When Does TUPE Not Apply?

The impact of TUPE, whether it applies or not, can be significant. In cases where TUPE is applicable, both incoming and outgoing employers are obligated to fulfill information and consultation requirements before the transfer occurs. After the transfer, TUPE determines the extent of employee rights going forward.

When TUPE applies, it effectively transfers all assigned employees, along with their associated rights, duties, powers, and liabilities, from the outgoing employer to the incoming employer by operation of law. This means that the incoming employer assumes the role of the outgoing employer, as if the employees’ employment contracts were originally established with them.

The legal implications of TUPE include:

1. Automatic transfer of all employees employed by the outgoing employer to the incoming employer at the point of transfer.
2. Continuity of employment for transferred employees, maintaining their continuous service from the original start date and preserving the same terms and conditions of employment, with some exceptions for occupational pension arrangements.
3. Transfer of existing statutory and contractual liabilities, including those of employees whose employment was terminated before the transfer.
4. Rendering a dismissal automatically unfair if the transfer is the sole or principal reason for the dismissal.
5. Transfer of recognized trade union relationships and collective agreements from the outgoing employer to the incoming employer.
6. Triggering information and consultation obligations for both outgoing and incoming employers towards employees or employee representatives.
7. Requiring the outgoing employer to provide employee liability information to the incoming employer.

Determining whether TUPE applies depends on specific circumstances. Generally, TUPE is triggered when a “relevant transfer” takes place, which can be a business transfer or a service provision change. A business transfer involves the transfer of a business or part of a business to a new employer, while a service provision change occurs when a client engages a contractor or reassigns a contract.

The size and profit status of the business, as well as the manner of transfer, are not relevant factors. However, the undertaking must be located in the UK immediately before the transfer, and for service provision changes, there must be an organized group of employees situated in Great Britain before the change

Key factors to determine whether or not TUPE applies

Navigating the applicability of TUPE can be a complex endeavor, as the criteria for identifying a business transfer or service provision change are intricate. The interpretation of the 2006 Regulations hinges on the specific circumstances of each case, making it essential to consider a multitude of factors.

While the following summary provides an overview, it is important to note that it only scratches the surface of the key considerations that must be carefully examined.

Business transfers

In order for assigned employees to benefit from the rights under the 2006 Regulations, a business transfer must encompass the transfer of an “economic entity” that maintains its identity, as outlined in Regulation 3(1)(a).

The economic entity test examines whether the business operation remains unchanged, essentially carrying out the same activities as before. If a business or part of a business transitions to a new owner or merges with another company while continuing to offer identical services and products to the previous customers, TUPE is likely to be applicable.

Even in cases where the transfer occurs within the same group of companies or when two companies close and merge to form a new entity, TUPE should still apply. However, TUPE does not apply to transfers that involve a share takeover because the business itself is not transferred when a company’s shares are sold to new shareholders.

For a transfer to be considered a TUPE business transfer, there must be a change in the employer’s identity. For example, in a share sale where a subsidiary is acquired by a parent company but continues to operate under its own name and retain control of day-to-day operations, TUPE is unlikely to apply. This is because it involves the acquisition of shares without a formal transfer of staff or assets, where the same company remains the employer.

Service provision changes

A service provision change can encompass various scenarios, such as outsourcing (where a contractor takes over activities from a client), re-tendering (where a new contractor replaces a previous contractor), or insourcing (where a client takes over activities from a contractor).

To fall under the coverage of the 2006 Regulations, a service provision change requires that the activities performed by the old contractor (or client) and the new contractor (or client) are “fundamentally the same,” as stated in Regulation 3(1)(b).

Essentially, if there are significant changes to the service requirements after the transfer, TUPE would not apply to the service provision change. However, minor differences in the nature of the tasks alone would not typically negate the fundamental similarity of the activities. For example, if a company contracts with a catering business to cook and serve hot canteen dinners, and the new contractor continues to provide the same service while sourcing ingredients from a different supplier and using new utensils, TUPE is likely to apply.

