TUPE Quick Guide
What is TUPE? TUPE stands for the "Transfer of Undertakings (Protection of Employment) Regulations 2006". Those regulations apply to safeguard employees' rights on the transfer of a business or parts of a business or where there is a service provision change. Generally, TUPE applies to situations where a business has been transferred to a new owner or there is a change in service provider in relation to activities that employees have been carrying out. The current regulations came into force on 6 April 2006 and were amended in 2014. TUPE is an important piece of legislation that implements European law, the Acquired Rights Directive. When TUPE applies it means that:
the employees of both the transferor and the transferee will be protected against dismissal in certain circumstances;
the transferee inherits all rights, liabilities and obligations - most importantly the contracts of employment (with the exception of old age, invalidity and survivors' benefits under occupational pension schemes) - in relation to the transferring employees. Parties normally agree to vary this within the commercial documentation such that the transferor is liable prior to the transfer date and the transferee is liable after the transfer date.
there is an obligation to inform and/or consult with representatives of the affected employees, or, in certain circumstances, the affected employees themselves;
there is an obligation on the transferor to provide certain information about transferring employees to the transferee; and
there is an obligation on the transferee to provide information regarding any measures it intends to take in respect of the transferring employees to the transferor.
When does TUPE apply? TUPE applies when there is one of two types of "relevant transfer." This can be:
1) A business transfer
This involves the transfer of a business, or part of a business where there is a transfer of an economic entity that retains its identity.
An economic entity is defined as "an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary". This can include part of a business.
In determining if the business has retained its identity, tribunals and courts will consider factors such as:
Whether physical assets like buildings and moveable property are transferred.
Whether any intangible assets, such as copyright, patents and goodwill have been transferred and the value of such assets at the time of the transfer.
Whether the majority of employees have been retained by the new employer.
Whether the majority of the employees are taken over.
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Whether customers have transferred.
The degree of similarity between the activities carried on before and after the transfer.
If the activities which are carried on before and after the transfer have been suspended and the duration of this suspension.
2) A service provision change
This involves a business engaging an external contractor to do work on its behalf, reassigning such a contract or bringing the work back in-house. This can involve:
an initial outsourcing of a service;
a subsequent transfer of this service to a different external contractor; or
a transfer of the service from the external contractor back in-house.
The 2014 changes made clear that the activities carried on after a change in service provider must be "fundamentally or essentially the same" as those carried on before it.
In addition, immediately before the change, there must be an organised grouping of employees situated in Great Britain that has as its principal purpose, the carrying out of the relevant activities on behalf of the client. A single employee can be an organised grouping.
There is no need for the entity to retain its identity; it is merely necessary for one person to cease to provide the activities and for another to take them over. This means that it is not possible for the incoming service provider to avoid TUPE by performing the services in a different way or by not taking over the workforce.
Examples of potential TUPE transactions
Mergers
An asset sale of a business
A change of licence owner or franchise operator
Leaving a business as a gift in a will
Buying a company in administration
Contracting out services
Changing contractors
When TUPE Doesn't Apply
If the contract is wholly or mainly for the supply of goods, it is not a service provision change and TUPE will not apply.
In addition, providing services for a single specific event of short-term duration is not covered by TUPE.
In a situation where services are being carried out for a client, the fact that the client receiving the service changes will not amount to a service provision change.
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TUPE does not apply to a transfer of shares, but it would apply to (1) an asset transfer carried out prior to a share sale or (2) a transfer of the business or part of the business to the holding company following a share transfer.
Implications for Employers Employment Contracts Anyone employed by the transferor in the organised grouping of resources or employees immediately before the transfer automatically becomes the transferee's employee. All of their existing terms of employment (including their rate of pay) transfer to the new employer without a break in their continuity of employment. Traditionally, TUPE has not applied to workers, however, this was successfully argued in an employment tribunal in early 2020. As it is a decision of an employment tribunal only, it does not set a precedent, althoughit is likely a similar argument will be made again in the near future though.
