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Employee Liability Information & TUPE

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The Transfer of Undertakings (Protection of Employment) Regulations (TUPE), are designed to protect employees if the company by which they are employed changes hands. First passed in 1981, the regulations were updated in 2006, with further amendments in 2014.

Its purpose is to seamlessly transfer employees, and any liabilities associated with them and their terms and conditions of employment, from the previous business owner to the new business owner.

To protect a business from claims, an employer needs to understand:

  • The circumstances when TUPE is likely to apply
  • What TUPE means legally
  • What an employer is obligated to do to comply with TUPE and the penalties for failing to do so
  • What the implications are if TUPE does not apply
  • Any other steps that can be taken to protect a business from the effects of TUPE

 

TUPE: a legal definition

TUPE is defined as, “all the transferor’s rights, powers, duties and liabilities under or in connection with the transferring employees’ contracts of employment are transferred to the transferee”. In simple terms, this encompasses all rights under the terms of a contract of employment, including statutory rights and continuity of employment, and employees’ right to bring a claim against their employer for unfair dismissal, redundancy or discrimination, unpaid wages, bonuses and holidays, or personal injury claims.

 

When does TUPE apply?

There are a vast number of business transactions where TUPE will apply, and it is therefore essential employers, whether small, medium, or large, understand what employment liabilities can arise. TUPE can apply when:

  • Any part of a business is bought or sold as a “going concern”
  • Outsourcing or a “service provision charge”, concerning either (a) an initial outsourcing of a service such as where services are transferred from a customer to an external contractor; (b) a subsequent transfer, such as where services are transferred from the initial external contractor to another external contractor; and (c) bringing the service back “in-house”, such as where services that were previously transferred to an external contractor are returned to the customer.
  • A lease has been granted or taken over, or licence of premises, and the same business is operated from those premises.

 

In its simplest form, TUPE applies when there has been a “relevant transfer”. This complicated area of law was clarified in 2006 and describes a relevant transfer as: “the transfer of an economic entity which retains its identity”. In deciding whether this has happened, the court considers the following factors:

  • The sort of undertaking being transferred
  • Whether any tangible assets such as buildings, or moveable property for example, are being transferred
  • Whether any intangible assets are being transferred and an estimate of their value
  • Whether the majority of the employees are transferred over by the new employer
  • Whether any customers will be transferred
  • The degree of similarity between the business activities undertaken prior to and after the takeover
  • The period for which those business activities were suspended

 

TUPE will be a consideration in most service provision changes such as outsourcing and insourcing. Due to the uncertainty surrounding when TUPE does and does not apply, it is common for these issues to be regulated by a contract.

 

ELI: What information must be given to the new employer?

Regulation 11 of the TUPE Regulations imposes an obligation on the outgoing employer to provide employee liability information (ELI) to the new employer within a certain time frame. In the changes made in 2014, the limit for providing the information was increased to 28 days before the transfer of the business.

ELI is useful for the new employer, commonly referred to as the “transferee”, to establish what obligations they are inheriting.

TUPE regulations require that the following employer liability information must be given before the transfer takes place:

  • The name or identity and age of all employees who will be transferred
  • Any information contained within the employees “statements of employment particulars”, this includes things such as, hours of work, pay, holiday entitlement, etc. Generally, this information can be found in the employee’s contract of employment or offer letter.
  • Details of any relevant collective agreements in place that will affect the transfer in relation to the employee
  • Information about any disciplinary action taken within the last two years against any employee
  • Information about any grievance processes raised by an employee within the last two years.
  • Any legal action, either before a court or employment tribunal, against the employer by an employee within the last two years, including any details regarding potential legal action where the former employer has reasonable grounds to believe an employee may bring a case against the new employer.

 

As stated above, this information must be provided to the new employer 28 days before the date of the transfer of the business. If there is an exceptional situation and the deadline cannot be met, the information should be supplied as soon as possible.

If there is an abject failure by the former employer to comply with their duty to supply employee liability information, the incoming employer can apply to the Tribunal for compensation which is assessed regarding the losses suffered by the incoming employer, with a minimum award of £550 per employee.

 

Data protection concerns

Because employers are legally bound to provide employee liability information under TUPE and face penalties if they fail to do so, the Data Protection Act (DPA) allows this disclosure. That said, all parties must ensure they comply with DPA principles for handling and sharing such personal information.

Care must be taken in the following circumstances:

  • Transfers outside the scope of TUPE, such as share takeovers
  • Where there are several bidders for the business, only one of whom will be successful and take over the business, but every interested party needs the information to assess whether to pursue a purchase.
  • The potential new employer may ask for more information than is required under the TUPE regulations.

 

In the above situations, the employer should only release anonymised information, or if that cannot be achieved, remove obvious identifiers such as names. Employers must only disclose extra information with the consent of the individuals concerned, or failing that, put appropriate safeguards in place to ensure information will only be used in connection with the proposed business purchase and will be destroyed once it has been used.

