TUPE advice for employers
Our employment solicitors can help you
What is TUPE?
TUPE is an acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006. The TUPE rules aim to safeguard the rights of employees on a TUPE transfer.
A TUPE transfer occurs where a business (or part of a business) changes hands or where a service provision change takes place. When a UK business moves to a new owner, TUPE protects the rights of its employees to the same terms and conditions as they had before the transfer, with continuity of employment intact. Similarly, if there is an outsourcing or insourcing of a service or a change of service provider, TUPE protects the rights of the employees working on that contract.
The effect of TUPE is to move employees and any liabilities associated with them from the old employer (transferor) to the new employer (transferee) automatically by operation of law.
Our employment team is experienced in advising businesses about how to deal with TUPE issues, including working on complex and high value Employment Tribunal claims. We offer employers specialist advice to ensure that outcomes are favourable and businesses are protected from TUPE related legal claims.
Contact us for a friendly chat to assess your situation 020 7329 9090
When does TUPE apply?
TUPE can apply when employers:
- sell or buy all or part of a business
- outsource or make a "service provision change" (a service provision change can involve outsourcing a service, transferring a service from one external contractor to another or bringing a service back in house)
- grant or take over a lease or licence of premises and operate the same business from those premises as operated previously
If you think a transaction you are involved in might be covered by TUPE you should take specialist legal advice from employment law experts in TUPE
For TUPE to apply when a business or part of a business is sold, there needs to be a transfer of an economic entity which retains its identity after the transfer. This will be the case if the transferee is carrying on the same or a similar business after the transfer
TUPE will be relevant in most outsourcings and insourcings and when a change of service provider occurs. However, TUPE will not apply in all cases, because it will depend on a number of issues, including whether:
- the activities undertaken before and after the transfer remain fundamentally the same, and
- employees providing the activities are organised appropriately into groupings which provide the activities to the client
It is best practice for any TUPE issues to be regulated by written agreements between the transferee and transferor so that the TUPE risks can be negotiated and agreed.
What happens if TUPE applies?
- Employees who are employed in the undertaking which is being transferred under TUPE will have their employment transferred to the new employer, unless they object to the transfer
- TUPE states that all the transferor's rights, powers, duties and liabilities under or in connection with the transferring employees' contracts of employment are transferred to the transferee
- This covers rights under the contract of employment, statutory rights and continuity of employment. It also includes employees' rights to bring a claim against their employer including, for example, unfair dismissal, redundancy, discrimination, unpaid wages, bonuses, holidays and personal injury
- Employees therefore have the legal right to transfer to the new employer on their existing terms and conditions of employment and with all their existing employment rights intact, although there are separate rules which deal with old age pensions under occupational pension schemes
- On a TUPE transfer, the new employer steps into the shoes of the old employer. The effect is as though the employee's contract of employment was always made with the new employer
- The old employer is required to provide the new employer with written details of all employee rights and liabilities that will transfer
For this reason it is essential that employers who are planning to take over a contract or buy a business know all about the employees they might inherit and that they make sure that the contract protects them from any employment liabilities which arose before they became the employer
TUPE and dismissals
Any dismissals will be automatically unfair where the sole or principal reason for the dismissal is the transfer. Dismissals will not be automatically unfair where the dismissal is for an economical, technical or organisational reason (an "ETO" reason) requiring a change in the workforce, such as redundancy. This ETO defence is narrow in scope and must entail changes in the workforce, e.g. workforce numbers, workforce location or job functions.
ETO reasons can be difficult to establish. For example, dismissals resulting from a transferee employer’s attempt to harmonise terms and conditions with existing staff will not be for an ETO reason as it does not entail a change in the workforce. Even if the employer can rely upon an ETO defence and the dismissal is not automatically unfair, it may still be unfair for other reasons, such as a failure to consult properly in a redundancy situation.
Who transfers under TUPE?
Several factors are relevant in identifying which employees should transfer under TUPE. The test used by employment tribunals is the "assignment" test. Employment tribunals will look for a substantial degree of assignment, including by assessing the time spent by employees on the transferring undertaking or activities, and the kind of duties carried out. Employees temporarily assigned to a transferring undertaking or service will not transfer.
In most cases, it tends to be clear if an employee is "assigned" to a transferring undertaking or service. Difficulties can arise where only part of a business transfers and an employee performs duties for other parts of the business as well, or on a service provision change, where an employee works on a number of contracts.
Another important consideration when identifying who will transfer is that TUPE applies to "employees", but this is not the same test of employment as for other employment protection rights. TUPE may apply to workers, as well as employees, but will not extend to self-employed consultants working under a contract for services.
Employees who object to the transfer of their employment do not transfer under TUPE.
What are an employee’s rights if TUPE applies?
- Employees in the undertaking (or employees who provide the services) have the right to transfer automatically to the new employer on their existing terms and conditions of employment
- Liabilities in respect of the employees who transfer, such as for unpaid wages or legal claims move across to the new employer
- The employee’s continuous service with the old employer is preserved
- Old age pensions under occupational pension schemes do not transfer, but the new employer will still be obliged to provide a minimum level of pension benefits
- The employer has to give specified information about the transfer in writing to elected employee representatives of affected employees. It must also consult the representatives about any measures it proposes in connection with the transfer with a view to reaching agreement on those measures. Where an employer has fewer than 10 employees, it may be able to provide the information directly to the affected employees and consult them directly. Failure to comply with these obligations could entitle an affected employee to compensation of up to 13 weeks’ pay
- The old employer is required to give the new employer information about the staff transferring, their contracts of employment and any associated liabilities
- Employees dismissed because of a TUPE transfer will be automatically unfairly dismissed and will be able to claim unfair dismissal provided they have two years’ service. The new employer will be liable for these unfair dismissals, even if the old employer (transferor) carried them out Where a dismissal is for an economic, technical or organisational reason (an "ETO reason”) entailing a change in the workforce, it will not be automatically unfair. However, employees may still be able to claim unfair dismissal if, for example, the employer does not follow a fair procedure when dismissing them.
