By The Drum, Administrator

June 2, 2006 | 6 min read

The scenario is frightening. Your agency has just won a big piece of business from a larger rival and, as you crack open the Champagne, the incumbent agency calls. Under the new TUPE legislation reform; you’ve acquired Bob Jones, its client services director who worked on the account. What is worse is that Jones has been with the company for 19 years, is on three times what you – as MD – are earning and is on a six-month notice period. And when he joins you, you have to match all that. It sounds fantastical, but in reality it could happen.

Under the reformed regulations for transferral of business (Transfer of Undertakings (Protection of Employment) Regulations 2006), the scenario above is very likely, especially when an agency relies on one big piece of business for the bulk of its billings. Employees who work primarily on that business are entitled to transfer to the new client and there’s nothing the incumbent, the client nor the successful agency can do about it, as it is an employee’s right.

The former TUPE benefits entitled employees whose employers were bought over by another company, to carry over the same benefits – such as salary, holiday entitlement, notice period etc – to that new company, regardless of the comparative benefits offered by the new owner.

There are several interpretations of what defines ‘primarily working on a client’, with some believing it could only apply to staff where it is written into the employee’s contract that they work on one account.

Mark Gorman, managing director of IAS Smarts, believes that the legislation will change a lot of the ways that agencies work, but admits it’s not dominating his strategy planning for the agency as it’s really a hypothetical problem at the moment.

“There’s been no case law yet, so it’s more of a theoretical issue,” he says. “I’ve never written an account into someone’s contract as things can change so rapidly. I don’t think clients know a single thing about it. Like most people in the industry we’re going to be cautious about it.”

Ed Brooke, new business director at The Leith Agency, is more concerned how the legislation will work with pitches. “We would speak to the client on a new pitch and make sure they were aware of the TUPE legislation,” he says. “The responsibility would then be with the client to check with the incumbent. I’m more concerned that this is a piece of European legislation that means that if we win an Italian client, and they use a local agency, we could end up having to take on those members of staff.”

Chris Hackford, senior legal manager at the IPA, is quick to quell fears about international transfers and contractual nightmares, but does point out that until there is a test case, no one really knows and all agencies, clients and staff should be wary. “We believe TUPE applies to all staff regardless of how long they’ve been with the company, and the advice about writing into people’s contracts that they work on one account, could be one sole lawyer’s view,” he says. “I don’t think agencies can rely on that. Again, with the international fear, effectively the UK has gold-plated this as UK legislation. Moving staff out of the UK jurisdiction is unlikely. It’s one of our concerns that clients will move accounts out of the UK to avoid TUPE.”

Hackford and the IPA are advising agencies to not place staff on just one account, but again, until there’s a test case, that may not guarantee escape.

“This legislation is not good for agencies, as they either lose good staff or gain staff they may not need,” he says. “It’s not good for clients as often the client is usually moving to get a better service or better creative, and that comes down to staff. If staff opt out, which is the only way to avoid moving, because they want to stay with an agency then they lose all their benefits and the slate is wiped clean. Agencies might offer to keep them and just pretend that their entire record with the company is still there, but they don’t have to.”

The more alarming part of the reform is that agencies don’t have to tell the client or the incumbent agency the effect losing an account will have, so clients could find themselves moving an account because of a personality clash and then, because they didn’t know TUPE would apply, then finding the personality concerned has to work at the new agency. There is no legal obligation to tell either party until the account is lost. “There is a legal obligation to tell anyone you might have to make redundant because you’re losing an account,” says Hackford. “The fine for not telling your staff is actually quite steep. You need to inform them of their rights under TUPE and that they have a right to go and work for the winning agency. We would always advise that you tell the client of the impact moving the account would have. At a pitch, all agencies need to find out what the impact of TUPE will be, and we advise you should ask about the number of staff you’d be expected to take on and their terms and conditions. A large agency inheriting from a small agency, which then goes bust, could also inherit all the fines they incur [for not advising staff on TUPE] and the resulting redundancies.”

The legislation has been drafted since last year, with a consultation exercise carried out last year with stakeholders. The IPA took part, and Hackford is disappointed that its points were lost.

“We objected to the impact it would have on agencies, and that it wasn’t the same as contracts moving from factory to factory, say, and we pointed out how unworkable it was in practice,” he says. “The response from the Government was that they couldn’t see why there should be any differentiation between blue-collar and white-collar workers.”

Hackford has three key pieces of advice for agencies. “Don’t have dedicated staff on one account,” he says. “Ensure at a pitch that you know who your incumbent is and clarify the effect of TUPE. Ask your client’s to put mirror indemnities into the contract, so that both the incumbent and your agency are covered for any redundancies.”

The Drum will be running a Q&A with an employment lawyer in the next issue. If you have any particular questions about TUPE that you would like addressed, please email mairi.clark@carnyx.com


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