TUPE: when it applies and why employers need to know about it
TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. The main purpose of the Regulations is to prevent employees losing their jobs when a business is sold, a service they offer is outsourced to a contractor, or there is a change in the contractor that is carrying out a service.
TUPE applies automatically regardless of whether the organisations involved want it to or not, and employers can sometimes be surprised to find themselves caught by the TUPE Regulations.
Why do employers need to know about TUPE?
If TUPE applies, employees have several important legal rights and protections. The Regulations place obligations on both the outgoing employer (who is called the Transferor) and the incoming employer (who is called the Transferee). For example,
- The Transferee automatically inherits employees from the Transferor;
- The employees transfer from the Transferor to the Transferee on their existing terms and conditions of employment (with a few exceptions);
- The Transferee is significantly restricted from making changes to contracts, even if this means they are on more generous terms than their existing staff;
- In the lead-up to the transfer taking place, both the Transferor and Transferee are required to share specific information (Employee Liability Information) with each other within specific timeframes;
- Both the Transferor and Transferee also have obligations to inform and consult with affected staff about the transfer and the impact it may have on them; and
- Other than in limited circumstances, if an employee is dismissed; whether before, on, or after the transfer, and the sole or principal reason is the transfer, this is automatically unfair. Liability for the dismissal will usually pass to the Transferee.
What are the repercussions for employers if they breach the TUPE Regulations?
- Compensation for failure to inform and consult with staff can be up to 13 weeks’ gross pay for each affected employee.
- Changing contractual terms can result in breach of contract claims being pursued, resulting in damages (money) being awarded to the employee.
- Failure to take on employees who are transferring under TUPE can result in unfair dismissal claims. This can lead to significant compensation being awarded, as well as damage being caused to the reputation of the business.
When does TUPE apply to undertakings: sale of a business or assets?
This is a complex area of law and many factors will be at play to determine if TUPE applies. We always recommend seeking specialist advice if you think TUPE could apply.
In broad terms, TUPE applies where there is a change in the legal identity of the employer for the whole or part of an ongoing business (or ‘undertaking’). It therefore does not apply when there is a simple sale of shares or the transfer of equipment taking place.
Employment Tribunals look at a number of factors to decide if there has been the ‘transfer of an undertaking’. The different weight attached to the factors will depend on the nature of the business. The factors include:
- If physical or tangible assets (such as buildings and equipment) are being transferred and the importance of those assets to the ongoing business;
- If intangible assets, such as a supplier database, customer database or intellectual property, are being transferred and the importance of those assets to the ongoing business;
- If any staff transfer or similar staff are needed;
- How similar the activities are before the transfer to those carried out after; and
- If the activities of the business were suspended for any time.
When does TUPE apply for a change in service provider?
As well as business sales, TUPE can apply in the following scenarios:
- Where a company outsources a service that it usually provides itself to a contractor;
- Where a company wishes to move the service from one contractor to another; and
- Where a company wishes to bring the services back in-house and provide the service itself once again.
One-off or short-term contracts are unlikely to result in a TUPE transfer, for example providing security for a one-off event. Buying goods, rather than services is also unlikely to be a TUPE transfer.
Other conditions have to be met, including:
- There must be ‘an organised grouping of employees’ who are carrying out the work for the client. This can be just one employee; and
- The activities carried out before and after the transfer must be fundamentally the same, although they do not need to be identical.
Note however that even if the work being carried out is split up and divided up between different providers, TUPE may still apply.
As with the transfers of undertakings, Employment Tribunals will analyse the situation and make decisions based on the specific individual facts.
What happens if an employee does not want to transfer?
If employees do not want to transfer to the new employer, they can refuse. If an employee refuses to transfer, they cannot usually claim for redundancy pay or unfair dismissal.
The employer should treat any objection to transfer as a ‘resignation’ and confirm their notice period, accrued holiday entitlement and leaving date in writing. The Transferor must also tell the Transferee that the employee is not transferring.
An employee might be able to end their employment and pursue a claim for constructive unfair dismissal if:
- After the transfer their working conditions would be substantially worse; and
- This would be to their 'material detriment'.
For example, the workplace changes location which makes it difficult or much more expensive for an employee to transfer.
How we can help
The development of case law in this area demonstrates how complex TUPE can be. We can help you identify a possible transfer as early as possible and advise on whether the situation may be caught by the TUPE Regulations. This should give you time to comply with your legal obligations, take the impact of TUPE into account for timescales and workforce planning and, if necessary, open up a window to negotiate protection for your business. Where required, we will work with our colleagues in other teams on due diligence and contract or lease negotiations.
At Parfitt Cresswell Solicitors, we offer a complimentary initial consultation. To speak with one of our Employment Lawyers, contact us today on 0800 999 4437 or click on the button below to request your consultation online.
Parfitt Cresswell Solicitors has offices in London, Reading, Windsor, Sutton, Banstead, Haywards Heath, Uckfield, Tunbridge Wells and Edenbridge.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
