In this practical guide for employers and HR departments, we detail the rules on managing TUPE transfers and how you can reduce your exposure to legal risks.
Employees who are transferring to a new employer are afforded certain protections by law. Whether you are the ‘incoming’ or ‘outgoing’ employer, falling foul of your obligations is to be avoided through careful planning.
In this practical guide for employers and HR departments, we detail the rules on managing TUPE transfers and how you can reduce your exposure to legal risks.
What is TUPE?
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006 exist to protect and preserve the rights of employees whose employment is transferring to a new employer.
Under the TUPE regulations, employees should not lose their existing employment rights. The new employer will assume all responsibilities under each transferring employee’s employment contract, including any holiday entitlement and pay and periods of continuous employment. In addition, the TUPE regulations also ensure that all liabilities are transferred to the new employer, including arrears of pay and any contractual breaches or failures of the previous employer to observe employees’ rights.
The new employer essentially steps into the old employer’s shoes, taking on the rights, responsibilities and liabilities of that employer towards the employees.
Employees will automatically be transferred to their new employer on the date of transfer, and are protected from having their contractual terms and conditions changed in connection with the transfer.
When does TUPE apply?
There are two types of transfer where the TUPE regulations apply, namely when a business transfers to another employer, or where a service provision change takes place.
A business transfer is where a business, or part of a business, moves from one employer to another. This can include mergers where two companies close and combine to form a new one. However, to be protected under TUPE during a business transfer, the identity of the employer must change.
In respect of a service provision change, this is when a service provided in-house, for example catering or cleaning, is awarded to a contractor, a contract ends and is given to a new contractor, or a contract ends, and the work is transferred in-house by the former customer.
Employees are not protected under TUPE if the contract is for the supply of goods for the company’s use, for example, a restaurant changing food suppliers, or for a single event or short-term task, for example, a catering company being used for a large corporate event.
Further, only the employees who can be clearly identified as providing the service being transferred are protected.
Identifying employees to be transferred
In the majority of TUPE transfers, it will be the outgoing employer that determines the group of employees to be transferred, but it is also common for both the outgoing and incoming employers, as well as unions and/or representatives to negotiate as to which employees should transfer. Certain factors will also influence whether an individual is part of the transferring group:
- Employees on parental, annual or short-term leave would usually be part of the transferring group.
- Those on fixed-term contracts may also transfer, with the exception of agency workers.
- Those absent on sick leave or on secondment may also transfer, but this will depend on the specific facts such a the length of absence.
Percentage of hours worked is one common measure as to whether an employee is likely to transfer, although a multifactorial approach is recommended.
This makes it important for employers to keep records to determine if there is a formally organised group of employees whose main objective is to provide services to the client, and whether each individual is part of such a grouping.
It is also important to take into account the employee’s managerial responsibilities, and cost and value to each part of the organisation.
Business transfers
In the case of a merger or acquisition, it is likely to be straightforward to identify who is transferring under TUPE – ie the employees assigned to, or working solely or mostly for, the part of the business that is subject to the sale/merger/transaction.
If it is unclear, the tasks that various workers perform in various parts of the company will need to be analysed, as well as how centralised services are performed eg if someone based in the head office solely supports the transferring branch.
Service provision changes
A key area of risk relating to TUPE transfers after a change in the service provision is where employees claim unfair dismissal for not being part of the committed team assigned to the service. The employee must however provide sufficient evidence to support this assertion.
Employers are advised to be proactive in ensuring they undertake a thorough and considered exercise to determine whether there is a distinct, organised group of employees who have been assigned to that contract and as such, who should transfer.
Does TUPE apply to employees and workers?
The employment tribunal decision in Dewhurst v Revisecatch & City Sprint 2019 challenged the prior assertion that TUPE does not, in fact, apply to workers. The judgment provided that, since an “employee” under the regulations is “an individual who works for another person whether under a contract of service or apprenticeship or otherwise…”, “or otherwise” is to be interpreted as referring to so-called limb ‘b’ workers’ as well as employees.
While not binding, the tribunal’s decision, if upheld by higher courts, would extend the TUPE provisions to workers as well as traditional employees, which will naturally have hugely significant implications in employment law terms.
That said, in light of the decision, it may be advisable for employers to take a risk-averse approach and opt to treat workers as TUPE-protected individuals. This would mean workers – together with employees – would automatically transfer from a transferor employer to a transferee employer. Informational sessions and consultations with employees who may be impacted by a TUPE transfer may need to involve workers as well. Workers and employees may both need to be included in the employee liability information submitted at least 28 days before staff is transferred to the new, incoming business.
Note however that workers would not be given the same protection against unfair dismissal as individuals with employee status in the circumstances of a TUPE transfer.
Objecting to the transfer
In the event that an employee does not want to work for the new employer, they could look to negotiate a new contract with new terms, or they could object to the transfer before the transfer happens. This would be considered a resignation. Employment then ends at the time of transfer. Typically in this instance, an employee will not be able to claim unfair dismissal or redundancy pay, unless their working conditions are significantly worse because of the transfer. In these circumstances, the employee can object to the transfer, or resign and potentially claim constructive dismissal.
Preliminary stages of TUPE
The specific steps to follow when managing a TUPE transfer will vary according to whether there is a normal business transfer or a service provision change. However, having identified which employees are affected, the employer is under a duty to provide the necessary information and consult with affected employees.
In other words, prior to a transfer of ownership taking place, an employer must tell the trade union or employee representatives of the following:
- The fact the transfer is happening
- The transfer date
- The reasons why it is taking place
- What the transfer means for employees affected
- Any measures proposed in connection with the transfer that will affect the employees, for example, if there will be any reorganisation.
