Employer guidance for managing TUPE transfers
- 10 minute read
- Last updated: 29th November 2019
If you are buying or selling a business, you may need to familiarise yourself with the rules under TUPE. This will ensure that any employees transferring to a new employer as part of the transaction are protected in accordance with their rights and that you do not fall foul of the law.
Of current interest to employers will be the employment tribunal decision in Dewhurst v Revisecatch & City Sprint, November 2019. The judgment provides that, since an “employee” under the regulations is “an individual who works for another person whether under a contract of service or apprenticeship or otherwise…”, “or otherwise” is to be interpreted as referring to so-called limb ‘b’ workers’ as well as employees.
While not binding, the tribunal’s decision, if appealed and upheld, would extend the TUPE provisions to workers as well as traditional employees, which will naturally have hugely significant implications in employment law terms.
As we await further developments following on from the ruling, below is a practical guide for employers and HR departments in managing the risks of the TUPE process.
This article covers:
- What is TUPE?
- When does TUPE apply?
- Objecting to the transfer
- Preliminary stages of TUPE
- Next stages
- TUPE risks for employers
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 exist to protect and preserve the rights of employees whose employment is transferring to a new employer.
Under the TUPE regulations, employees should not lose their existing employment rights. The new employer will assume all responsibilities under each transferring employee’s employment contract, including any holiday entitlement and pay and periods of continuous employment. In addition, the TUPE regulations also ensure that all liabilities are transferred to the new employer, including arrears of pay and any contractual breaches or failures of the previous employer to observe employees’ rights.
The new employer essentially steps into the old employer’s shoes, taking on the rights, responsibilities and liabilities of that employer towards the employees.
Employees will automatically be transferred to their new employer on the date of transfer, and are protected from having their contractual terms and conditions changed in connection with the transfer.
There are two types of transfer where the TUPE regulations apply, namely when a business transfers to another employer, or where a service provision change takes place.
A business transfer is where a business, or part of a business, moves from one employer to another. This can include mergers where two companies close and combine to form a new one. However, to be protected under TUPE during a business transfer, the identity of the employer must change.
In respect of a service provision change, this is when a service provided in-house, for example catering or cleaning, is awarded to a contractor, a contract ends and is given to a new contractor, or a contract ends, and the work is transferred in-house by the former customer.
Employees are not protected under TUPE if the contract is for the supply of goods for the company’s use, for example, a restaurant changing food suppliers, or for a single event or short-term task, for example, a catering company being used for a large corporate event.
Further, only the employees who can be clearly identified as providing the service being transferred are protected.
In the event that an employee does not want to work for the new employer, they could look to negotiate a new contract with new terms, or they could object to the transfer before the transfer happens. This would be considered a resignation. Employment then ends at the time of transfer. Typically in this instance, an employee will not be able to claim unfair dismissal or redundancy pay, unless their working conditions are significantly worse because of the transfer. In these circumstances, the employee can object to the transfer, or resign and potentially claim constructive dismissal.
The specific steps to follow when managing a TUPE transfer will vary according to whether there is a normal business transfer or a service provision change. However, having identified which employees are affected, the employer is under a duty to provide the necessary information and consult with affected employees.
In other words, prior to a transfer of ownership taking place, an employer must tell the trade union or employee representatives of the following:
- The fact the transfer is happening
- The transfer date
- The reasons why it is taking place
- What the transfer means for employees affected
- Any measures proposed in connection with the transfer that will affect the employees, for example, if there will be any reorganisation.
Both the old and new employers have an obligation to inform and consult representatives of affected employees. The incoming employer will be required to inform and consult on any planned measures towards the employees, considering any implications of the employees’ terms and conditions of employment, including pensions.
Where a trade union is involved, the employers must inform and consult with the representatives from the union.
The outgoing employer is also obliged to provide information to the incoming employer. This information must be provided in writing and detail the rights and obligations of the employees who will transfer.
This ‘key employee’ or ‘due diligence’ information includes their name and age, the main details of their employment, information about any collective agreements, any disciplinary action taken against them in the last two years, any grievances raised or legal action taken by the them in the last two years, as well as any potential legal action the employer thinks the employee might raise.
The total number of temporary and agency workers working for the employer must also be detailed.
This information is designed to help the new employer understand their employees’ rights and their own obligations. Although in practice it is helpful for the new employer to be given this information at the earliest possible opportunity, at the very least it must be provided by the old employer 28 days before the transfer.
Once the transfer is complete, employees should receive an up-to-date written statement of employment, giving the name of the new employer and saying that their terms and conditions haven’t changed.
One of the key risks when managing TUPE transfers is that an employee’s contract of employment automatically transfers to the new employer as if the contract was made originally between the employee and the new employer.
The net effect is that liabilities also transfer from the outgoing employer to the new one, including all statutory and contractual rights. As such, if the old employer has given cause for a claim, liability will pass to the incoming employer, including claims for unfair dismissal and discrimination, even where the conduct in question took place prior to the transfer.
A TUPE transfer can also give rise to all sorts of complex legal problems relating to changes in terms and conditions and dismissals. In particular, unless there is an ETO reason, i.e., economic, technical or organisational, any changes to terms and conditions or dismissals because of the transfer will be automatically unfair and carry with them significant compensation consequences.
A TUPE transfer can also give rise to expensive pension issues.
If an employer fails to comply with their duty to consult and inform about a transfer when managing TUPE, they can face penalties. In particular, an employer could be ordered to pay compensation to each affected employee of up to a maximum of 13 weeks’ pay each.
Compensation will be set on the basis of the employee’s actual gross pay. There is no cap on the amount that can be awarded. Compensation could be made to be payable by either the outgoing or the incoming employer, or it can be divided between the two.
Where an outgoing employer fails to supply the necessary information to the incoming employer, the new employer can also apply to the tribunal for compensation. This penalty is paid to the new employer but is calculated on the basis of a minimum award of £500 for each employee whose information was incorrect or not provided at all. There is no maximum cap, so again awards can be expensive.
Further, if an employee feels they have been forced to resign following a transfer, they may be able to complain to an employment tribunal and seek an award.
Managing TUPE: Where can I get help and advice?
There can be serious implications for employers who misinterpret or misapply TUPE, so it is vital that the process is properly managed both to reduce legal risk and to maintain morale and performance through the transition and beyond.
DavidsonMorris specialise in supporting employers through transfers, ensuring the TUPE regulations are adhered to while maintaining focus on the business interests and objectives of the transfer. We provide specialist guidance on complex and sensitive matters involving redundancy and variation and harmonisation of contractual terms.