Basic guide to TUPE

The Transfer of Undertakings (Protection of Employment) Regulations, commonly known as TUPE, is a UK legislation that aims to safeguard the rights of employees when a business in which they work changes hands.

The purpose of TUPE is to ensure that employees’ employment terms and conditions, such as wages, benefits, and job security, are not adversely affected by a transfer of their employer’s business to a new owner.

Essentially, TUPE provides employees with continuity of employment, as their employment is automatically transferred from the old employer to the new employer, along with any associated liabilities. By doing so, TUPE seeks to prevent unfair dismissals, protect employee rights, and ensure a smooth transition for businesses that change ownership

What is TUPE?

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations, which is a UK employment law that protects the rights of employees when a business or part of a business changes ownership. TUPE applies to all employees, whether they are full-time, part-time, permanent, or temporary.

The main aim of TUPE is to ensure that employees’ rights and employment terms and conditions are not adversely affected by a transfer of their employer’s business to a new owner. This means that employees will automatically transfer to the new employer, and their employment terms and conditions, such as pay, benefits, and length of service, will remain the same.

It also requires employers to consult with affected employees and their representatives before a transfer takes place, and failure to comply with TUPE can lead to legal action and potential compensation for affected employees.

Why do you need to know anything about TUPE?

Every day, TUPE applies to a vast array of various commercial activities, and it is critical that businesses of all sizes understand what employment duties may emerge.

Employers can use TUPE when they:

• sell or buy a portion or the entirety of a business as a going concern;
• Outsource or make a “service provision change” involving either (a) an initial outsourcing of a service (e.g., where services transfer from the customer to an external contractor); (b) a subsequent transfer (e.g., where services transfer from the first external contractor to a different external contractor; and (c) bringing the service back in-house (e.g., where services transfer from an external contractor back to the customer).
• Award or take over a lease or licence of premises and conduct the same business from those premises.

What do you need to know about TUPE?

To safeguard your company from accusations, you must first understand:

• When TUPE is likely to apply; what TUPE legally entails
• what you must do to comply with TUPE
• The penalty for failing to comply
• What the consequences are if TUPE does not apply
• What other precautions you can take to shield your company from the repercussions of TUPE

When is TUPE likely to apply?

In essence, TUPE applies whenever a “relevant transfer” occurs. The 2006 Regulations clarified confusing case law to conclude that a relevant transfer means the “transfer of an economic unit which keeps its identity”. When evaluating whether this has occurred, the courts consider elements such as:

• the type of undertaking being transferred
• whether any tangible assets (buildings, moveable property, etc.) are transferred
• whether any intangible assets are transferred and the extent of their value
• whether the majority of employees are transferred
• whether any customers are transferred; the degree of similarity between the activities carried out before and after the transfer
• the period for which the activities were suspended, if any.

The topic of whether TUPE applies and when it does not can be very complicated. If you suspect that a transaction in which you are involved may be covered by TUPE, you should always get specialised legal advice. TUPE will be taken into account in almost all service provision modifications, such as outsourcing and insourcing. It is not always possible to assume that TUPE will apply because it is based on a number of factors, including whether:

• The activities performed before and after the transfer are fundamentally the same
• The staff delivering the activities is correctly organised into groupings that give the activities to the client.

Because of the uncertainty around when TUPE applies, this problem is frequently governed by contract.

What does TUPE mean legally?

Workers who are currently employed by the transferred undertaking have their jobs transferred to the new employer.

Workers have the option to object to a transfer, but depending on the specifics of the situation, doing so could result in the loss of important legal rights. All of the transferor’s rights, functions, obligations, and liabilities arising from or related to the transferring employees’ employment contracts are passed to the transferee, according to TUPE. This comprehensive idea includes employees’ rights to file claims against their employer for unfair dismissal, redundancy or discrimination, unpaid wages, bonuses or holidays, as well as personal injury claims. It also includes rights under the contract of employment, statutory rights, and continuity of employment.

Therefore, although there are specific provisions addressing old age pensions under occupational pension schemes, employees have the legal right to transfer to a new employer under their existing terms and conditions of employment and with all of their existing employment rights and obligations intact.

In essence, the new employer fills the former employer’s shoes, and it is as if the employee’s employment contract with the new company was always in place. In order to shield themselves from any employment responsibilities that may have arisen before they became the employer, it is crucial for employers to be fully aware of any employees they may inherit when planning to take over a contract or purchase a business.

This is made easier by the requirement that the old employer give the new employer written information about all transferring employee rights and obligations.

For instance, if Bear Ltd wins a contract to provide IT services to an insurance company from Armadillo plc, Bear Ltd will not only take over the contract to provide IT services but will also inherit all of Armadillo plc’s personnel who worked on providing the IT services to the insurance business. Bear Ltd will take on the obligation to the employees for the unpaid salaries under TUPE if Armadillo plc hasn’t been paying its workers’ wages for the past few weeks.

All dismissals that are made for the transfer as the sole or primary reason are automatically unfair. Dismissals for financial, technological, or organisational (or “ETO”) reasons that necessitate a shift in the workforce may not always be considered unfair. This ETO defence is limited in scope and requires adjustments to the workforce, such as adjustments to staff sizes or job responsibilities. ETO justifications can be challenging to prove. The dismissal may still be unfair for other reasons, such as a failure to adequately consult in a redundancy situation, or utilising it to decrease costs, or harmonising terms and conditions, even if the employer can depend on an ETO defence and the dismissal is not automatically unfair.

