proposed directive are in line with the protection that has already been established in the UK through case law, companies that operate across the EU will benefit from the unified approach.

Liquidated Damages or Penalty?

Where there is a clause in a contract for a pre-determined sum to be payable on non-performance, a Court will look to decide whether this represents genuine liquidated damages or whether it is an unenforceable penalty clause.  In doing so, a Court will consider whether the pre-determined sum is a genuine pre-estimate of the loss suffered or whether the sum is simply intended to deter the party from breach.

In a recent case, the Court of Appeal found that a clause in a share sale agreement which allowed the buyer to purchase the shares at a reduced price in the event that the seller breached the restrictive covenants was an unenforceable penalty clause. 

The Court of Appeal found that the clause was intended to deter the seller from breaching the restrictive covenants as, although they covered a variety of activities, even a minor breach would result in a full liquidated damages claim.  The amount of money to be forfeited by the seller was disproportionate to the loss suffered by the buyer. 

This decision shows any pre-determined amount payable under a liquidated damages clause must be closely linked to the loss likely to be suffered unless it can be commercially justified.

Trade Mark – descriptive and therefore invalid

 In a recent case the Court of Appeal has ruled that a Community Trade Mark comprising the word ‘Now’ was invalid as it was descriptive and devoid of any distinctive character. 

The Court of Appeal held that the word ‘Now’ would be understood by the general customer as a description of the instant nature of the internet television service being provided by the Company based in Hong Kong.

The Court of Appeal also held that the owner of the Community Trade Mark could not establish protectable goodwill within the UK simply based on the fact that the service was available to the UK (and universally) via the internet.  There had been no advertising or promotion in the UK and therefore there was no way to establish an identifiable goodwill with a customer base in the UK. 

Copyright infringement – computer software

The Court of Appeal has confirmed in a recent ruling that copyright protection in any form of computer program extends only to the form of expression and not to the functionality of the program.  Therefore, it is not an infringement of copyright to reproduce a computer program’s functionality but it would be an infringement to copy the source code.

This reiterates that it is the form of expression of the intellectual creation that it protected by the directive and not the intellectual creation itself.

The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Tim Sisson
+44 (0)115 934 3333

Andrew Sutton
+44 (0)115 934 3303