The UK legislation known as “TUPE” ((Transfer of Undertakings (Protection of Employment) Regulations 2006) provides employment rights to employees when their employer changes from one entity (the “Transferor”) to another (the “Transferee”) as result of a transfer of an undertaking or where there is a change in service provider in relation to activities that employees have been carrying out.
TUPE implements the European Community Acquired Rights Directive (71/187/EEC, as amended by directive 98/50 EC and consolidated in 2001/23/EC), which ALL EU Member States were required to introduce legislation to implement.
Despite the UK’s exit from the European Union on 1 January 2021, TUPE continues to be effective by virtue of the European Union (Withdrawal) Act 2018, which operates to preserve the effect of EU-derived domestic legislation.
The law on whether TUPE applies is complex but, in broad terms, TUPE applies to “relevant transfers”, which will occur when:
To qualify as a “business transfer”, the identity of the employer must change. Therefore, subject to very limited circumstances, TUPE does not apply to transfers by share take-over because, when a company’s shares are sold to new shareholders, there is not transfer of a business or undertaking i.e the same company continues to be the employer.
“Service provision changes” concern relationships between contractors and the clients who hire their services, and occur where activities are outsourced or are brought back in house, or where there is a change in the contractor engaged to perform those activities. Examples of the types of activities in which service provision changes can be common include those under contracts to provide labour intensive services such as IT support, office cleaning, workplace catering, security guarding, and refuse collection.
The impact of TUPE in the UK on business sales, business purchases, contracting out, contracting back in and transitions of all types is massively significant, creating potential liabilities which are often hidden from a Transferee purchaser or a Transferee employer.
Such liabilities may amount to vast sums which could never have been envisaged when the transaction or transfer was first being considered.
The following is a summary of the types of practical issues that purchasing businesses must consider before transfer:
An employer must look at such matters as:
Information required includes (but is not limited to) the following:
The purpose of this is to work out who may have unfair dismissal/redundancy rights; to identify any illegal workers; to identify any latent Equality Act compliance problems/claims; to work out total potential severance cost; to decide whether harmonisation of terms will be necessary; to decide who will be transferred and who will be opting out.
The information should include:
This might include Directors or Senior Executives Service Agreements and benefits/Employment Contracts/Benefits Schemes/Trade Union Agreements/ Employment Policies and Procedures.
These should be obtained in order to check for any defects/omissions, flexibility in terms of job, place of work, hours of work, restrictive covenants, any changes required, and to understand extent of workforce policies in place.
This is to understand the extent of potential costs/liabilities post transfer. The due diligence exercise is a crucial one. On transfer the acquirer takes on al l liabilities associated with the assigned employees and therefore it is important that the business is fully aware of what rights and obligations transfer.
Know whether Employees are “assigned” and should transfer to you
The acquiring business needs to understand which employees are “assigned” to the organised grouping of individuals in questions and will transfer over to them.
Please note “assigned” cannot be established by reference to the percentage of the time an employee is engaged in working in the undertaking or part of the undertaking being transferred. Ultimately, it is essentially a question of fact for the Tribunal.
It is common for employers to want to change contractual terms following a transfer in order to harmonise transferring employees’ terms with those of existing employees.
However, Regulation 4 of TUPE provides that any variation to a contract of employment would be void if the sole or principal reason for it is the transfer.
For changes to contractual terms to be lawful:
This is a notoriously tricky area of the law and therefore employers are advised to seek appropriate legal advice if they are considering such a project.
Under TUPE an employer must, prior to transfer, inform employees and/or their representatives of any measures it envisages taking in connection with the transfer (or if it envisages that no measures will be taken, inform them of this) and to consult the employees and/or their representatives with a view to seeking their agreement to any intended measures.
Measures could include any action, step or arrangement done by the Transferor or the Transferee over and above what necessarily occurs as a consequence of the transfer itself. For example, a change in payment date could constitute a measure.
Failure to comply with the application to inform and consult could result in an award of compensation payable to the relevant employees up to 13 weeks’ gross pay for each employee. There is no limit on the amount of a week’s pay.