The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)

  1. When does TUPE apply, and how will it affect employees?

TUPE applies when there is:

  • a transfer of a business (e.g. an asset purchase agreement, rather than a share sale); or
  • a service provision change (i.e. where services are inhoused, outsourced or retendered).

Any employee attached to the transferring business will automatically transfer to the purchaser of the business or new provider of the services at the point when control of the business or services is assigned with their continuity of service intact. All rights and liabilities (save in relation to some pension rights) will then be borne by the new employer.

  1. Do all rights transfer?

Rights relating to old age, invalidity or survivors benefits under occupational pension schemes do not transfer, but early retirement benefits will do so. If a transferring employee enjoys a right to participate in an occupational pension scheme operated by the transferor, the transferee must provide a minimum level of pension benefit, limited to matching contributions of up to 6% of that employee’s basic salary in certain circumstances.

  1. Can I harmonise terms following the transfer?

Any changes to terms and conditions of employment made for a reason connected with the transfer will generally be void. Therefore, it is not possible to harmonise terms following the transfer.

  1. Can I dismiss the incoming employees?

Any dismissal of an employee for a reason relating to the transfer will be automatically unfair (providing the employee has the requisite service) unless the employer can show that it had an economic, technical or organisational (“ETO”) reason for the dismissal. If an employee is dismissed for a reason relating to the transfer by the transferor, liability will pass to the transferee.

  1. Do employees have to transfer?

Employees have the right to object to their employment transferring to the purchaser, in which case their employment will cease immediately upon transfer. If an employee resigns in response to a substantial proposed change in their working conditions to their material detriment, or if they are constructively dismissed due to the transferor or transferee’s actions or proposed actions, they may be entitled to bring a claim for unfair dismissal. Watch for key employees objecting to the transfer, as it could affect the enforceability of their restrictive covenants.

  1. What will happen about trade union recognition?

A recognised trade union retains its recognition rights in relation to the new employer if the employees retain a distinct identity in the transferee’s business, and collective agreements which have been agreed in relation to transferring employees will also transfer.

  1. Do I need to tell employees anything prior to the transfer?

Employers must inform and, if measures are envisaged, consult with appropriate employee representatives (i.e. a trade union or employees elected for the purpose) prior to the transfer.

Appropriate representatives must be informed of:

  • the fact that the transfer is to take place;
  • the approximate date of the transfer;
  • the reasons for the transfer;
  • the “legal, economic and social implications” of the transfer for the affected employees;
  • information relating to the use of agency workers; and
  • the measures (e.g. redundancies) that are envisaged in relation to the affected employees. If no measures are envisaged, the transferor should confirm this fact to the representatives.

If a transferor fails to comply with its duties to inform or consult with appropriate representatives, the representatives may bring claims for up to thirteen weeks' gross pay per affected employee. A recent case has held that even a technical breach will lead to an award of three weeks' pay per employee.

  1. Am I entitled to any information in relation to the incoming staff?

The transferor must provide the transferee with certain information in relation to each of the affected employees who are likely to transfer at least 14 days prior to the transfer. The information required includes the employees' basic terms and conditions, information relating to those employees' disciplinary records and any history of grievances or legal action brought by those employees in the period leading up to the transfer.

  1. Can you suggest any practical tips?

Warranties and indemnities: try and agree who shoulders responsibility for liabilities that may transfer.Anti “dumping” provisions: try to prevent the transferor from dumping unwanted staff into the business, or cherry picking the good staff in the period prior to the transfer.Hidden liabilities: conduct thorough due diligence to ascertain the potential liabilities that may exist.Stability: keep the confidence of the workforce by engaging in the consultation process and consider offering loyalty bonuses to key employees.

  1. Are there any proposals to amend TUPE?

The government is currently consulting on some proposals to amend TUPE. The proposals are:

  • to abolish the concept of service provision changes;
  • to remove the prescriptive nature of the requirement to provide employee liability information;
  • to amend the wording of the restrictions on changes to terms and conditions and the protection against dismissal in order to narrow the scope of the provisions;
  • to extend the meaning of 'economic, technical or organisational' reasons for dismissal to include changes of location;
  • expressly to allow employers to undertake collective consultation for redundancies at the same time as TUPE consultation;
  • to exempt micro businesses from the need to elect representatives for information and consultation purposes; and
  • to limit the validity of collective agreements to one year post transfer.