When Does TUPE Apply? An Employer’s Guide

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 are notoriously onerous on employers. However, TUPE only applies to certain types of business transactions and transfers. As such, employers will need to determine if a transaction is covered by TUPE before proceeding with the transfer, as this will shape both affected employees’ rights and the legal process that has to be followed.

In this guide, we look at the question of ‘when does TUPE apply’, setting out circumstances under which TUPE will be triggered and outlining the responsibilities employers must meet to remain compliant with the regulations.

You can read our Comprehensive Tupe Guide for UK Employers here >>

 

Section A: What is TUPE?

 

The Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE, governs the transfer of employees from one employer to another when a business or service provision is transferred.

TUPE is designed to preserve employees’ existing employment rights when a transfer occurs, safeguarding their terms and conditions and ensuring they are not unfairly dismissed as a result of the change.

TUPE regulations apply when a business or part of a business is transferred to a new owner or when there is a change in the service provider for a particular service.

The regulations mandate that employees who are part of the transferring business are automatically transferred to the new employer with their existing terms and conditions intact. This means that their employment contracts, including salary, holiday entitlement, and other benefits, remain unchanged under the new employer.

The primary purpose of TUPE is to protect employees’ rights during business transfers. Without TUPE, employees could face significant uncertainty and risk during such transitions, potentially losing their jobs or seeing their terms and conditions significantly altered.

 

1. Transfer of Business Ownership

 

One of the core scenarios where TUPE applies is during the transfer of business ownership. This can occur through various forms, such as the sale of a business, mergers, or even the transfer of part of a business (like a specific department or function). In such cases, the employees who are employed within the transferred business automatically move to the new employer with their employment contracts intact. The new employer steps into the shoes of the old employer, inheriting the rights, obligations, and liabilities associated with the transferred employees.

 

2. Service Provision Changes

 

Another key concept under TUPE is the service provision change, which occurs when a service previously provided by one company is taken over by another. Common examples include outsourcing, insourcing, or re-tendering of services such as cleaning, catering, or IT support. When a service provision change falls under TUPE, the employees who were assigned to that service transfer to the new service provider, again with their existing employment terms protected. This ensures continuity for employees and compliance for employers, reducing the risk of disputes or disruption.

 

Section B: When Does TUPE Apply?

 

For employers, understanding TUPE is essential to avoid incorrect assumptions about employee rights during a transfer that is not covered by TUPE, and where TUPE does apply to ensure compliance with legal obligations and to protect the business from potential disputes and financial liabilities.

TUPE typically applies during business transfers or service provision changes, but there are specific conditions that must be met for the regulations to apply.

 

1. Business Transfers

 

A business transfer under TUPE occurs when an economic entity, which retains its identity, is transferred from one employer to another. This includes situations where the entire business or a distinct part of it, such as a specific department or division, is sold or transferred to a new owner. The key aspect of a business transfer is that the entity being transferred must remain identifiable after the transfer, meaning that its activities continue in a similar form under the new ownership.

Examples of scenarios where a business transfer occurs include:

 

a. Mergers: When two companies merge, and one of the companies effectively absorbs the other, the employees of the merged entity may be transferred to the acquiring company under TUPE.

 

b. Acquisitions: In cases where one company purchases another, the employees of the acquired company are typically transferred to the acquiring company with their terms and conditions of employment intact.

 

c. Sale of Part of a Business: If a company sells off a particular division or unit to another company, the employees who work in that division are transferred to the new owner under TUPE.

 

2. Service Provision Changes

 

A service provision change occurs when there is a change in the service provider for an existing service. TUPE applies in these situations to ensure that employees who are dedicated to providing the service are transferred to the new provider with their employment rights preserved. This is common in sectors where outsourcing, insourcing, or re-tendering of services is frequent.

Examples of scenarios where a service provision occurs include:

 

a. Outsourcing: When a company decides to outsource a function (e.g., cleaning services) to an external contractor, the employees who were previously employed in-house to perform this function may transfer to the external contractor under TUPE.

