TUPE: an overview of what businesses need to know

The Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as ‘TUPE’, apply to organisations of all sizes during business transfers. Liz Stevens of Birketts LLP describes the main things employers need to know about TUPE.

What is TUPE?

‘TUPE’ refers to the Transfer of Undertakings (Protection of Employment) Regulations 2006 and operates to protect the rights of existing employees during the transfer of a business entity (or part of a business).

It came into force on 6 April 2006, replacing the original TUPE Regulations 1981 and implementing the European Acquired Rights Directive 2001/23/EC, and was substantially amended in 2014.

When does TUPE apply?

There are two events that can give rise to a TUPE transfer:

A transfer of business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity. This known as a business transfer.
A client business engaging a contractor to do work on its behalf (outsourcing), reassigning such a contract, or bringing the work ‘in-house’. This is known as a service provision change.

What is the ‘automatic transfer principle’ under TUPE?

Where a relevant transfer takes place, the transfer does not terminate contracts of employment. Instead, the new employer (‘the transferee’) essentially steps into the shoes of the old employer (‘the transferor’), taking on responsibility for the existing employees of the business, or part of the business, that has transferred.

The effect of this is that all of the transferor’s “rights, powers, duties and liability under or in connection with” the transferring employees' contracts pass to the transferee. Furthermore, any act or omission done by the transferor prior to the transfer is treated as having been done by the transferee. It is therefore important that a transferee conducts adequate due diligence over the rights it will acquire and may wish to obtain appropriate indemnities from the transferor in respect of pre-transfer liabilities.

Which employees will transfer over to new businesses under TUPE?

Employees of the transferor who are “assigned to the organised grouping of resources or employees that is subject to the relevant transfer” will transfer to the transferee under TUPE. This includes:

employees employed in the organised grouping immediately before the transfer takes place
employees who would otherwise have been employed if they had not been dismissed by reason of the transfer

Those who are regarded as assigned to the organised grouping, and who therefore automatically transfer to the new employer, will depend on the specific facts of each case, based on a multitude of factors developed in case law.

What is the ‘duty to inform and consult’ principle under TUPE?

Both the transferor and transferee are under an obligation to inform and consult with ‘appropriate representatives’ in relation to any of their own affected employees before a transfer takes place.

Appropriate representatives will either be from a recognised trade union or, where there is no recognised trade union, either an existing employee representative (with authority to act) or new ones specially elected for the purposes of the transfer.

The following information must be given to appropriate representatives long enough before the transfer to allow effective consultation to take place:

the facts of the transfer, the date (or proposed date) when it will take place and the reasons for it
the legal, economic and social implications of the transfer for the affected employees
the measures which the transferor envisages it will take in connection with the transfer, or if no measures are to be taken, that fact
any measures that the transferee envisages it will take in relation to the transferring employees, or if no measures are to be taken, that fact
any specific information regarding agency workers engaged by the employer

In addition, the transferor is required to provide certain “employee liability information” about the transferring employees to the transferee, no less than 28 days before the transfer takes place.

A failure to inform or consult in accordance with the statutory requirements could result in an award of compensation by an employment tribunal of up to 13 weeks' full pay, per employee. No statutory cap applies to this award and both the transferor and transferee may be held jointly and severally liable.

Does an employee have a right to object under TUPE?

An employee has the right to object to their transfer under TUPE and may do so by informing either the transferor or transferee of their objection. If they do so, their contract of employment will terminate by operation of law on the date of the transfer, and there will be no dismissal. The employee will have no right to any compensation or redundancy pay, unless the resignation is in response to an employer's repudiatory breach or a substantial change to their working conditions to their material detriment.

Can there be any changes to contractual terms and conditions under TUPE?

Any contractual changes (made either before or after a transfer) are void if the sole purpose or principal reason for the change is the transfer itself and there is no economic, technical, or organisational reason entailing changes in the workforce (known as an “ETO reason”), or unless there is an existing term in the employees contract that permits the employer to make such a variation.

An ETO reason must be something connected to the day-to-day running of the business, such as a reason related to the profitability of the business, the nature of the equipment or production process or related to the management or organisational structure.

The ability to make contractual changes is therefore limited and does not give transferee employers the freedom to harmonise the terms of acquired employees with those of the existing workforce.

Is there protection from unfair dismissal for employees under TUPE?

TUPE also provides employees with enhanced protection against unfair dismissal by making certain dismissals automatically unfair. This severely limits an employer's ability to dismiss as a result of a transfer.

Any dismissal of an employee will be automatically unfair where the sole or principal reason for the dismissal is the transfer itself and there is no ETO reason for the dismissal. If an employer can provide an ETO reason, such as a business need to make redundancies, the dismissal may be potentially fair provided a fair procedure is followed.

Liz Stevens Birketts