What is TUPE?
TUPE is shorthand for a set of regulations that can apply when a business is sold or a service is outsourced, amongst other situations.
What does TUPE stand for?
The full name of the regulations is the Transfer of Undertakings (Protection of Employment) Regulations 2006.
What happens if TUPE applies?
If TUPE applies, then as the title of the regulations suggests it automatically transfers employees from one employer to another. It also gives the employees protection against contractual changes and dismissal, and transfers all employment-related liabilities from the old employer to the new one. The TUPE regulations also put significant obligations on both the transferring employer and the receiving employer before the transfer takes place so it is important to identify whether the regulations apply at an early stage.
TUPE is a complicated topic – what follows is an overview but if you have any specific queries, you should take advice.
When does TUPE apply?
Broadly speaking, TUPE applies in two types of situations. The first is where a business, or part of a business, is sold. An example may be where you own and operate a venue which includes a café and you sell the café to a third party. The transfer of the café to the new owner could be covered by the TUPE regulations.
The second situation where TUPE applies is what the regulations call a “service provision change”. In practice, a service provision change is either:
- When you’re outsourcing a service (e.g. cleaning) to a third party;
- When you’re taking a service in-house that was previously outsourced; or
- When switching from one outsourced provider of a service to another.
As an example, if you employ a receptionist to answer your phones but then want to outsource to a third-party company that provides a similar service, TUPE could apply to this situation as a service provision change.
When does TUPE not apply?
The TUPE regulations are complex and contain numerous caveats as to when they do not apply. For example, if part of a business is sold, TUPE only applies if the business is sold as a “going concern”. Asset purchases where the business is not going to continue do not engage TUPE. Also, share purchases do not normally engage TUPE if the employer remains the same before and after the purchase.
The rules are even more complex when it comes to service provision changes. One of the rules for TUPE to apply to a service provision change is that there must be an organised group of employees whose main purpose is doing the particular work that is transferring elsewhere. That can be easy to identify in straight-forward cases, but much more difficult in others.
Say you have an in-house team that covers both HR and payroll, but you want to outsource payroll to a specialist firm. You may have just one person in the team who does payroll exclusively which makes it easy to identify the employee assigned to the work that’s transferring. On the other hand, payroll duties could be evenly split between members of the team, or only shared between a minority of the team members. TUPE may or may not apply in those situations, depending on how much time the individuals spend on payroll.
TUPE will also not apply to service provision changes where the work relates to a single event or a short-term task. So if you’re looking to outsource a service for a single project and not on a permanent basis, it’s unlikely there will be a TUPE transfer.
There are other exceptions to TUPE applying and a lot will depend on the facts of each specific case, so it’s important to take advice if you suspect TUPE may not apply.
What transfers to the new employer if TUPE applies?
The employment of all the affected employees transfers to the new employer without any interruption. Employees keep all of their contractual terms and entitlements, as well as their continuity of service.
In addition, all liabilities towards the employees transfers to the new employer. In practice, that means that any claims for redundancy payments, unpaid wages, unpaid holiday, discrimination, equal pay and so on all transfer to the new employer.
TUPE case study
Take a situation where a businesses’ cleaning is done by an outside company, but they then decide it would be more economic to have their existing staff take on cleaning duties. The cleaning company has no other work for the cleaners they hired to cover the work, so they need to make redundancies. However if TUPE applies to this situation, the cleaners would transfer to the business who would then be liable for the cost of the redundancies. Had the business taken advice on TUPE before deciding to take cleaning in-house, they could have factored in those additional costs which may have changed the decision on whether to take cleaning in-house in the first place.
Informing and consulting employees
If TUPE applies to a given situation, both the transferring and the receiving employer have twin duties to inform the representatives of affected employees of their proposed transfer to a new business, and to consult with them about the change. In many cases the two businesses work together to inform and consult with the employees simultaneously.