 

b. Insourcing: Conversely, if a company decides to bring a previously outsourced service back in-house (e.g., IT support), the employees of the external provider who were dedicated to the service may transfer to the company, taking the service in-house.

 

c. Re-Tendering: If a company changes its service provider (e.g., switching from one facilities management company to another), the employees of the outgoing provider who are primarily assigned to the service may transfer to the new provider under TUPE.

 

One of the most complex aspects of TUPE is understanding when a service provision change triggers TUPE. A common misconception is that all outsourcing or insourcing activities automatically fall under TUPE. However, for TUPE to apply, there must be an organised grouping of employees whose principal purpose is to carry out the activities being transferred. If this condition is not met, TUPE might not apply.

 

3. When TUPE Does NOT Apply

 

While TUPE covers many scenarios, there are situations where it might not apply. These could include:

 

a. Share Sales: TUPE does not apply to share sales because the ownership of the company itself does not change—only the shareholders change. The company remains the same legal entity, so there is no transfer of employees.

 

b. Short-Term Projects: If the work being transferred is for a short-term, one-off project, TUPE may not apply, particularly if there is no ongoing economic entity or service being transferred.

 

c. Change in Service Specifications: If the nature of the service changes significantly after the transfer, such that it is no longer identifiable as the same service, TUPE may not apply.

 

4. Case Studies

 

To illustrate when TUPE applies, consider the following scenarios:

 

a. Example 1: A manufacturing company sells its logistics division to a third-party logistics provider. The employees who were working in the logistics division are transferred to the new employer under TUPE, with all their employment terms preserved.

 

b. Example 2: A local council decides to re-tender its waste management services and awards the contract to a new company. The employees who were employed by the previous contractor and were dedicated to the waste management service transfer to the new contractor under TUPE.

 

c. Example 3: A company that has outsourced its catering services to an external provider decides to bring the service back in-house. The employees of the catering contractor who were assigned to the contract are transferred to the company, now directly employed under the same terms as before.

 

Section C: Employer Responsibilities Under TUPE

 

When TUPE does apply, employers are subject to a number of responsibilities to ensure that the transfer of employees is conducted in compliance with the law. These responsibilities are designed to protect employees’ rights while also providing clear guidelines for employers to follow. Employers must ensure they meet these obligations to avoid legal pitfalls and maintain positive relations with employees during what can be a complex and sensitive process.

 

1. Information and Consultation

 

One of the primary responsibilities under TUPE is the obligation to inform and consult with employees about the transfer. Both the outgoing (transferor) and incoming (transferee) employers must provide certain information to the affected employees or their representatives (such as trade unions) well in advance of the transfer. This information typically includes details about the transfer, its timing, the reasons for it, the implications for employees, and any measures that the new employer intends to take regarding the employees.

The timing and content of these communications are critical. Employers must ensure that employees are informed as soon as reasonably possible to allow sufficient time for consultation. The information provided must be clear, accurate, and comprehensive, covering all aspects that may affect the employees’ employment terms and conditions. Failure to properly inform and consult can result in legal claims and financial penalties for the employer.

 

2. Employee Rights Transfer

 

Under TUPE, the terms and conditions of employment for transferring employees are automatically carried over to the new employer. This means that employees retain their existing rights and benefits, such as salary, working hours, holiday entitlement, and any other contractual terms. The new employer steps into the shoes of the old employer, and the employment relationship continues as if the employees had been employed by the new employer from the start.

While most employment terms transfer under TUPE, there are specific rules regarding pensions. Typically, the new employer is not obliged to replicate the exact pension scheme of the old employer but must provide a comparable alternative. Employers must also ensure that other entitlements, such as accrued holiday pay, bonuses, and other benefits, are honoured following the transfer. This includes managing any transition of these entitlements smoothly and in compliance with TUPE regulations.

 

3. Potential Liabilities

 

When a business transfer occurs under TUPE, the new employer inherits certain liabilities associated with the transferring employees. These liabilities can include claims for unfair dismissal, discrimination, unpaid wages, or other breaches of employment law that occurred before the transfer. It is crucial for the new employer to conduct thorough due diligence before the transfer to identify any potential liabilities they may inherit.

