TUPE transfers impact both employees’ rights and employers’ obligations. We can help reduce TUPE legal risks to support a positive and successful transition.
The Transfer of Undertakings (Protection of Employment) (TUPE) regulation apply to employers of all sizes, both in the private and public sector and whether commercial or not for profit, where there is a relevant business transfer.
The regulations exist to ensure employers follow the correct legal procedure for a relevant business transfer, and that employees’ terms and conditions are preserved when their employment transfers to a new employer.
TUPE is a complex piece of legislation with potentially significant implications for both incoming and outgoing employers when a business is sold, activities are outsourced or brought in-house, or a contract for services is moved over from one provider to another.
For both the outgoing and incoming employers, it will be important to understand the employment liabilities relating to the transfer to avoid the risk of employment law claims and ensure an effective transaction.
TUPE considerations are far-reaching, requiring specialist knowledge and experience to identify and advise on the full ambit of legal duties and liabilities. Specific areas of risk and consideration for employers relating to TUPE include:
The Transfer of Undertakings (Protection of Employment) Regulations 2006, known as the TUPE Regulations, set out the legal provisions that govern the transfer of undertakings.
In broad terms, the TUPE Regulations provide key legal protections for employees when all or part of the business that they work for changes hands, or where employees are engaged in providing a service and there is a change of service provider. The Regulations do this by preserving the rights of transferring employees and protecting them from any unfair disadvantage. These employees will maintain continuity of employment from their original start date with their old employer, and benefit from the same terms and conditions.
In circumstances in which TUPE applies, this will trigger a whole host of information and consultation obligations on both the incoming and outgoing employer prior to any transfer taking place, where any failure to inform and consult could result in joint and several liability for potentially costly tribunal claims. Post-transfer, the application of the TUPE Regulations will then determine the extent of the employee’s rights moving forward, where any existing statutory and contractual liabilities will transfer to the new employer.
Given the importance of the TUPE Regulations when it comes to the protection of employee rights, the incoming and outgoing employer cannot opt out of their statutory obligations. However, there are various different circumstances in which the TUPE Regulations will not apply, depending on whether the ‘relevant transfer’ is a qualifying business transfer or service provision change as defined under the Regulations. It may even be possible to structure work and teams to reduce the likelihood that TUPE will apply in certain scenarios.
Due to the highly technical application of the TUPE Regulations, there is often a great deal of uncertainty as to when TUPE applies, although it is commonplace for any potential TUPE-related risks and liabilities to be regulated by contract. This is where the incoming and outgoing employer agree to apportion the costs associated with pre-existing employee liabilities or the risks arising from any tribunal claim for failure to comply with the Regulations. Through the use of contractual warranties and indemnities, the parties can agree who will bear the financial costs before proceeding with the transfer.
When it comes to TUPE and contractual terms, as the incoming employer is required to take on transferring employees on their existing terms and conditions of employment — and the underlying principle of the TUPE Regulations is to protect and preserve employees’ existing rights under their contract of employment with the outgoing employer — the new employer will be prohibited from making any changes to these employment contracts where the sole or principal reason for the contractual variation is the transfer.
However, the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 introduced certain amendments to the 2006 Regulations, making it potentially easier for employers to effect changes to terms and conditions of transferring employee contracts in the following circumstances:
the contract in question allows for a change to be made, such as the application of an existing mobility or flexibility clause
where the sole or principal reason for the contractual variation is an economic, technical, or organisational (ETO) reason entailing changes in the workforce, but only where both the employer and employee agree to the proposed change.
Technically, it is therefore possible to implement changes to a contract of employment where the sole or principal reason is either a reason unconnected with the transfer or for an ETO reason entailing a change in the workforce. It is also possible to make changes where the terms of the employment contract permit the employer to make such a variation. Still, if the sole or principal reason for the change is the transfer, any purported variation will be void, even where an employee agrees to have their contract varied by their new employer.
In the absence of a valid ETO reason or contractual mechanism permitting any variation, the best way for an incoming employer to vary the terms and conditions of transferring employees is to wait. Although the majority of TUPE rights do not expire, it may be easier as time goes on for the incoming employer to distance any changes to their employees’ contracts. As such, with the passage of time, the less likely the changes will be seen to be linked to the transfer, although there in no rule of thumb here. In theory, the protection period provided for employees by the TUPE Regulations is indefinite following a relevant transfer. If the new employer attempts to change the employee’s contractual terms and conditions because of the transfer, this can be construed as unlawful, even years later.
In circumstances where an employee seeks to change an employee’s contractual terms, any amendments made will be void and the employer will be in breach of contract. In addition, if the transferring employees’ terms and conditions of employment are changed either before the transfer or afterwards, and those changes are worse than the original terms, the employee could forcibly resign and bring a claim for constructive unfair dismissal. Any employer looking to make change in the context of a TUPE transfer should therefore always seek specialist employment law advice to help navigate these potential pitfalls.
In addition to the transfer of the same contractual terms and conditions, transferring employees will carry with them their continuous service from their original start date, maintaining continuity of employment in the context of their right to claim unfair dismissal.
As such, when it comes to TUPE and redundancy, employee’s with at least 2 years’ service will be protected from being made redundant by reason of the transfer. Under the TUPE Regulations, any redundancy — either before or after the transfer takes place — will be automatically unfair where the sole or principal reason for the dismissal is the transfer.
The only exception to this rule against redundancy is where an employee’s dismissal is for an ETO reason entailing changes in the workforce, which essentially means a change in the number of employees or in the functions that they perform. For example, where the incoming employer inherits new employees but needs to undergo a restructure based around a legitimate business need, leading to some of the new employees being made redundant, assuming a fair process is followed including selection from both the existing and transferring workforce, the redundancy dismissals would not necessarily be unfair.