It is forbidden for the new employer to alter the terms and conditions of employment of the transferred employees if the transfer is the only or primary cause of the variation. This is because the new employer is required to hire the employees under their current terms and conditions of employment. However, TUPE 2014 introduced some changes that might make it simpler for employers to modify terms and conditions in situations where: the contract permits a change, such as the application of a mobility provision in the contract; or where the employer and employee agree to the change in situations where the ETO is the sole or primary reason for the variation.

It is frequently difficult, if not impossible, for new employers to synchronise terms and conditions of employment of personnel after a TUPE transfer because ETO reasons demand a change in the size or functions of the workforce or, since 2014, a change in the site of the workplace.

If an independent trade union was acknowledged by the departing firm in relation to transferring employees, the receiving employer will also receive the same level of recognition. Since 2014, terms and conditions from collective agreements may be revised after a year as long as they are generally still in the employee’s best interest.

Which employees transfer to the new employer?

An assignment test has been formed by case law, and it uses a number of criteria to determine which employees should be transferred. A “wholly or primarily assigned” test is how many now refer to it. By examining the amount of time spent on the transferring task or activities and the types of duties performed, it searches for a significant degree of assignment. If an employee is “wholly or mostly assigned” to a transferring activity or service, it is typically rather clear. A European case in 2020 and a UK ruling in 2021, which confirmed that it could be permissible to transfer only part of an employee’s employment to a transferee when their working time is split, have, however, left confusion in their wake.

TUPE applies to “employees,” however this is not the same test of employment as we would apply in an employment status test, which is another crucial factor to take into account when deciding who will move. The protections of TUPE apply to people with worker status, a British employment tribunal ruled in 2019. Risks associated with TUPE’s application to employees should now be taken into account.

What do you need to do to comply with TUPE?

Inform and consult with staff

Employers taking part in a company transfer must consult on any proposed measures and notify the proper representatives of the affected employees of the transfer and any planned actions. The representatives must be given specific information in advance of the transfer so the departing employer can speak with them about it.

Following the transfer, if there are any adjustments or suggestions for adjustments, these “measures” must be discussed with the representatives of the affected employees. In order for the departing employer to fulfil its obligation to inform and consult, the incoming employer must give the departing employer information on proposed measures. There is no predetermined schedule for consultations, but they must take place “in good time” prior to the transfer, and the longer the timeframe, the greater the transaction and the more staff it will affect.

An employment tribunal complaint might be raised if there is a failure to inform and consult. In the event of a victory, the Tribunal may grant whatever damages it deems just and equitable, taking into account the degree of the employer’s failing, up to a maximum of 13 weeks’ pay for each affected employee. Failure to provide adequate notice and opportunity for consultation may subject both the departing and the incoming employers to joint and several liability, but the transfer agreement may provide for liability allocation in this situation.

So, a breach of TUPE could subject employers to lawsuits that could be sufficiently significant to scupper the deal as a whole. Since 2014, microbusinesses with less than 10 employees may be excused from certain consultation requirements.

Information on employee liability must be given by the outgoing employer to the receiving employer.

Written information about the transferring employees, including their names, ages, employment details, disciplinary and grievance records, employee claims, collective agreements, and all associated rights and liabilities that will transfer, must be given to the new employer by the departing employer. Although in fact the incoming employer will want to obtain this information much earlier, this information must be provided at least 28 days prior to the transfer.

If the departing employer fails to uphold this obligation, the incoming employer may file a claim with the Tribunal for compensation, which will be evaluated in light of the losses sustained and have a minimum award of £500 per employee.

What other practicable actions can you take to safeguard your company from TUPE’s effects?

Although TUPE cannot be contracted out of, there are measures that both the departing and incoming employers can take to contractually allocate their respective TUPE duties. Employee claims should always be lodged against the new employer since, under TUPE, employment liabilities related to the transferring employees would always shift to that employer. However, the parties may contractually agree to share the liabilities in a different way. Contractual indemnities are the best method for accomplishing this. Always get specialised legal guidance if you believe this might be beneficial for your company.

Also, it might be possible to organise projects and teams to either increase the certainty of TUPE or decrease its possibility in situations where service provision changes.

TUPE in insolvency

In the event that the outgoing company is insolvent, TUPE is finally loosened to safeguard entering employers. The responsibility for paying employees’ redundancy benefits, notices, and some other payments won’t shift to the new employer. Moreover, terms and conditions of employment may be adjusted (without an ETO) if it is agreed upon with the trade union or employee representatives and the change is intended to preserve a failing business. Where the inherited liabilities are not as onerous, the theory goes, businesses will be more eager to “rescue” insolvent businesses, hence saving jobs.

Read more: How does TUPE work in a Pre Pack Administration

Frequently asked questions

What does TUPE stand for?

TUPE stands for Transfer of Undertakings (Protection of Employment) Regulations.

Who does TUPE apply to?

TUPE applies to employees whose employer's business or part of it is transferred to a new owner, whether by sale, merger, or other means.

What are the main obligations for employers under TUPE?

Employers have several obligations under TUPE, including informing and consulting with affected employees, maintaining their existing terms and conditions of employment, and providing them with all relevant information about the transfer. Failure to comply with these obligations can result in legal consequences and damage to the employer's reputation.

Conclusion

TUPE regulations is a crucial piece of legislation that protects the employment rights of workers when their employer’s business or part of it is transferred to a new owner. It aims to ensure that employees are not disadvantaged as a result of the transfer, and their terms and conditions of employment are safeguarded. It is essential for employers to follow TUPE regulations to avoid legal consequences and ensure that their employees are treated fairly.

Failing to comply with TUPE can result in costly legal disputes, damage to the employer’s reputation, and a negative impact on the morale and productivity of employees. Therefore, it is vital for employers to understand their obligations under TUPE and to seek legal advice if necessary.