What is TUPE and how does it work?

The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) protects the rights of employees when the business or part of the business they work for changes hands. When TUPE applies, the relevant employees transfer from the original employer (the transferor) to the new employer (the transferee) on their existing terms and conditions of employment. The employees have enhanced protection against changes being made to their terms and conditions of employment when transferring over to the new employer and from being unfairly  dismissed.   The legal process of TUPE is a complex one, and one that should always be conducted in line with legal advice; our Employment Law team explains more here on how TUPE works in practice and the key considerations for any employer when faced with this situation.

When does TUPE apply?

TUPE will apply if there has been a “relevant transfer” of which there are two types: a business transfer and a service provision change. A business transfer occurs when a business or part of a business transfers to another party and retains its identity following the transfer. For example, an owner of a restaurant sells his business to someone else who continues to operate it as a restaurant.

A service provision change occurs when services are:

• outsourced or contracted out;
• re-tendered to a different contractor; or
• insourced.

In each of the above cases regarding service provision change, the activities performed must be fundamentally the same after the change. For example, a business employs its own cleaners directly, but then decides to outsource its cleaning services to another company. TUPE will not apply where the service provision relates to the supply of goods, or where the service provision is for a short-term single event, such as an exhibition or conference.

What is the Automatic Transfer principle under TUPE?

When there is a relevant TUPE transfer, all the “rights, powers, duties and liabilities under or in connection” with the transferring employees' terms and conditions of employment are transferred to the transferee. This means that all transferred employees will retain their rate of pay and any additional contractual benefits such as enhanced family leave or company sick pay.

Under TUPE, any “act or omission” of the transferor before the transfer is treated as having been done by the transferee. The effect of this is that any claims transferring employees may have had against their original employer, such as unfair dismissal or discrimination, will now be against the new employer and the new employer will become liable to pay any compensatory award.

Duties of the transferee and transferor during TUPE

Both the transferee and transferor have a duty to inform and consult their own employees who may be affected by the transfer. The Employment Appeal Tribunal has said that affected employees include:

• employees who will or may be transferred;
• employees whose jobs are at risk by reason of the transfer;
• employees who have pending job applications within the business at the time of the transfer.

Employees should be informed in good time and in writing of:

• the fact that a transfer is to take place;
• the proposed date the transfer will occur;
• the legal, economic and social implications of the transfer; and
• any measures which might be taken.

Employers should inform and consult with either a recognised trade union or with employee representatives.  Where there are no appropriate representatives, the employees must be given adequate time to elect some.

The duty to consult only arises when an employer plans to take “measures” which will affect employees, and requires the employer to negotiate in good faith with the employee representatives and to try to reach an agreement over the measures being proposed.

If an employer fails to inform and consult their affected employees, they could be liable to compensate the affected employees up to 13 weeks’ pay. An employer may have a defence however, where they can show that there were “special circumstances” which made it unreasonable and impractical to inform or consult with them, provided the employer can show that they had done everything they could to comply with their obligations.

Changing employees’ terms of employment

In the context of a TUPE transfer, changes to the transferring employees’ terms and conditions of employment may only be made in limited circumstances.  Any change where the sole or principle reason is the transfer itself will be void under TUPE, even if the employees agree to the change.  You may be able to change the terms of employment where the reason for the change is completely unrelated to the transfer, or where the reason for the variation is an economic, technical, or organisational (ETO) reason entailing changes in the workforce.  An ETO reason should concern the day-to-day operation of the business and may include the following:

• A reason relating to the profitability or market performance of the new employer's business (an economic reason).
• A reason relating to the nature of the equipment or production processes which the new employer operates (technical reason).
• A reason relating to the management or organisational structure of the new employer's business (organisational reason).

You may want to change the terms of the transferred employees’ contracts in order to harmonise them with those of your existing staff.  However, in this case the transfer will likely be considered the principle reason for the change and the changes will be void.

Dismissals under TUPE

TUPE also provides enhanced protection for employees against dismissal. A dismissal will be automatically unfair if the sole or principle reason is the transfer. This restriction applies to all employees of the transferee and transferor, not just those who are transferred.

If the employees are dismissed for an economic, technological, or organisational (ETO) reason, the dismissal will be potentially unfair and the ordinary dismissal rules will apply. This means the employer will need to show they acted reasonably by deciding to dismiss.

If an employee resigns in response to a repudiatory breach of contract or because of substantial changes to their working conditions which are to their material detriment, the employee’s resignation is treated as a deemed dismissal and may be considered automatically unfair if a tribunal decides the reason for the dismissal was the transfer.

A TUPE transfer is a complex process with many different responsibilities for both parties. If you have questions about TUPE transfers you can contact our Employment Law team on 023 8071 7717 or email employment@warnergoodman.co.uk.

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ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.