Post-transfer, the new employer may face disputes or claims from transferring employees, especially if there are perceived changes to their terms and conditions or if there were issues with the transfer process. Employers must be prepared to address these disputes proactively, seeking legal advice where necessary and engaging in constructive dialogue with employees to resolve issues. Clear communication and a well-documented transfer process can help mitigate these risks.

 

4. Changes to Employment Terms

 

One of the critical aspects of TUPE is the restriction on changing employees’ terms and conditions post-transfer. Employers are generally prohibited from altering the terms of employment if the sole or principal reason for the change is the transfer itself. Any attempt to change terms in this context can be deemed void and may lead to legal challenges from employees.

However, there are circumstances where changes can be made legally, such as when the changes are for an economic, technical, or organisational (ETO) reason that involves changes to the workforce (e.g., redundancies). However, understanding what qualifies as an ETO reason—such as significant changes to the workforce structure—requires careful legal consideration.

Also, if the employees agree to the changes voluntarily or if the changes are beneficial to the employees, they may be permissible. Employers must approach any proposed changes carefully, ensuring that they are compliant with TUPE and that employees are fully informed and consulted throughout the process.

 

Section D: Managing Risk Through the TUPE Process

 

Employers should take proactive steps at each stage of the transfer—before, during, and after—to minimise disruptions and protect both their business interests and their employees’ rights.

 

1. Before the Transfer

 

Before the transfer takes place, it is crucial for the incoming employer (transferee) to conduct thorough due diligence. This involves reviewing all relevant information about the transferring employees, including their contracts, benefits, and any outstanding liabilities (such as claims or grievances). Understanding the full scope of what is being transferred helps the new employer assess the potential risks and costs associated with the transfer and allows for informed decision-making.

Employers are advised to engage with legal and HR professionals early in the process to ensure that they fully understand their obligations under TUPE and are well-prepared to meet them. Legal advisors can provide guidance on complex issues, such as inherited liabilities and contract terms, while HR professionals can assist with the practical aspects of managing the employee transfer. This collaboration helps to ensure that the process is compliant with the law and that any potential issues are addressed proactively.

 

2. During the Transfer

 

Clear, timely, and transparent communication is essential during the transfer process. Employers should provide employees with regular updates about the progress of the transfer, what it means for them, and any actions they need to take. This communication should be tailored to address employees’ concerns and should include both written and verbal updates, depending on the situation. The goal is to keep employees informed and engaged, reducing uncertainty and anxiety.

The actual transfer of employees should be carefully managed to minimise disruption to both the business and the workforce. Employers should have a detailed transition plan in place that includes key dates, responsibilities, and processes for handling any issues that arise. This might involve coordinating with the outgoing employer to ensure a seamless handover, providing support to employees during the transition, and setting up systems to manage any immediate post-transfer requirements, such as payroll adjustments or new employee inductions.

 

3. Post-Transfer

 

After the transfer, employers need to focus on integrating the new employees into the existing workforce. This can involve aligning different teams, harmonising work practices, and addressing any cultural differences between the old and new employers. Employers should also be prepared to manage any resistance or challenges from employees who may be uncertain about their new working environment. Providing additional training and team-building activities can help with post-transfer integration.

Regular check-ins, surveys, and open-door policies can help employers gauge how employees are adjusting and provide opportunities to address concerns promptly.

 

Section E: Common Misconceptions About TUPE

 

TUPE is a complex area of employment law, and as a result, there are many misconceptions about how it works and what it means for employers. These misunderstandings can lead to costly mistakes and legal challenges if employers do not have a clear and accurate understanding of the regulations.

 

1. Myth: TUPE only applies to large businesses

TUPE applies to businesses of all sizes, not just large corporations. Whether you’re a small business selling a part of your operations or a large company outsourcing a service, TUPE can still apply. The size of the business does not exempt it from the obligations under TUPE.

