TUPE

What is TUPE ?

The purpose of the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE is to protect employees if ownership of their employer changes hands.

The main effect for buyers of businesses, contracts or assets is that employees and any liabilities associated with them transfer by law under TUPE from the old employer to the new employer by operation of law. TUPE applies to a high number of different business transactions and it is essential for employers, employees and buyers and sellers of businesses and assets to understand what employment rights and liabilities arise. TUPE may apply when employers:

• sell or buy part or all of a business as a going concern
• outsource or make a "service provision change" involving either (a) an initial transfer (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) the bringing back in-house (e.g. where services transfer from an external contractor back to the customer);
• grant or take over a lease or licence of premises and operate the same business from those premises.

What do employers need to know about TUPE ?

To protect your business from claims, you need to understand:

• when TUPE is likely to apply;
• what TUPE means legally;
• what you have to do to comply with TUPE and the penalties for failing to do so; and
• what other steps you can take to protect your business from the effects of TUPE.

When is TUPE likely to apply ?

TUPE applies where there is a "relevant transfer", which has a legal definition as the "transfer of an economic entity which retains its identity". In determining whether circumstances meet this definition a number of factors are considered, 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 the employees are taken on by the new employer;
• whether any customers are transferred;
• the degree of similarity between activities carried on before and after the transfer;
• the period during which those activities were suspended, if any.

The question of exactly when TUPE does and does not apply is a very complex one. If you think a transaction you are involved in might be covered by TUPE you should always take specialist legal advice.

What does TUPE mean legally?

The main effect is that if TUPE applies to the circumstances, any existing employees have a legal right to transfer to the new employer on their existing terms and conditions of employment and with all their existing employment rights and liabilities intact (although there are special provisions dealing with old age pensions under occupational pension schemes). Effectively, the new employer steps into the shoes of the old employer and it is as though the employee's contract of employment was always made with the new employer. For this reason it is essential that employers know all about the employees they might inherit if they are planning to take over a contract or buy a business and that they make sure that the contract protects them from any employment liabilities which arose before they became the employer. This is helped by the fact that the old employer is now required to provide to the new employer written details of all employee rights and liabilities that will transfer (see below).

Any dismissals will be automatically unfair, where the sole or principal reason for the dismissal is the transfer or a reason connected to the transfer, unless it is for an economical, technical or organisational reason (an "ETO" reason) requiring a change in the workforce. This defence is narrow in scope and can be difficult to rely upon. Even if the employer can rely upon an ETO defence and the dismissal is not automatically unfair, it may still be unfair for other reasons (such as a failure to consult properly in a redundancy situation).

As the new employer is required to take on the employees on their existing terms and conditions of employment, it is prohibited from making any changes to the terms and conditions of employment of the transferred employees if the sole or principal reason for the variation is connected to the transfer (unless there is an ETO reason for the change, usually requiring a change in number of the workforce). This often makes it difficult, if not impossible, for incoming employers to harmonise terms and conditions of employment of staff after a TUPE transfer.