Employee rights are protected under TUPE during relevant insolvency processes, such as a pre-pack administration.
The Transfer of Undertakings (Protection of Employment) Regulations are designed to safeguard employee rights when a failing company is sold. When the underlying business is purchased by third-party buyers or by the current directors or shareholders, it is referred to as a pre-pack administration, and operations continue under a new company name.
The TUPE rules encompass employee contracts, including their rights to receive overdue salaries and other outstanding payments, working hours, and other perks that they received while employed by the previous employer.
Transfer of Undertakings (Protection of Employment) Regulations in Company Administration
The Transfer of Undertakings (Protection of Employment) Regulations, also known as TUPE, are designed to protect the rights of employees when a business or part of a business is transferred from one employer to another. This can also apply in the case of company administration process, where a company is in financial difficulty and an insolvency practitioner is appointed to manage its affairs. In this situation, TUPE regulations still apply, and the insolvency practitioner is considered the new employer.
The employees of the company are still protected by TUPE regulations, and their employment rights, including length of service and terms and conditions, are transferred to the insolvency practitioner. However, it is important to note that in some cases, the insolvency practitioner may be able to negotiate changes to the employees’ contracts to help save the company and prevent redundancies.
Any such changes must be made with the agreement of the employees and their representatives, and the insolvency practitioner must follow the requirements of TUPE regulations throughout the process.
When do TUPE rules apply?
TUPE rules apply when there is a transfer of a business or part of a business from one employer to another. This can occur in a number of situations, such as when a business is sold, merged or outsourced. TUPE regulations are designed to protect employees’ rights when the business or part of the business they work for transfers to a new employer.
Terminal’ insolvency procedures involving the liquidation of firm assets are not considered ‘relevant’ in terms of TUPE. In the past, there was debate over whether or not prepack sales under administration were, in fact, ‘terminal’ procedures.
The position was clarified in 2012 by the Court of Appeal, which confirmed that pre-pack administrations are indeed “relevant transfers” and that TUPE laws apply.
The regulations ensure that employees’ terms and conditions of employment, including their length of service, continuity of employment and any outstanding claims, are transferred to the new employer. TUPE rules also require both the old and new employers to inform and consult with their employees about the transfer and any potential implications for their employment.
Read more: What is a Pre Pack Administration
Who is liable for outstanding employee payments prior to a transfer?
If there are insufficient money available from the sale of the company for unsecured creditors, wages owed to employees previous to transfer might be sought from the National Insurance Fund.
Payments are subject to the fund’s existing weekly restrictions, and those covered include:
- Wages of up to eight weeks
- Up to six weeks of holiday pay
- If an employee has worked their notice term but has not been paid, they are entitled to statutory notice pay.
- Contributions to an employment pension that have not been made
Rather than the National Insurance Fund, arrears of statutory ill pay or maternity / paternity / adoption pay are collected from the Department of Work and Pensions and HMRC.
The purchasing business inherits liability for any payments in excess of the current statutory limits, as well as responsibility for any employment-related payments from the date of transfer.
Permitted variations to employment contracts
TUPE regulations allow for variations in employment contracts, but they must be implemented with the agreement of employees or their representatives. The reason for making a change must be to increase the likelihood of business survival, i.e. the sale of the business as a going concern.
Whenever business survival is cited as a basis for changing an employment contract, the decision must be supported by a compelling business rationale and empirical proof.
Positive adjustments to employment contracts are permitted by the new owner with the permission of the employees/their representatives. This could involve, for example, an increase in holiday compensation.
Employee pension rights are only safeguarded up until the date of transfer. Once the transaction is completed, the new company is under no obligation to continue with the same arrangements.
When the new company is purchased, the directors must submit revised written terms and conditions of employment to each employee.
Communication with affected employees
Both the former and new companies are required to communicate in detail with trade unions or elected employee representatives about the transfer. The following information must be provided:
- The circumstances surrounding the transfer
- When it will occur
- What impact TUPE will have on employees
- Whether the new firm will be reorganised or not
If there are less than ten employees, the corporation can contact directly with them.
Dismissing any staff near the time of the sale should be done with caution, since it may be seen unjust except for a specific cause. If a member of staff is fired by either the old or new employer primarily because of the transfer, and the reason is not ‘economic, technological, or organisational’ (ETO), an employment tribunal may hear the matter.
In practise, what does ETO mean?
- Economic: the company’s financial and commercial performance.
- Technical: refers to the systems and operations of the company.
- Organisational: the structure of the company.
Workers who do not wish to be transferred to the new business may resign, and the standard notice period is waived. They only need to notify their employer prior to the transfer, and their resignation date will be the same as the transfer date.
Frequently asked questions
Yes, TUPE regulations still apply in the case of company administration. When an insolvency practitioner is appointed to manage the company's affairs, they are considered the new employer under TUPE regulations, and the employees' employment rights are transferred to them.
In some cases, the insolvency practitioner may be able to negotiate changes to the employees' contracts to help save the company and prevent redundancies. However, any changes must be made with the agreement of the employees and their representatives, and the insolvency practitioner must follow the requirements of TUPE regulations throughout the process.
The main implication of TUPE in an administration process is that employees' employment rights are protected, even when a company is facing financial difficulties. The insolvency practitioner must ensure that employees are informed and consulted about the transfer of the business or part of the business, and that their terms and conditions of employment are protected. This can help to provide some stability and security for employees during a difficult time. Does TUPE apply when a company is in administration?
Can the insolvency practitioner change the employees' terms and conditions under TUPE?
What are the implications of TUPE in an administration process?
Conclusion
The Transfer of Undertakings (Protection of Employment) Regulations are designed to protect the rights of employees when a business or part of a business is transferred from one employer to another. This protection also applies in the case of company administration, when an insolvency practitioner is appointed to manage the company’s affairs. TUPE regulations ensure that employees’ terms and conditions of employment, including their length of service, continuity of employment and any outstanding claims, are transferred to the insolvency practitioner.
This means that employees are protected from losing their jobs or suffering a reduction in their terms and conditions of employment as a result of the company’s financial difficulties. TUPE also requires both the old and new employers to inform and consult with their employees about the transfer and any potential implications for their employment, providing employees with some level of stability and security during a time of uncertainty.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.