TUPE

Overview

• The Transfer of Employment (Protection of Employment) Regulations 2006 (TUPE) apply when there is a transfer of a business or part of a business from one employer to another or, with some limitations, where there is a change in contractor.
• The effect of TUPE is to transfer employees’ terms and conditions of employment to the new employer and to preserve continuity of employment.
• TUPE also provides for various obligations on the transferring employer (the transferor) and the receiving employer (the transferee) to inform and consult the affected employees.

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When TUPE applies

• For there to be a transfer under TUPE there must be:
  • a business or 'undertaking' capable of transfer which retains its identity or
  • a change in contractor where services carried out by one service provider cease and are carried out instead by another
• The 'undertaking' must be a 'economic entity' capable of transfer - an 'economic entity' must involve 'an organised grouping of resources' with 'the objective of pursuing an economic activity, whether or not that activity is central or ancillary'.
• TUPE does not define a 'relevant transfer' but there is a large amount of both UK and EU case law on this.
• For there to be a relevant transfer, it is not necessary for there to be an agreement between the two employers, nor is it necessary for any assets to be transferred between the two. The critical assessment as to whether TUPE applies is whether the entity can truly be said to be transferred as a going concern.
• TUPE is therefore likely to apply when businesses are sold by way of asset sale and when operations are outsourced.
• TUPE will not apply to a share sale if the transaction does not involve a change of employer.

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Effects of TUPE

• Employees working in an undertaking which is transferred are themselves automatically transferred to the new employer on their existing terms and conditions.
• Continuous employment will be calculated from the start of employment with the old employer.
• A dismissal by reason of the transfer is automatically unfair unless it is for an 'economic, technical or organisational reason entailing changes in the workforce' (an ETO reason). This essentially means a redundancy situation or a business reorganisation involving material changes in job descriptions.
• Pre-transfer liabilities relating to the employees will transfer to the new employer such as: arrears of wages; negligence claims; and liability for breach of employees’ statutory rights such as sex discrimination or maternity rights. Criminal liability will not transfer.
• If there is a change in contractor – a service provision change – the individuals will automatically transfer to the new contractor, provided certain conditions are met:
  • the service provision change involves 'an organised grouping of employees … which has as its principal purpose the carrying out of the activities concerned on behalf of the client'
  • one-off short-term services are not included
  • the services in question are not merely the supply of goods to the business
• Automatic transfer is subject to the right of individual employees to object. But with limited exceptions, the effect of an objection is that the employee's employment is terminated by the transfer so that the employee has no rights in relation to that termination of employment against either of the employers.

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Information and consultation requirements

• Where employees are transferred from one employer to another under TUPE both the transferor (seller) and transferee (buyer) have duties to inform, and potentially to consult with, employee representatives (i.e. a recognised union or, if there is none, elected employee representatives) about the transfer and any changes that might arise in relation to it.
• The transferor is obliged to provide the transferee with minimum specified information about the transferring employees (known as employee liability information) at least 2 weeks before the transfer.
• This information includes the identities of the transferring employees, their ages, their written statements, any relevant collective agreements, any disciplinary action to which they have been subject or grievance which they have raised in the previous 2 years, and any actual or potential legal actions against the transferor in the previous 2 years.
• Additional information must then be provided to the employee representatives as soon as possible, such as the fact of transfer, the legal, economic and social implications for any affected employees and whether any measures are anticipated on the part of the transferor or transferee.
• 'Measures' in this context is not defined but will involve any anticipated changes for the employees other than the change of employer, e.g. a planned re-organisation or changes in terms and conditions.
• The obligation to consult with employee representatives only arises if either the transferor or transferee anticipates taking measures before or after the transfer. The key aspects are as follows:
  • consultation must be with the appropriate representatives of any employees who may be affected by the transfer - in practice it will be the transferor who organises and conducts the consultation. However, if measures are proposed by the transferee these must be communicated to the affected employees and also to the transferor, to enable the transferor to comply with the duty to inform
  • consultation should start long enough before the transfer to enable consultation to take place - ideally at a very early stage - preferably when the transaction itself is still negotiable
  • consultation must be with a view to seeking agreement to the measures to be taken
  • during consultation the employer must consider and reply to any representations made by the appropriate representatives and provide reasons if it rejects them
• Unlike in a collective redundancy situation, there is no minimum number of affected employees required for TUPE consultation to take place, and there is no specified minimum period of time over which it must take place.
• An employer who fails to inform and consult will have a defence if it can show that either there were special circumstances which made it not reasonably practicable for him to perform the duty or that it took all such steps to comply as were reasonably practicable in the circumstances.
• Failure by the transferor to provide employee liability information may lead to compensation of a minimum of £500 for each affected employee.
• As regards the additional obligations to inform and potentially to consult, the transferor and transferee are jointly and severally liable for any award of compensation which means that if the transferor fails to pay, the transferee must pay.
• Compensation may be awarded of up to a maximum of 13 weeks' gross pay for each affected employee - this is worked out in the same way as for a protective award in cases of redundancy which means it will reflect the seriousness of the failure to comply.

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Changing terms and conditions

• If there is a change to the terms and conditions of an employee affected by the transfer, which has nothing to do with the transfer, then the ordinary law on changing contractual terms applies.
• But if a change to terms and conditions occurs, and the reason for the change is the transfer or a reason connected with the transfer and there is no ETO reason entailing changes in the workforce, the change will be ineffective – subject to one possible exception.
• The exception is that if the change occurs at the time of the transfer or subsequently and there is an ETO reason for the change which entails a change in the workforce then the employee can legitimately agree to such a contractual variation.
• In practice this means that harmonisation of terms remains unlawful since this will not be a change which entails a change in the workforce.
• If the new employer wishes to harmonise the terms and conditions of the transferred and existing employees there are steps it can take although extreme caution should be applied and specialist legal advice should be sought.

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Pensions

• Employees with access to an occupational pension scheme immediately before the transfer must be offered a pension by the new employer.
• The employees must be offered either:
  • a final salary occupational pension scheme which is broadly equivalent to the state second pension scheme, or the scheme must be broadly equivalent to the transferor’s final salary scheme, or
  • a money purchase occupational pension scheme or a stakeholder pension arrangement to which the employer must contribute up to 6% of pay

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Resources

The Policies and Documents section contains various letters and memos and a draft form on TUPE-related issues (subscribers only).

BIS

• Employment Rights on the Transfer of an Undertaking: A Guide to the 2006 TUPE Regulations
• TUPE 2006: redundancy and insolvency payments guidance

Business Link

• Responsibilities to Employees if you Buy or Sell a Business

CIPD

• TUPE
• Preparing and Transferring Services in the Public and Non-Profit Sectors

Worksmart (TUC)

• Takeovers and Transfers of Business

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