On the other hand, if the previous catering contractor served hot dinners in the company canteen but, upon contract expiration, the company decided to switch to self-service fridges with pre-prepared sandwiches and drinks, TUPE would be unlikely to apply if a new catering contractor wins the tender.

In addition to the fundamental similarity of activities, the following conditions must be met for TUPE to apply to the transfer, as outlined in Regulation 3(3):

1. An organized group of employees must exist immediately before the transfer, involved in delivering a service for a particular client (although this group can consist of a single employee).
2. Employees should be assigned to the group just before the transfer, with their roles linked to providing services for that specific client.
3. The client must remain the same, as TUPE will not apply if the services are being performed for a new client.
4. The activities should not become overly fragmented at the time of transfer, as a higher degree of activity fragmentation between different providers reduces the likelihood of TUPE applying.

Exceptions to TUPE

In addition to the fundamental provisions outlined in Regulation 3(3), which require the presence of an organized grouping of employees primarily engaged in carrying out activities for a client, there are specific exceptions that may exempt certain service provision scenarios from TUPE. These exceptions include:

1. Single-event activities or short-term duration: TUPE may not apply if the service is related to single-event activities like conferences or exhibitions, or if it involves activities of short-term duration, such as isolated repairs to property.
2. Supply of goods for client’s use: If the activities primarily involve the supply of goods intended for the client’s use, and the transfer does not include the supply of services alongside the goods, TUPE may not be applicable in such cases.

These exceptions provide some flexibility within the application of TUPE to service provision changes, recognizing that certain specific circumstances may warrant different treatment under the regulations

Common errors when determining if TUPE applies

When determining the applicability of TUPE, it is crucial to avoid common errors, particularly assuming that parties can opt out of their statutory obligations by agreeing to alternative arrangements. From a legal perspective, such opt-outs are strictly prohibited. However, it is permissible for the incoming and outgoing employers to engage in negotiations and establish contractual warranties and indemnities before proceeding with the transfer. This enables the parties to allocate the financial responsibilities associated with pre-existing employee liabilities or non-compliance with TUPE.

Given the potential involvement of TUPE in both business transfers and service provision changes (which generally trigger TUPE considerations), it is highly advisable to seek specialized legal advice. By doing so, whether you are the incoming or outgoing employer, you can confidently navigate the TUPE process, if applicable.

Moreover, due to the uncertainty surrounding TUPE’s application in certain scenarios, your expert legal advisor can assist in establishing contractual measures to mitigate risks and liabilities, safeguarding your business from the potential impacts of TUPE in the future.

Read more: TUPE Checklist for employers

Frequently asked questions

In what circumstances does TUPE not apply?

The circumstances that TUPE does not apply is dependent on whether the ‘relevant transfer’ is a qualifying business transfer or service provision change as defined under the TUPE Regulations 2006.

Does TUPE always apply?

No, TUPE does not always apply, to every single business transfer or service provision change. There are various qualifying conditions to constitute a ‘relevant transfer” as defined under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Conclusion

In conclusion, understanding the circumstances in which TUPE does not apply is just as important as recognizing when it does. TUPE, as a significant employment regulation in the UK, carries various obligations and implications for both incoming and outgoing employers. However, there are exceptions to its application.

TUPE does not apply when a transfer involves the sale of shares in a company rather than the transfer of the business itself. Additionally, transfers that fall outside the scope of the regulations, such as those occurring outside the UK or classified as service provision changes rather than business transfers, may not be subject to TUPE. Transfers of a purely domestic nature within a family relationship or transfers of assets without an economic entity are also exempt.

It is crucial for employers and employees to be aware of these exceptions and seek expert legal advice when TUPE is a potential consideration. Specialist legal guidance can help navigate the complex TUPE process, ensure compliance, and mitigate risks and liabilities through appropriate contractual measures.

By understanding the nuanced scenarios in which TUPE does not apply, organisations can effectively manage transfers, protect their interests, and promote a smooth transition for both employees and businesses involved.