What is TUPE?
TUPE is an acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006.
In general terms, TUPE aims to protect the rights of employees when there is a change in the identity of their employer as a consequence of a business transfer.
Business transfers may arise in a number of different circumstances such as the sale of the whole or part of a business, the reorganisation of a company or group of companies, or the outsourcing of part of a business.
A failure to comply with TUPE may lead to time-consuming and potentially expensive legal disputes. Our solicitors can help you ensure that you comply with TUPE and avoid such disputes.
When does TUPE apply?
TUPE applies where there is a "relevant transfer". This occurs where one or both of the following take place:
(a) A "business transfer" (as defined by TUPE), and/or
(b) A "service provision change" (as defined by TUPE).
What is a "business transfer" under TUPE?
For the purposes of TUPE, a "business transfer" is the transfer of a business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity after the transfer.
An economic entity is "an organised grouping of resources that has the objective of pursuing an economic activity". This may be the whole of a business but can include part of a business. The business or the part of a business which is being transferred does not have to be profitable in order for TUPE to apply.
An economic entity is likely to be treated as having retained its identity, for the purposes of TUPE, after the business transfer has taken place where it is still in existence after the transfer and it continues with the same or similar economic activities under the new employer.
What is a "service provision change" under TUPE?
For the purposes of TUPE, a "service provision change" occurs in 3 different scenarios:
(a) Where the activities of a client are taken over by a contractor;
(b) Where the activities of a contractor for a client are taken over by a subsequent contractor; and
(c) Where the activities carried out by a contractor (or subsequent contractor) for a client are taken over by the client (whether or not the client has previously carried out those activities).
A "service provision change" will not be treated as a “relevant transfer” unless it satisfies the following conditions:
(a) immediately before the service provision change, there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client; and
(b) immediately before the service provision change, the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and
(c) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.
Does TUPE apply to share sales and transfers?
TUPE does not apply where shareholders sell or otherwise transfer their shares in a company to a third party (for example, pursuant to a share purchase agreement).
TUPE is likely to apply where the business of a company is reorganised prior to a share sale (for example, where the sellers wish to retain part of the business and transfer it to another group company or to a holding company) or after completion of a share sale by the purchaser (for example, where the purchasers combine the business of the target company with an existing business).
How does TUPE work?
Where TUPE applies, with a few limited exceptions, the contracts of employment of those employees employed by the transferor and "assigned to the organised grouping of resources or employees that is subject to the relevant transfer" automatically transfer to the transferee on their existing terms.
It is important to be aware that transferring employees:
(a) maintain their continuity of employment,
(b) retain their rights to bring a claim against their employer for redundancy, unfair dismissal, discrimination, bonuses, unpaid holiday and any other acts or omissions of the transferor,
(c) are protected from being dismissed by reason of the transfer, unless that reason was an economic, technical or organisational reason (ETO reason) entailing changes in the workforce,
(d) have a right to be ‘informed and consulted’ about a proposed TUPE transfer.
The overall effect of TUPE is that the transferee effectively steps into the transferor's shoes with regard to the transferring employees. All of the transferor's rights, powers, duties and liabilities in relation to the contracts of employment of the transferring employees pass to the transferee. Any acts or omissions of the transferor before the transfer are treated as having been the acts or omissions of the transferee.
Does an employee have to transfer under TUPE?
Employees may object to being transferred from their existing employer to a new employer. Those who object will not be transferred to the transferee. Instead, their contracts of employment will be treated as having been terminated by operation of law on the date on which the relevant transfer takes place. Accordingly, there is no dismissal and no right to make a claim for unfair dismissal, redundancy or wrongful dismissal.
What is the obligation to inform and consult under TUPE?
TUPE imposes a duty on the transferor and the transferee to inform and, in some circumstances, consult with recognised trade unions or elected employee representatives (where there is no recognised union). This duty applies in relation to any of their respective employees who may be affected by the transfer or any measures taken in connection with it.
The duty to inform recognised trade unions or elected employee representatives will apply on every TUPE transfer. However, the duty to consult only arises where an employer envisages taking measures in respect of affected employees.
In certain circumstances, micro-businesses with fewer than ten employees can inform and consult affected employees directly rather than through a recognised trade union or elected employee representative.
A failure to comply with the obligation to inform or consult may lead to the employer being subject to a claim for compensation equivalent to up to 13 weeks' uncapped pay.