If there isn’t a recognised trade union representing the affected employees, the affected employees will need to elect their representatives for the consultation. Unless you’re a small employer with less than 10 employees, you don’t consult with your employees directly.
The consultation process should let employees know about any changes or potential changes that will affect your employees after the transfer. That could include major changes such as working from a different site, or more minor changes such as the new employer having a different holiday year. If the affected employees aren’t consulted about any changes to their employment, they could bring a costly Employment Tribunal claim for up to 13 weeks’ gross pay for each affected employee.
Employee liability information
Another duty where TUPE applies is that the transferring employer must provide the receiving employer with specific information about the group of employees that will transfer. What needs to be provided is:
- The identity and age of each employee;
- Their contractual terms;
- Details of any disciplinary or grievance issues within the last two years;
- Details of any Court or Tribunal case that has been brought within the last two years, or any that may be brought; and
- Details of any trade union agreements.
This information must be provided at least 28 days before the transfer. If it’s not provided, or if it’s provided late, the receiving employer can bring a claim against the transferring employer for damages. There is no limit to the damages that could be awarded and the TUPE regulations say that damages will usually be at least £500 per employee, unless it would be just and equitable to award a lower amount.
Given that all liabilities transfer to the receiving employer, the receiving employer would be well-advised to review the liability information and conduct due diligence before any transfer. It is common for the receiving employer to seek indemnities from the transferring employer in relation to any claims that arose before the transfer.
Protection from contractual changes
The TUPE regulations say that any change to an employment contract is void if the reason for the change is because of the transfer, even if the employee agrees to the change, unless an exception to this rule applies. This prevents employers from harmonising the terms of transferred employees with their existing workforce. There are two exceptions to this rule, which are:
- The terms of the contract allow the change to be made – so for example, the contract may say that an employee’s place of work may change within a specified radius; or
- The reason for the change is an “economic, technical or organisational” reason, entailing changes in the wider workforce.
It’s important to remember that contractual changes are only void if the reason for them is the TUPE transfer. TUPE doesn’t prevent contractual changes being made for any other reason.
Protection from dismissal
The TUPE regulations also say that any dismissal of an employee is automatically unfair if the dismissal is because of the transfer. The only exception to this rule is where the dismissal is for an “economic, technical or organisational” reason, entailing changes in the wider workforce. That commonly covers situations where the receiving employer needs to make redundancies as a result of the transfer, although for any employees with over two years’ service a fair consultation process would still need to be followed to avoid a successful unfair dismissal claim.
Protection from substantial changes to working conditions
TUPE provides additional protection to employees where a transfer involves, or would involve a substantial change in working conditions to the detriment of the employee. If this occurs and the employee has over two years’ service, they are able to resign and claim constructive unfair dismissal.
Whether an employee would be subjected to a detriment is looked at from the perspective of the individual employee, so for example if a transfer involves a change in working location which most employees are prepared to accept, there could still be a claim from an employee who lives further away than most and so would be subjected to more of a detriment.
These particular claims are legally complex and there are avenues open to an employer to argue that even if the employee was subject to a detriment, they have not been unfairly dismissed.
Economic, technical or organisational reasons
Despite sounding opaque, these reasons (known as ETO reasons) can cover a range of situations where contractual changes or dismissals can be made because of a TUPE transfer. For example, ETO reasons can cover changes or dismissals made:
- In order to improve profitability, or because demand has fallen (i.e. an economic reason);
- Because production processes have changed (i.e. a technical reason); or
- Because management or organisational structures need to change (i.e. an organisational reason).
It’s not just enough for an ETO reason to apply to allow a contractual change or a dismissal – there must also be changes to the workforce more widely. That will apply if others are being dismissed, or there is some other change that affects others such as a new location of work.
Richard Nelson LLP has a team of experienced employment lawyers and can advise you on whether TUPE applies and if so, how best to proceed to ensure commercial protection for your business. We can also advise you if you are an employee who will be or has been subject to a TUPE transfer.
Contact Richard Nelson LLP if you require any advice about TUPE.