Importantly, any dismissal by reason of redundancy will still be subject to the rules around fair dismissals, where all proper redundancy procedures must be followed, including making offers of any suitable alternative employment. This means that even where an employer can rely on an ETO defence and a dismissal is not automatically unfair, it may still be unfair for other reasons, such as a failure to properly consult in a redundancy context.
It is also worth noting that where redundancies are made, a true ETO reason must exist, where this must not be a smokescreen to enable the employer to streamline the workforce after the transfer has taken effect. As with changes to any contractual terms and conditions following a transfer, where redundancies need to be made it may be easier for the incoming employer to distance any redundancies from the transfer itself. Again, any employer looking to make redundancies in the context of a TUPE transfer should seek specialist employment law advice to help avoid falling foul of the law.
In broad terms, the TUPE Regulations apply in the context of a business transfer or service provision change, where a service provision change can either refer to where activities are outsourced or brought in-house, or where a contract for services is moved from one provider to another. In this context, various provisions are made within the Regulations around contractors, where any reference to contractors also apply to subcontractors.
A service provision change can include where a contractor (or subcontractor) takes over the activities from a client, known as outsourcing; where a new contractor (or subcontractor) takes over activities from a previous contractor, known as re-tendering; or where a client takes over activities from a contractor (or subcontractor), known as insourcing. It is essentially where a client engages a contractor (or subcontractor) to undertake work on its behalf or reassigns a contract, including bringing the work in-house. This can include contracts to provide office cleaning, workplace catering and other labour-intensive services, as well as professional business services, including legal and accountancy services.
However, for a service provision change to be covered by the TUPE Regulations, the activities carried out by the old contractor and the new contractor must be ‘fundamentally the same’. This means that if the service requirement significantly alters post-transfer, there would be no service provision change under TUPE. That said, minor differences between the nature of the tasks involved would not normally, without more, be sufficient to mean that the activities are not fundamentally the same. For example, if a company contracts with a catering business to serve hot canteen dinners, where the new contractor continues to provide the same service as the previous contractor but the ingredients are sourced from a different supplier, TUPE will probably still apply. In contrast, if the old catering contractor served hot dinners in the company canteen, but the contracting company decided to change the terms on expiry of the contract to provide and stock self-service refrigerated food instead, TUPE would be unlikely to apply where a new catering contractor wins the tender.
Under the TUPE Regulations, the terms and conditions of employment of any transferring employees will automatically transfer to their new employer on the transfer date, including any rights around maternity leave and maternity pay. However, when it comes to statutory maternity leave, there is no continuous service requirement, where employees will be entitled to 52 weeks’ leave, regardless of how long they have been with their employer.
If the employment contract makes provision for enhanced maternity rights, these rights will transfer to the new employer, who will also be responsible for the payment of any maternity pay, where applicable. In the context of statutory maternity pay, the employee must have accrued 26 weeks’ continuous service, continuing into the 15th week before the expected week of childbirth, where any service with the old employer will count towards this.
Under the TUPE Regulations, where applicable, employees have the legal right to transfer to the new employer on their existing terms and conditions of employment, together with all their existing employment rights and liabilities intact. However, certain pension rights do not transfer under the TUPE Regulations, where there are special provisions that deal with old age pensions under certain occupational pension arrangements.
If the outgoing employer provided a pension scheme, the incoming employer must provide some form of pension arrangement for those eligible, although this does not have to match the previous arrangement, but must simply meet the minimum standards required.
When it comes to insolvency scenarios, the rules under the TUPE Regulations are far more relaxed, where inherited employee liabilities are not so onerous for the incoming employer, making it easier for a business to be sold as a going concern.
Where the outgoing employer is insolvent, the incoming employer will not be liable for some of the unpaid debts owed to employees, up to a prescribed amount, such as statutory redundancy pay, where these can instead be recovered by employees from the National Insurance Fund. There is also greater scope in the context of insolvency for the incoming employer to vary terms and conditions of employment after the transfer has taken place, where any variation is designed to ensure the survival of the business and safeguard jobs.
In other insolvency cases the TUPE Regulations may not apply at all because the business has gone into insolvent liquidation rather than being sold as a going-concern.
DavidsonMorris provides specialist legal advice to employers on the legal implications of TUPE.
We can advise on all aspects of TUPE and HR legal risk management including:
We are experienced in advising both transferors (the outgoing employer) and transferees (the incoming employer) on the required legal process to follow and on their respective employment liabilities as triggered by the transfer.
We can help to develop strategies that enable you to ensure full commercial benefit is derived from the transfer, by leveraging your powers and rights as an employer and managing the risk of more complex requirements such as varying employee terms or redundancy.
Contact us for specialist advice.
The Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as the TUPE Regulations, set out the legal provisions that govern the transfer of undertakings. In broad terms, these provide legal protections for employees when a business changes ownership.
When it comes to which employees are covered by the TUPE Regulations and will transfer with the business, if an employee spends 50% or more of their working time on the transferring business, they will typically transfer with that business.
Following a transfer, the protection period provided for employees by the TUPE Regulations is indefinite. If the new employer attempts to change the employee’s contractual terms and conditions because of the transfer, this may be unlawful, even years post-transfer.ts from you when starting a new job, including your passport as evidence of your identity and to prove your right to legally undertake work in the UK.
In England and Wales, the law around employment contracts is governed by both statute and common law where, absent any express written provision, there are minimum statutory requirements that will be implied into a contract, such as minimum notice periods.