What is TUPE?
‘TUPE’ is an acronym for the Transfer of Undertakings (Protection of Employment) Regulations. It can apply to even very small businesses therefore it is essential for all employers to know what employment liabilities can arise. In order for employers to protect themselves from claims they should know when TUPE can apply and what the legal requirements are in order to comply.
Essentially, TUPE serves to protect employees if the business in which they are employed changes hands. It operates to transfer the employees and any liabilities associated with them to the new employer.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 describes a relevant transfer as:
“a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”.
This is where the whole or part of a business is sold or there is a merger between companies. The other situation in which TUPE applies is where there has been “a service provision change”. This is where an activity has been outsourced where it was previously done in-house and vice versa. Examples of this is where one company outsources a business function.
What does this mean for the Transferor employer?
Employers involved in a relevant transfer must consult with the affected employees and advise their representatives offering TUPE advice. Specific information must also be provided to the employee representatives long before the transfer occurs in order for them to consult with the transferor. Any measures for change that the transferor envisages that may affect the transferred employees must also be intimated to the employee representatives. Failure to provide TUPE advice may result in Unfair Dismissal claims from employees.
Failure to comply with TUPE can be very costly. Claims to Employment Tribunals can result in up to a maximum of 13 week’s pay per affected employee. The transferor and transferee may also be held to be jointly and severally liable for the compensation (though the contract of transfer can govern the apportionment of such liability should it arise). Thus it is important that employers receive appropriate advice before embarking on a relevant transfer transaction.
The transferor is also under a duty to provide to the transferee “employment liability information” of any employees transferred either in writing or in a readily accessible form. Failure to do so may result in a complaint to the Employment Tribunal and an award of compensation from the transferor to the transferee for losses suffered which would necessarily be a statutory minimum of £500 per employee. Thus failure to comply can potentially undermine the entire transaction.
Once the transferor is aware that the transfer will be taking place they are then precluded from making any changes to the employee contracts of employment. Any dismissals of employees the reason for which is principally the transfer will automatically be unfair, unless it is an “economic, technical or organisational reason entailing changes in the workforce”. This defence is narrow in scope and difficult to rely on in practice.
What does this mean for the Transferee employer?
The transferee essentially inherits the employees of the transferring company. The transferee inherits the employees original contract of employment. This means that all contractual and statutory rights against the previous employer are transmitted to the transferee. The transferee may need to alter their Health and Safety Policy and insurance policies etc. in order to fully comply.
Employees can opt-out of transferring but it would mean they may lose legal rights. It is essential that employers are aware of what employees they are inheriting when involved in a relevant transfer, including any employment liabilities which arose prior to the transfer since the transferee may later become liable. Taking legal advice is essential in order to ensure the contract of transfer protects the new employer from such liabilities, but employers should be aware that it is not possible to contract out TUPE.
Transferee’s commonly make redundancies after a transfer but in order to do so TUPE requires that the transferred employees be considered on an equal playing field with existing employees of the transferee and be based on an objective, economic and technical reason. They must also receive equal redundancy payments and should redundancy payments be based on length of service then the relevant date is the date they commenced working for the transferor not the transferee.
TUPE in Insolvency
TUPE is relaxed where the employer is subject to insolvency proceedings. The transferee employer will not be subject to the same liabilities for redundancy, notice and other payments and it is also possible to make changes to employee contract terms in specific circumstances. The underlying philosophy is to maintain employment and facilitate economic activity.
TUPE is a difficult piece of legislation that requires careful consideration. It was initially introduced to bring the law in line with an EU Directive in 1981 but was subsequently redefined due to increasingly complex case law which developed in the years following its introduction.
For further details please contact us for an informal discussion.