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Osborne hints at employment law reforms

UK Chancellor George Osborne hinted during his Autumn Statement that so-called 'TUPE' employment laws, criticised by some buyout firms as inflexible, are to be reformed.

The employee changes that accompanies any merger or acquisition deal may come with fewer legal risks attached should UK Chancellor George Osborne have his way. 

During his Autumn Statement on the UK economy the Chancellor said the government would complete its review of Transfer of Undertakings (Protection of Employment) laws (aka TUPE) which offer employees certain blanket protections when a business changes hands. 

The existing protections have been criticised by some as overly bureaucratic and applying upward pressure on unemployment figures. Private equity firms in the past have been wary of certain deals because of the inflexibility which goes with TUPE, said Catrina Smith of law firm Norton Rose. 

Under existing law private equity firms acquiring, for example, a spin-out from a conglomerate are obliged to meet existing employee contract terms for the stand-alone business, “even if they no longer make sense as a result of the departure from their parent”, said one London-based lawyer. “Employees can’t even agree to change the conditions around their contracts which is just ludicrous from a legal standpoint.”

The government is considering a raft of employment law changes, including a new fee for individuals who want to bring cases to employment tribunals, likely reducing the number of unfair dismissal claims brought forward. Also being considered are “quicker and cheaper” alternatives to tribunal hearings and allowing businesses with fewer than 10 workers to effectively fire employees at will. 

“We know many firms are afraid to hire new staff because of their fear about the costs involved if it doesn’t work out,” said Osborne in reference to a policy change increasing the qualifying period for unfair dismissal claims from one year to two. 

Relevant to venture capital firms and GPs’ tax planning strategies, the Chancellor also revealed this week a new seed investment scheme which would complement two other government early-stage investment schemes. The new Seed Enterprise Investment Scheme (SEIS), available in April next year, will offer investors a 50 percent tax break for their investments in start-up companies, subject to an annual investment limit of £100,000.

Other tax developments include details on a UK anti-avoidance measure expected 6 December, which could impact GPs’ offshore tax planning. Also next week draft legislation on debt cap rules, which offer certain tax advantages when using leverage, may be published. However it is “too early to say whether the draft will contain changes which would be significant to private equity fund managers”, said Heather Corben of SJ Berwin, a law firm.  

Chief executive of the British Private Equity and Mark Florman praised a number of Osborne’s initiatives in a response statement, noting in particular that the early stage investment schemes will contribute to the success of UK small and medium-sized businesses.