Bizarrely, the case of German cleaner Christel Schmidt - who recently took her bank employer to court when she discovered her job was due to be contracted out to a new service provider - could have a knock-on effect for UK PR agencies.
Schmidt invoked the Transfer of Undertaking Protection of Employment (TUPE) law - successfully arguing that her employer was obliged to ensure her employment rights would be safeguarded. Her case paved the way for a little-reported addition to the regulations - under the heading ‘Service Provision Change' - this April. It means TUPE not only applies to staff who have to automatically switch company when a business is sold - now, PR agency staff could also be asked to switch company if a client moves its contract for creative services from one agency to another.
And if PROs think that such an application of the law will remain in the realms of legal theory, then perhaps they should consider ad-land's first TUPE-related case, currently at court (see below).
Legal experts say that many PR practitioners are unaware of the potentially pernicious nature of TUPE: a sentiment voiced by PR professionals, lawyers and representatives of the CIPR and PRCA at a recent event, hosted by TimeAct and supported by PRWeek.
‘We're in a pitch and have been told by the client that TUPE will apply,' said Deborah Lewis, managing director of Republic PR. ‘We're having to decide if this is business we want if it means [taking on the former incumbent agency's staff].'
Kerry Glazer, chief executive of agency mediator AAR, said: ‘Taking the new TUPE law by the letter, this could have far-reaching consequences in the PR industry. If a client goes out to pitch, ditches its current agency - A - and hires new PR agency - B - then PROs who devoted the majority of their time on that account at agency A will be required to move to the new agency as if they were still employed by that same client. Agency A will lose staff, while agency B suddenly finds itself having to absorb these new people and having to pick up the tab for it.'
Francis Ingham, assistant director-general at the CIPR, told delegates: ‘Interpreting this in its worst-case
scenario - as I think we ought to - it is clear that TUPE goes entirely against what it set out to achieve. My concern is that it will be highly disruptive to the pitching process. The whole reason clients want to pitch is because they are often dissatisfied with their current team. If all that happens is that these same people transfer to the new agency, it will benefit neither the client nor the agency taking them on.'
He continued: ‘I'm worried that agencies could also use TUPE mischievously. Agencies that suspect they might lose a contract could transfer staff who they want to get rid of to the affected account. TUPE could become the easiest way of "dropping the lemons".'
According to Ingham, other consequences of TUPE include problems associated with new staff from one agency not culturally fitting into the new agency - and the fact that the receiving agency will have to keep new staff on the same wage as that paid by their previous agency, a salary that could put them at odds with existing employees.
However, PRCA director-general Patrick Barrow takes a less alarmist view of TUPE, and urged delegates not to fear the worst (see below).
So then, who is right? PRWeek listened to the main worries of delegates, and asked industry and legal
experts to respond (see bolow).
THE ASSOCIATION VIEWS
Francis Ingham, assistant director-general, CIPR:
‘The legislation does not address any problem that ever existed. It will be highly disruptive to agencies. Most worrying of all, TUPE could lead to a regression in creativity. If clients end up with the same team of PROs but with a different agency, they will soon review the value of their PR spend. If TUPE makes clients think PR is not value for money, it could spell trouble.'
Patrick Barrow, director-general, PRCA:
‘While I agree with the CIPR that there is room for mischief-making, I don't believe in the imminent collapse of the industry. Agencies will not want to risk their reputations by insisting TUPE applies to a lost account and getting rid of people. This alone explains why there has not been a contested case in the PR industry.'
EXPERTS ANSWER YOUR QUERIES...
1) What does ‘majority of time' actually mean?
The problem TUPE Service Provision Changes apply to employees who spend ‘the majority of their time' on the account that has moved. Delegates thought they could theoretically protect themselves by spreading their staff among many accounts, but even this was contested - because there is no set opinion about what ‘majority' means.
The interpretation Michael Burd, partner at Lewis Silkin, says: ‘There is no stated amount of time for "majority", and it is still something to be tested. Ingham says failure to put a figure on this will create stress for PROs. I've spoken to the DTI, and it says "majority" is 60 per cent of time. However, the DTI also says that if an account manager has, say, five accounts - and the busiest one takes up 30 per cent of his or her time - then that will be classed as the "majority of time".
Burd's advice ‘The one saving grace is that both parties - ie both agencies - have to accept that TUPE applies to the agency move in the first place. Only if it is contested (where the losing agency will want to offload staff) will it go to the courts. Agency bosses can protect themselves by not giving staff a single account, and not giving account managers specific job titles - such as "account manager, Unilever" - as the latter clearly states for whom they work.
Other tips Justine Rawlings, managing partner, Staniforth Communications, believes hiring freelancers for the remainder of the time on an account before it transfers to a new agency will protect permanent staff. Burd agrees: ‘Freelancers are freelancers, they are not full-time employees, and would not be obligated to transfer.' Eddie May, director of Threepipe, says agencies could move their best people off an account they are about to lose, but adds that this would not protect the junior staff moved onto that account.
Q An agency is about to receive people who have never actually worked on the account - can it appeal?
A Burd says: ‘The new agency does not have any right to object to this. It's another instance of this law not doing what it's seeking to achieve - ie protecting employees and businesses.'
2) Can PROs opt out of TUPE?