Once the transfer of staff has taken place, the new employer will require each employee’s record of employment in order that they can manage their newly acquired workforce. However, the new employer should consider whether they really need every piece of information within the employee’s personnel file and delete or destroy it if not.

The former employer is likely to need to hold on to some personal information about their former employees, this is to enable them to deal with any liabilities, such as tax or National Insurance Contributions, for example. The DPA permits such retention, providing the old employer has a “justifiable need” to keep the information, and they only keep it for as long as necessary. As soon as it is no longer needed, the former employer should securely destroy or delete any information they do not need to retain.

 

TUPE & ELI best practice 

  • Always keep data protection at the forefront during the TUPE process
  • Agree with the new employer what information will be transferred, and how it will be transferred (e.g. hard copies or sent electronically) plenty of time before the transfer takes place
  • Ensure those staff members responsible for negotiating the transfer are aware of their data protection responsibilities, such as keeping personal data current and secure
  • Ensure sufficient information is transferred to meet the TUPE obligations to allow the new employer to manage the staff and run the business. Although both parties should ensure excessive and irrelevant information is not transferred
  • Ensure information that is handed over is only used for the purposes of TUPE until the transfer is completed
  • Inform employees their information will be passed on to their new employer. Although it is accepted this may not always be possible
  • Consider anonymising personal information before providing any information not required by TUPE
  • Ensure, once the transfer of staff has completed, that employment records are up to date, and securely destroy any unnecessary information.

 

Duty to inform and consult

The new employer is required to give the former employer information on proposed measures that allow them to comply with its duty to inform and consult with their employees. There is not any set timetable for such consultation to take place, but it must be in “good time” before the business is transferred to the new employer. Generally speaking, the larger the business and more employees affected, the longer the timetable will need to be.

Failure to inform and consult can result is a complaint being made to an employment tribunal and if successful, the tribunal can award as much compensation as it sees fit up to 13 weeks’ pay per affected employee. The tribunal takes into consideration what is just and equitable and having regard to the seriousness of the employer’s failure.

Information and consultation failures can mean joint and several liability between the outgoing and incoming employers, although as stated above, the contract governing the transfer can set out terms that cater for apportionment of liability.

A failure to comply with TUPE could expose employers to large claims which have the real possibility of undermining the entire transfer. Since 2014, potential exemptions apply from consultation provisions for businesses employing fewer than ten employees.

 

TUPE in insolvency

TUPE Regulations are relaxed in order to protect new employers where the former employer is insolvent. Liabilities for redundancy, notice, and other payments to employees do not transfer to the new employer. Additionally, providing it is agreed with employee representatives or the trade union, terms and conditions of employment can be changed without an economic, technical, or organisational (ETO) reason if the change is necessary to save a failing business. The idea behind this is that it will encourage more businesses to “rescue” insolvent companies, which will have the knock-on effect of safeguarding employees’ jobs, because inherited liabilities are not as onerous.

 

Practical steps to protect a business

It is not possible to contract out of TUPE and its regulations affect both the former and new employer. However, there are steps that can be taken to divide TUPE liabilities contractually between them.

Under TUPE, employment liabilities attached to the transferring employees lay a new employer open to employee claims, even if their grievance arose with their former employer. The parties can decide to contractually divide any potential liabilities between them by way of contractual indemnities. This can be a particularly complex area of law to get right and done incorrectly can be worse than having no contract at all. The best course of action is to obtain specialist legal advice.

 

Need assistance?

DavidsonMorris’ employment lawyers can help with all legal aspects of company reorganisations, including meeting relevant duties under the TUPE provisions  in areas such as ELI. Working closely with our specialists in HR, we provide comprehensive guidance on how to approach and implement organisational change projects to minimise legal risk while ensuring commercial goals are achieved and employee engagement is optimised. For help and advice, speak to our experts.

 

TUPE & ELI FAQs

What is ELI in TUPE?

Under TUPE, employee liability information includes “those particulars an employer is obliged to give an employee pursuant to Section 1 of the Employment Rights Act”. This preserves an employee’s terms and conditions of employment when the company they work for is sold to another.

What information is required for TUPE?

The employee’s identity, age, particulars of employment contract e.g. working hours, pay, holiday entitlement, relevant collective agreements, disciplinary action against an employee in the last two years, grievance bought by an employee in the last two years, or potential legal action a transferring employee might bring forward.

What is a TUPE liability?

It is designed to protect employees if the business within which they are working changes hands, enabling any liabilities associated with their employment such as their rights, to be transferred to the new employer.

What are measures under TUPE?

TUPE Regulations do not define “measures” but they are likely to encompass changes to existing work practices such as rates of pay, job descriptions, hours of work, collective bargaining, and recognition.

 

Last updated: 3 May 2021

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