 

2. Myth: TUPE only applies to full-time employees

TUPE protects all employees, regardless of their contract type. This includes full-time, part-time, temporary, and fixed-term employees. As long as the employees are assigned to the entity or service being transferred, they are covered under TUPE.

 

3. Myth: Employers can freely change employees’ terms and conditions post-transfer

Employers cannot simply change terms and conditions after a transfer if the sole reason for the change is the transfer itself. Such changes are usually void under TUPE unless they are made for an economic, technical, or organisational reason (ETO) involving changes to the workforce or the employees agree to the changes.

 

4. Myth: TUPE does not apply if the business is insolvent

TUPE can still apply in cases of insolvency, although there are certain relaxations of the rules to facilitate business rescues. For instance, some debts owed to employees may be transferred to the state rather than the new employer, but the basic protections for employees remain in place.

 

Section F: Summary

 

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations 2006, applies when a business or part of a business is transferred to a new owner or when there is a change in the service provider.

TUPE typically applies in two main scenarios: business transfers, where an organisation is sold or merged, and service provision changes, such as outsourcing or bringing a service back in-house. Employers must inform and consult with affected employees and ensure that their employment rights are fully preserved post-transfer.

Failure to comply with TUPE obligations can result in claims for unfair dismissal, breach of contract, and other legal challenges. Employers also inherit liabilities, such as ongoing grievances or disputes, from the previous employer.

 

Section G: Need Assistance?

 

DavidsonMorris are experienced employment law specialists with expertise in TUPE transfers. We can advise from the initial stages of the process, including determining if TUPE applies and, if so, how to meet your responsibilities under the provisions while ensuring focus on the commercial objectives of the transfer.

We can provide practical guidance on the implementation process to follow and measures to mitigate the risks of your business falling foul of the legislation.

If you have a question or need advice on any aspect of the TUPE regulations, contact us.

 

Section H: When Does TUPE Apply – FAQs

 

What is TUPE?

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. It is UK legislation designed to protect employees’ rights when the business they work for is transferred to a new employer. TUPE ensures that employees’ existing terms and conditions of employment are preserved after the transfer.

 

When does TUPE apply?

TUPE applies in two main scenarios: when a business or part of a business is transferred to a new owner (business transfer) and during service provision changes (e.g., outsourcing, insourcing, or re-tendering of services). For TUPE to apply, the business or service being transferred must retain its identity after the transfer.

 

What responsibilities do employers have under TUPE?

Employers have several key responsibilities under TUPE, including informing and consulting with employees or their representatives about the transfer, ensuring that employees’ terms and conditions of employment are maintained post-transfer, and managing any inherited liabilities. Employers must also handle any changes to employment terms carefully, ensuring they comply with TUPE regulations.

 

Can I change employees’ terms and conditions after a TUPE transfer?

Generally, changes to employees’ terms and conditions after a TUPE transfer are restricted if the sole reason for the change is the transfer itself. Changes can only be made lawfully if they are for an economic, technical, or organisational (ETO) reason involving changes to the workforce or if employees agree to the changes.

 

Does TUPE apply to all employees?

TUPE applies to all employees who are part of the business or service being transferred, regardless of their contract type. This includes full-time, part-time, temporary, and fixed-term employees.

 

What happens to employee pensions during a TUPE transfer?

While TUPE protects most terms and conditions, it does not require the new employer to replicate the exact pension scheme of the outgoing employer. However, the new employer must provide a comparable pension scheme or contribute to the existing one, in line with specific pension regulations.

 

Does TUPE apply if my business is insolvent?

TUPE can still apply in cases of insolvency, although certain modifications to the usual rules may be made to facilitate business rescues. For example, some employee debts might be transferred to the state instead of the new employer, but the basic protections for employees usually remain in place.

 

What is the difference between a business transfer and a service provision change under TUPE?

A business transfer involves the transfer of an economic entity that retains its identity, such as when a business or part of it is sold to a new owner. A service provision change occurs when a service previously provided by one company is taken over by another, such as in outsourcing or re-tendering scenarios. Both situations can trigger TUPE protections for employees.

 

What are my obligations regarding informing and consulting with employees?