The problem Employees who feel they may be affected by TUPE - particularly if they feel they may be forced to move to another agency - can ‘opt out' of the regulations. It means they would have to leave the agency and then rejoin it after the account has moved.
The interpretation ‘Everybody has a right to object to the interpretation of TUPE,' says Burd. ‘But by opting out of TUPE an employee effectively ends his or her employment with that company, without any rights, notice period, redundancy or - and most importantly - automatic rehire rights. If employees don't want to move, it's a risk to opt out of TUPE because they are effectively making themselves unemployed, and they will have to trust/hope their agency will want to take them back. If they are a valued member, then it is unlikely they will have much to worry about, but marginal members of staff could leave themselves open to not being re-employed.'
Burd's advice ‘Agencies that feel they could lose staff can "entice" them to object to the transfer and opt out of TUPE on the promise that they will be rehired. However, I would recommend that there is a recognised procedure in place as this involves a great deal of trust.'
3) What are the receiving agency's responsibilities to new staff?
The problem Agencies are uneasy about their responsibilities to new employees who may join under TUPE, particularly in relation to pay and benefits. Many also want to know how much personal information about new staff they are entitled to - not much, as it turns out.
The interpretation Burd says: ‘The bad news is that the new employees' conditions remain intact. This
means that any baggage that they have - they may be pursuing a personal injury claim against their old agency - transfers straight to the new agency, even though it had nothing to do with the original claim. You cannot change a PRO's conditions during the transfer process. Although an agency is taking on new staff, it is only entitled to basic historical data - such as date of birth and contact information. The receiving agency has no right to have important work-related personal data, such as appraisals or performance information.'
Burd's advice ‘This one is statutory, and you have to abide by it. Things to consider are: if PROs had share options in their previous agency, you are required to do your best to provide some other forms of equivalent remuneration; and if a PRO's previous agency paid bonuses, there might also - through "custom and practice" - be a requirement to carry this on.'
Related questions This area proved to provoke the most questions for Burd:
Q What happens if a manager on a lost account was on maternity leave when the contract ended?
A‘That person is still entitled to move to the new agency'
Q Do new PROs taken on from another agency have a probation period that can be enforced?
A ‘No, there's no restart of the clock.'
Q Do the new staff have to work on the account being transferred, or can they be moved to different projects?'
A ‘They have to stay on the same account, otherwise it could technically be a breach of their existing contract. However, it does depend on what their contract says.'
Q If new staff do more work than they were doing at their previous agency, do they have recourse to argue that they have not been moved to an equivalent role?
A ‘This is one question I'm afraid I don't have an answer for.'
Q Could an agency rightfully argue that it is not viable for it to take on a new team at a higher rate of pay?
A‘TUPE says you have to pay people the same. It could well be that the agency then has to renegotiate the retainer fee with the client.'
Q What happens if a London agency wins an account from an agency in Manchester. Does the agency have to pick up the relocation costs?
A ‘An agency could fairly dismiss these employees by making them redundant because it could argue that it has no base there.'
Q What if a client hires a new agency because it wants a change of activity - such as pursuing ‘media relations'. Would you have to take staff from the previous agency if they weren't doing media relations?
A ‘You could argue TUPE doesn't apply because the same service is not being provided.'
TUPE'S SILVER LINING?
Will any good come from TUPE? According to AAR's Glazer, one unexpected positive is that TUPE could force clients to think harder about pitching for pitching's sake. Patrick Barrow agrees, saying fewer pitches will occur if clients see less benefit in changing agency. ‘Paradoxically this could bring about some level of protection for agencies, because it won't mean a pitch every year, and they can get on with what they are good at, which is being creative,' he says.
TUPE: EURO RSCG v MCCANN ERICKSON
‘The new TUPE is controversial. The original draft regulations contained a professional business services exemption, which excluded professional adviser firms, but this was omitted from the final version. Many employers take the view that this widening TUPE's scope will act as a fetter to competitive tendering, because the successful agency will not want to take on the losing agency's employees and the client may not want them to transfer. Trade unions and employee representatives generally welcome the new laws but are anxious the courts and tribunals clarify the new regime. Lawyers have been eagerly awaiting some judicial guidance.
‘The first high-profile confrontation between prominent firms Euro RSCG and McCann Erickson may actually help to clarify some of the uncertainty. McCann Erickson lost its Boots Healthcare advertising account to Euro RSCG in July. Press reports indicate McCann Erickson will argue that a team of its employees - who, it is thought, worked on the Boots account almost exclusively - transferred automatically to Euro RSCG under TUPE. If this dispute proceeds to litigation and a court agrees, then Euro RSCG would have to re-deploy the inherited staff on the same terms and conditions or compensate them for redundancy.
‘Under old TUPE, for employment to transfer there needed to be a transfer of an economic entity that retained its identity. This was often difficult to prove. However, this obstacle is side-stepped under new TUPE, where there is a "service provision change", (ie outsourcing, replacement of a contractor or ‘in-sourcing') where immediately before the service provision change there was an organised grouping of employees which has as its principal purpose the carrying out of activities concerned on behalf of the client. This means where there is service provision change it is merely necessary for one person to cease to provide the activities and for another to take them over. What is not clear is how the courts will interpret "an organised grouping of employees" or "principal purpose" and this may have an effect on the outcome.
‘It seems likely then that the court would determine, in these circumstances, that there has indeed been a relevant transfer here by way of a "service provision change".'