Changing Terms of Employment Under the TUPE Regulations changes to the employee’s terms and conditions will be void (even if they are agreed by the employee) if the sole or principal reason for the change is either:
the transfer itself; or
a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the work force.
Employers should think carefully and take advice before changing an employee's terms and conditions in connection with the TUPE transfer.
Pensions The TUPE Regulations do not transfer rights and liabilities under an occupational pension scheme. The Pensions Act 2004 and related legislation require the transferee to provide certain pension benefits to employees who were provided with an occupational pension by the transferor.
TUPE and Dismissal Employees have protection against dismissal in connection with a TUPE transfer. If an employee has two years or more continuous employment a dismissal will be automatically unfair if the sole or principal reason for the dismissal is i) the transfer itself or ii) a reason connected to the transfer. Dismissals may be fair if the reason for them was an ETO reason requiring changes in the workforce. This protection against dismissal applies to both those employees who transfer and to any other employees who are dismissed as a result of the transfer. The rule applies to dismissals by both the transferor and the transferee. Employers should therefore think carefully and take advice before dismissing an employee in connection with the TUPE transfer.
Obligations to Inform and Consult The TUPE Regulations require the transferor and the transferee to inform and, in some circumstances, consult with appropriate representatives of any affected employees. Both parties to the transaction have an obligation to inform and consult with recognised trade unions or elected employee representatives in relation to any employees who may be affected by the transfer or any measures they intend to take in connection with it. For micro-businesses with under 10 employees, information and consultation does not have to be with union or staff representatives and can be carried out directly with the affected staff.
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The TUPE Regulations set out detailed requirements for the election of employee representatives for these purposes and their functions and responsibilities. If the employees do not elect appropriate representatives then the employer should provide the relevant information on the proposed transfer to each affected employee individually. The employee representatives, or employees where appropriate, should be informed about the transfer and any related measures long enough before the transfer to enable consultation to take place. There are no minimum prescribed time limits. The TUPE Regulations provide that the employee representatives or employees should be informed in writing of:
the fact of the transfer, when it is to take place and the reasons for it;
the legal, economic and social implications of the transfer for the affected employees;
the measures which the employer is proposing to take in connection with the transfer in relation to the affected employees;
the measures that the transferor understands that the transferee is contemplating taking in relation to the transferring employees in connection with the transfer;
the number of agency workers working temporarily for and under the supervision and direction of the transferor;
the parts of the transferor’s undertaking in which those agency workers are working; and
the type of work those agency workers are carrying out.
The consultation should be more than simply giving the elected employee representatives the opportunity to air their views. The aim of the consultation should be securing their agreement to any proposed measures. Failure by the transferor or the transferee to comply with their respective obligations to inform and consult will give the trade union, elected representatives or the affected employees a right to make a claim before an employment tribunal. This can be up to thirteen weeks' pay per employee.
Employee Liability Information The TUPE Regulations require the transferor to provide the transferee with certain written information about the transferring employees (“employee liability information”) at least 28 days before the transfer takes place. The employee liability information consists of:
the identity and age of the employees who will transfer;
those particulars of employment that an employer is obliged to give an employee under section 1 of the Employment Rights Act 1996;
information on any collective agreement affecting those employees which will still have effect after the transfer;
details of any disciplinary proceedings taken against an employee or grievance brought by an employee in the 2 year period before the transfer;
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details of any court or tribunal case or action taken by the relevant employees against the transferor in two years before the transfer and any potential legal actions which the transferor has reasonable grounds to believe that any of the affected employees may bring.
Failure by the transferor to provide the transferee with the employee liability information will give the transferee a right to make a claim against the transferor for compensation in the Employment Tribunal.
Next Steps We hope this assists you in understanding when TUPE applies and may be useful to allow you to start considering the relevant issues. We are of course happy to discuss any aspect of this note further.
Innes Clark Partner E: innes.clark@morton-fraser.com T: 0131 247 1007
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