Employers are legally required to inform and consult with affected employees or their representatives about the transfer. This includes providing details about the transfer, its timing, the reasons for it, and any potential changes or measures that will affect employees. This process should be initiated as soon as possible to allow adequate time for consultation.

 

What happens if I don’t comply with TUPE regulations?

Failure to comply with TUPE regulations can lead to legal claims from employees, including claims for unfair dismissal, breach of contract, or failure to inform and consult. Such claims can result in financial penalties and damage to the business’s reputation. It is crucial to seek legal advice and ensure full compliance with TUPE obligations.

 

Section I: Glossary

 

Term	Definition
TUPE	Transfer of Undertakings (Protection of Employment) Regulations 2006, which protect employees’ rights during business transfers.
Transferor	The original employer who is transferring the business or service to another employer.
Transferee	The new employer who is receiving the business or service and its employees.
Business Transfer	The process where a business or part of a business is transferred to a new owner while retaining its identity.
Service Provision Change	A situation where a service, previously provided in-house or by one contractor, is transferred to another provider.
Employee Representative	A person or body (such as a trade union) elected or appointed to represent employees during the TUPE process.
Economic, Technical, or Organisational (ETO) Reason	Justification for changes to employees’ terms and conditions post-transfer, typically involving workforce changes.
Consultation	The legal requirement for employers to discuss with employees or their representatives the impact of the transfer and any changes.
Insolvency	A financial state where a company cannot pay its debts; TUPE still applies but with some modifications in insolvency situations.
Pension Protection	Under TUPE, while the exact pension scheme does not transfer, the new employer must offer a comparable pension scheme.
Liabilities	Financial or legal responsibilities that the new employer may inherit from the previous employer as part of the TUPE transfer.
Continuity of Employment	The principle that employees’ service length and terms are preserved during and after a TUPE transfer.
Redundancy	The situation where an employee’s position is no longer needed, potentially leading to dismissal; must be handled carefully under TUPE.
Due Diligence	The process of reviewing and assessing all relevant aspects of the transfer, including employee contracts and liabilities, before the transfer occurs.
Dismissal	Termination of employment; under TUPE, dismissals related to the transfer are usually automatically unfair unless for an ETO reason.
Outsourcing	The process of contracting a business function or service to an external provider; may trigger TUPE if employees are affected.
Insourcing	Bringing a previously outsourced service or function back in-house; may trigger TUPE if employees are affected.
Re-tendering	The process of inviting and evaluating new bids for a service contract; TUPE may apply if the service provision changes.
Inherited Liabilities	Obligations, such as employee claims or debts, that the transferee assumes from the transferor during a TUPE transfer.

 

Section J: Additional Resources

 

UK Government TUPE Guidance
https://www.gov.uk/transfers-takeovers
Official UK Government guidance on TUPE, providing detailed information on when the regulations apply, employer responsibilities, and employee rights.

 

ACAS – TUPE: A Guide for Employers
https://www.acas.org.uk/tupe
Comprehensive guidance from ACAS (Advisory, Conciliation and Arbitration Service) covering TUPE regulations, including advice on managing transfers and resolving disputes.

 

CIPD TUPE Factsheet
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/tupe/factsheet
A factsheet provided by the Chartered Institute of Personnel and Development (CIPD) that offers an overview of TUPE, focusing on the HR implications and practical steps for employers.

 

Law Society – TUPE Practice Note
https://www.lawsociety.org.uk/en/topics/employment/tupe-practice-note
A detailed practice note from the Law Society aimed at legal practitioners, offering in-depth advice on handling TUPE-related matters and compliance requirements.

 

Employment Tribunal Decisions
https://www.gov.uk/employment-tribunal-decisions
A searchable database of employment tribunal decisions, including cases related to TUPE, which can provide valuable insights into how the regulations are applied in real-life situations.

 

HMRC Guidance on Pensions and TUPE
https://www.gov.uk/workplace-pensions-employers
Guidance from HMRC (Her Majesty’s Revenue and Customs) on the implications of TUPE for workplace pensions, outlining employer obligations and employee rights.