Do holidays transfer under TUPE?
On a TUPE transfer, the remaining balance of an employee's accrued but untaken annual leave entitlement for the holiday year transfers to the new employer. Therefore, the old employer does not have to pay the employee for accrued but untaken holiday up to the TUPE transfer.
What happens to pensions on a TUPE transfer?
On a TUPE transfer, an employee's contractual rights in respect of personal pension arrangements will automatically transfer to the new employer. Therefore, the new employer must make the same contributions to the contract based pension scheme as the old employer made.
Old age pensions under occupational pension schemes do not transfer, but the new employer will still have to provide a minimum level of pension benefits going forwards.
Can an employee refuse to transfer under TUPE?
Employees can refuse to transfer to the new employer but, depending on the circumstances of the case, they can lose valuable legal rights if they do object.
What are your information and consultation obligations?
- Employers involved in a TUPE transfer (both transferor and transferee) need to inform appropriate representatives of affected employees about the transfer. They must provide specified information to the appropriate representatives including the reasons for the transfer, when it is proposed to take place and the legal, economic and social implications of the transfer. Employers also need to inform the representatives of any proposed “measures”. The new employer is required to provide the old employer with information on its proposed measures to allow the old employer to comply with its duty to provide this information
- Employers must provide this information long enough before the transfer to enable consultation with the representatives to take place
- If an employer proposes any changes following the transfer, they will have to discuss these "measures" with the representatives of their affected employees with a view to reaching agreement on them
How long should TUPE consultation last?
There is no set timetable for consultation. Employers have to provide the relevant information in "good time" before the transfer so that consultation can take place. The larger the transaction and the more employees affected, the longer the timetable will need to be.
What if there is a failure to inform and consult under TUPE?
If there is a failure to inform and consult, a complaint can be made to an employment tribunal. If successful, the tribunal can award whatever compensation it considers just and equitable having regard to the seriousness of the employer's failure, up to a maximum of 13 weeks' gross pay per affected employee.
An employer has a defence if it can show that there were special circumstances making it not reasonably practicable for it to comply with its information and consultation obligations, and that it did its best to comply in the circumstances.
TUPE information and consultation breaches can result in joint and several liability between the old and new employers (transferor and transferee), although the parties will usually reach a written agreement about who will be responsible for such liabilities.
A failure to comply with TUPE consultation obligations could therefore expose employers to claims and potentially significant liabilities.
What information do you have to share about employees with the new employer?
The old employer must provide employee liability information to the new employer.
They must provide the new employer with written details of the transferring employees including their identity, age, particulars of employment, disciplinary and grievance records, any claims and any collective agreements that will have effect after the transfer. This information must be given not less than 28 days before the transfer, although in practice the new employer will want this information as soon as possible.
If there is a failure to comply with this duty by the old employer, the new employer can apply to an employment tribunal for compensation. Compensation will be assessed having regard to the losses suffered as a result of the failure, with a minimum award of £500 per employee, unless the employment tribunal considers it just and equitable to award a lower amount.
Can terms and conditions be changed after a TUPE transfer?
The new employer is required to take on the transferring employees on their existing terms and conditions of employment. The new employer is prohibited from making any changes to the terms and conditions of employment of the transferred employees if the sole or principal reason for the variation is the TUPE transfer.
In 2014, some changes were made to TUPE which potentially make it easier for employers to make changes to terms and conditions if:
• the employment contract already allows for a change to be made, such as the application of a mobility provision in the contract, or
• the employer and employee agree the change in circumstances where the sole or principal reason for the variation is an ETO reason
Unfortunately, because ETO reasons require there to be a change in the number or the functions of the workforce, or a change in workforce location, this often makes it difficult for incoming employers to harmonise terms and conditions of employment of staff after a TUPE transfer.
If an independent trade union has been recognised by the old employer in respect of the transferring employees, recognition will transfer to the new employer to the same extent.
Terms and conditions in employment contracts that have been incorporated from collective agreements may be renegotiated after one year, provided that overall the terms are no less favourable to the employee.
What can you do to protect your business from TUPE?
Although it is not possible to contract out of TUPE, there are steps which both the old employer and new employer can take to agree to divide up TUPE liabilities contractually between them. While under TUPE employment liabilities connected to the transferring employees will normally transfer to the new employer, so employee claims should normally be made against the new employer, the parties can still agree contractually to divide up the liabilities between them in a different way. This should be done by way of contractual indemnities.
You should always take specialist legal advice in relation to TUPE Indemnities. Additionally, it may be possible to structure work and teams to make it more or less likely that TUPE will apply in a service provision change situation.
Our TUPE specialists have advised on a wide variety of TUPE matters across a range of company sizes and industry sectors. Some examples include advising:
- A global company on intra-group TUPE transfers and guiding the business through the employee information and consultation process
- A financial services firm in relation to harmonisation of employment terms for their UK subsidiaries following several acquisitions and TUPE transfers
- An insurance company following intra-group TUPE transfers and simultaneous collective consultation exercises for TUPE and redundancy purposes
- Defending companies from TUPE related claims brought in the Employment Tribunal
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Contact Doyle Clayton
If you are looking for help with a TUPE matter you can contact us (see our experts above) for a friendly, no-obligation discussion. You can also call us on 020 7329 9090 or email us at firstname.lastname@example.org
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