How to deal with a TUPE transfer
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) can apply to lots of different business transactions such as outsourcing, or buying and selling a business.
When a business changes hands TUPE gives special protection, so that employees continue to be employed by the new employer, with all their rights preserved.
In essence on a TUPE transfer, the new employer ‘steps into the shoes’ of the old employer. To minimise the risk of claims and to protect your business, it’s key to understand when TUPE applies, its implications and the practical steps you need to take.
Below is a summary of the key areas which employers should consider when entering into a transaction which may trigger a TUPE transfer.
When does TUPE apply?
TUPE applies to ‘relevant transfers’, these comprise i) where there is a business transfer or ii) where there is a service provision change and the new activities being carried out are fundamentally the same as the previous activities.
Relevant transfers include:
- The whole, or part, of a company is bought or acquired by way of an asset purchase and the activities carried on before and after the transfer are substantially the same
- All of a sole trader or partnership business is sold or transferred
- A merger of two or more companies to form a third company with the existing companies ceasing to exist
- A contract to provide services on behalf of a client is reassigned or transferred to another company/business
- A contract to provide services on behalf of a client is terminated and brought in house.
The following does not constitute a transfer:
- A share purchase only (resulting in no change to the company other than the identity of the shareholder(s))
- A transfer of assets only
- A contract for services or goods for a single specific event or task or short term duration
- The supply of goods for the client’s own use
- The transfer of a business or undertaking which is situated outside of the UK immediately prior to the transfer.
What happens to employees if TUPE does apply?
If TUPE applies employees employed in the undertaking which is being transferred, will have their employment transferred to the new employer. Employees will keep their continuity of employment and all rights, powers, duties and liabilities under the employment contracts pass to the new employer.
The individual employees’ terms and conditions of employment will be protected, which can make it difficult for the new employer to make changes to terms and conditions of employment post transfer.
It is therefore key that the new employer is fully informed about the employees it is taking on as part of the transfer. The outgoing employer is required to provide employee information to the incoming employer which should assist with this.
What types of claims can an employee bring?
- Unfair dismissal – if an employee is dismissed because of the TUPE transfer itself, it is likely to be automatically unfair
- Failure to inform and consult – both current and new employers are required to inform their affected employees of the transfer. If either employer envisages taking any measures following the transfer, then there is an obligation to consult with any affected employees about those proposed measures
- The incoming employer will be liable for any claims which an employee had against the outgoing employer.
The question of whether TUPE applies and its implications is a very complex one. If you are involved in a transaction where you think TUPE may apply, take specialist legal advice.
For further information about TUPE take a look at our short TUPE film and webinar, which focuses on dealing with people and where to start in a TUPE transaction!
Basic procedure for a TUPE transfer
Is the transaction a ‘relevant transfer’ for the purposes of TUPE (i.e. is it a ‘business transfer’ or a ‘service provision change’)?
If yes, the parties must establish a transfer date for the transfer of the business (or service) and employees.
The current employer should inform the affected employees that their employment will transfer under TUPE to the new employer unless any employee objects to the transfer and resigns.
Confirm the transfer date. Ensure that any employee who wishes to object to the transfer does so in writing. The current and new employers must ensure all their affected employees are provided with the following information (this should be provided in writing as soon as possible prior to the transfer date):
- That a transfer is to take place
- The reason for the transfer and when it is expected to take place
- The implications of the transfer for the employees
- The measures which the employer expects to take in relation to the employees
- For the current employer, the measures that the new employer expects to take in relation to the transferring employees.
The new employer should undertake a due diligence exercise. All employment details of the individuals who will transfer should be sought. Copies of all employment contracts and policies should be obtained and examined. Note the contract terms which the employees are subject to. Ensure that terms which are implied by custom and practice are also notified to the new employer as not all terms and conditions will necessarily be set out in writing. Consider whether there are any collective agreements or trade union recognition in place which would transfer. Identify any key risks.
Consider whether there are going to be any required changes to the terms, such as changes to the dates for salary payments or change of working premises/location.
For the new employer, if there are any proposed changes to be made to the terms of the transferring employees’ terms of employment, inform the current employer of those proposed changes (or ‘measures’). Both employers should work together to consult with any affected employees over the proposed measures. Affected employees will include any employees in the new and current employers’ businesses that will be affected as well as those who will transfer.
Meet with the affected employees and any trade union representatives or employee representatives. If there are no employee representatives or trade union representatives, the employer must arrange an election of appropriate representatives for the purposes of consultation. Consultation should occur at the earliest practicable time prior to the transfer date.
Not less than 14 days before the transfer (changing to 28 days from 1 May 2014), the current employer must provide the ‘employee liability information’ to the new employer. This includes:
- The identity and age of the employees to transfer
- The basic information contained within the contract of employment of the employees (as required in terms of s1 of the Employment Rights Act 1996)
- Details of any claims which the current employer knows have been brought against them or believes may be brought at a later date.
The new and current employers may wish to consider negotiating warranties and indemnities which will provide a partial, or total, protection against the financial impact of any claims resulting from the application of TUPE.
Ensure the employees are aware of what will happen on the transfer date and ensure that there are no outstanding queries. Ensure payroll and other administrative functions have been put into place in order for a smooth transfer to occur.
If any substantial changes are to take place consider taking specialist legal advice to minimise any risk.
This note is a summary of the issues and is not a substitute for detailed legal advice. It may contain information of general interest about current legal topics, but it should not be taken as providing legal advice on any of the topics covered.