The Transfer of Undertakings (Protection of Employment) Regulations turned 40 years old at the end of last year and have proved to be one of the most enduring pieces of employment law.
What was the situation before TUPE?
Prior to its implementation, a business owner could lay off their employees and then sell the firm to a new owner. The new owner could then re-employ any employees they wanted to hire, often under less favourable terms and conditions. And there was no protection when a contractor lost a contract to another contractor.
TUPE was introduced with great reluctance in December 1981 and only because the UK was required to adopt the EU law behind it (the Acquired Rights Directive). Now, more than forty years on, we look at the fundamentals of what TUPE is.
What is TUPE?
The Transfer of Undertakings (Protection of Employment) Regulations 2006 is abbreviated as TUPE.
TUPE ensures that employees are protected when their employer changes. It is complex and so seeking expert advice can help employers comply with these detailed regulations and avoid costly legal disputes.
TUPE applies if a business is being transferred (so that there is a new owner) or there is a change in who provides services (meaning an out-sourcing, a change in contractor, or an in-sourcing). When a business is purchased or a new contract is awarded to provide services, the employees automatically transfer to a new employer by operation of law. The purpose of TUPE is to protect the employment and the employment rights of transferring employees. Therefore, the critical first step is to recognise when TUPE applies and plan accordingly.
Under what circumstances does TUPE protect employee rights?
This is sometimes hotly contested. Care must be taken not to over-simplify but, very broadly, employee rights are protected under TUPE if:
- a business or a portion of it changes hands;
- a buyer purchases all the assets of another business;
- a service provider (a contractor) changes; or an organisation either outsources services to another entity or brings them back in-house.
Another key issue is identifying which employees are the ones to transfer. This is also often the subject of dispute.
Does TUPE apply to all businesses?
TUPE can apply to all sizes of public and private sector entities, and even if the transfer is between two businesses within the same group. However, TUPE does not apply to share sales so, if someone buys or sells stock in a company, the employer stays the same and TUPE is not triggered.
What does TUPE mean for my company?
If TUPE is likely to apply to your transaction, you must be aware of a number of legal obligations. Ignoring them could lead to expensive disputes and employment tribunal claims. You must do the following if you (the ‘transferor’) are transferring employees to a new employer:
- do not dismiss staff (with more than two years’ service) before the transfer in order to make a transaction more attractive for the new employer;
- provide information about the employees to the new employer, also known as ‘employee liability information';
- inform a recognised trade union or other employee representatives (though, if your firm is small, you can inform each affected employee individually);
- enquire with the new employer about any proposed changes that may affect staff; and consult with employees or representatives, if necessary.
What happens if you hire employees from another company?
If you are the potential new employer (also known as the ‘transferee’) then you too will have specific obligations under TUPE, including to:
- take all the employees on who have at least two years’ service;
- provide advance notice to their previous employer of any changes you intend to make that may affect the employees who transfer;
- comply with the employment terms that you have inherited and not change them; and
- if you decide to make employees with at least two years of service redundant, justify that redundancy in terms of TUPE.
Any dismissal that is by reason of the transfer and where an economic, technical or organisational (ETO) reason does not apply, will be automatically unfair and the transferee will be liable. An ETO reason is roughly equivalent to redundancy.
Why is the consultation process so critical?
The information and consultation process is a critical component of TUPE. Non-compliance could result in awards of up to 13 weeks' gross pay per employee where there has been a failure to inform and/or consult.
If TUPE operates, your employees must be aware of the implications.
Is there anything else you need to bear in mind?
Making sure that you have thought of everything will help you avoid costly legal disputes. Keep the following in mind when transferring or receiving new employees:
- Critically, the original employment contracts continue to have effect and it is extremely difficult to amend contracts after a transfer.
- The bulk of occupational pension rights do not transfer, although there are certain contribution minimums that must be met by new pension arrangements for transferred employees.
How 3CS can help
TUPE often throws up some very tricky legal problems, even if you are familiar with it. Our experienced lawyers can help you with any issues that are specific to your business or service. Furthermore, we can offer expert advice on redundancy issues and how to manage redundancies during a transfer.
Please get in touch with your usual 3CS contact for further help and advice.