Both the old and new employers have an obligation to inform and consult representatives of affected employees. The incoming employer will be required to inform and consult on any planned measures towards the employees, considering any implications of the employees’ terms and conditions of employment, including pensions.
Where a trade union is involved, the employers must inform and consult with the representatives from the union.
TUPE Regulation 13 & duty to inform & consult
The purpose of the TUPE Regulations is to protect and preserve an employee’s rights if the business in which they work changes hands, including the right to transfer to the new employer on the same terms and conditions, with their continuity of service, and existing employment rights and liabilities, intact. The legal effect of TUPE is essentially to transfer all assigned employees to the new employer, together with any rights, powers, duties and liabilities arising under or in connection with their employment contracts.
In addition, TUPE will trigger important information and consultation obligations on the part of both the outgoing and incoming employer toward any trade union or employee representatives. This is because TUPE affords employees the right to be kept in the loop about what changes, if any, are likely to be made — where TUPE Regulation 13 imposes an obligation on both employers to inform and consult representatives of any employees who may be affected by the proposed transfer or by measures taken in connection with it.
Subject to certain qualifying conditions, the TUPE Regulations, including TUPE Regulation 13, will apply where the organisation or service that an employee works for is transferred to a new employer. This could be, for example, when a business is sold, or where activities are outsourced or brought in-house, or a contract for services is moved to a new provider. In technical terms, under TUPE, this is where a ‘relevant transfer’ takes place.
What are the obligations under TUPE Regulation 13?
Under TUPE Regulation 13(2), the employers are under a statutory duty to inform the appropriate representatives of affected employees of the following:
- the fact that a relevant transfer is due to take place, together with the date or proposed date of that transfer and an outline of the reasons behind it
- the legal, economic and social implications of the proposed transfer for affected employees
- the measures which the employer envisages will be taken in relation to any affected employee in connection with the transfer, or the fact that no measures are likely to be taken
- if the employer is the transferor (the outgoing employer), the measures which that employer envisages will be taken by the transferee (the incoming employer) in connection with the transfer in relation to any affected employees who will become employees of the incoming employer, or the fact that no measures are likely to be taken.
Under TUPE Regulation 13(6), either an outgoing or incoming employer who envisages that they will take measures in relation to any of the employees affected by the transfer is also under a duty to consult the appropriate employee representatives with a view to seeking their agreement to the intended measures. The right to be consulted is entirely separate from the right to be informed about a TUPE transfer where, under subsection (7) of TUPE Regulation 13, the employer must go on to consider any representations made by the representatives and reply to their representations, providing reasons for rejecting these where applicable. If no measures are anticipated, there will only be an obligation to inform appropriate employee representatives of that fact, with no additional duty to consult.
Under subsection (1) of TUPE Regulation 13, the duty to inform and consult extends to any employees who may be affected by the transfer or the measures taken in connection with it. This includes any employees who will be transferred over to the new employer. It can also include those staff who will stay working for the outgoing employer, where only part of the undertaking is being transferred and they could be affected by the proposed transfer, as well as existing staff working for the incoming employer if they too could be affected.
For the purposes of TUPE Regulation 13, by virtue of subsection (3), the appropriate representatives of affected employees are trade union representatives, provided a union is recognised by the employer of the employees. If a trade union is not recognised, the appropriate representative will be either any existing employee representatives or, if there are none, the affected employees must be allowed to elect new representatives. Under subsection (11) of TUPE Regulation 13, if employee representatives are not elected within a reasonable time after the employer has invited any affected employees to elect representatives, the necessary information about the TUPE transfer can instead be given directly to the employees.
What are the pitfalls to avoid around TUPE Regulation 13?
There are various pitfalls to avoid when it comes to satisfying the requirements around TUPE Regulation 13 and TUPE consultations, including risks around the timing of the information to be given and the nature of any information provided to employee representatives.
When it comes to timing, there is no prescribed timeframe as to when information should be passed to employee representatives during the transfer process. Subsection (2) of TUPE Regulation 13 simply states ‘long enough before a relevant transfer’ to enable the employer of any affected employees to consult the appropriate representatives of those employees. It is therefore not always clear to employers when they are obliged to inform and consult.
Equally, when it comes to the information that must be provided by the incoming employer to the outgoing employer around any proposed changes, subsection (4) of TUPE Regulation 13 provides that the transferee shall give the transferor ‘such information at such a time’ as will enable the transferor to perform its duty as set out under subsection (2)(d). TUPE Regulation 13(2)(d) encompasses the duty on the outgoing employer to inform anyone who will become an employee of the incoming employer of any measures, if any, that the existing employer envisages are likely to be taken by the new employer following the transfer. Measures refer to any material change in existing work practices or working conditions, as well as redundancies.
This means that there is no clear point at which any information must be passed to the relevant party, making it easy for delays to creep in, leaving insufficient time for the employee representatives to consult with any affected employees. This can often be the case where the incoming employer fails to inform the outgoing employer of their post-transfer intentions until very late in the process, having a significant knock-on effect when it comes to the outgoing employer being able to discharge its own obligation to inform and consult.
Additionally, as the duty to inform and consult as to any proposed measures only extends to those that the employer ‘envisages’ will be taken, there can be a temptation to avoid the obligation to inform and consult altogether here, or only to relay information about any significant measures. Importantly, even relatively minor changes, such as transitional administrative arrangements relating to pay, or those that work to the employee’s advantage, should be disclosed. This is because TUPE Regulation 13 does not prescribe that any effect must be disadvantageous to trigger the statutory duty to inform and consult.
What are the consequences of breaching TUPE Regulation 13?
Failure to comply with the duty to inform and consult under TUPE Regulation 13 can have serious consequences, both for the outgoing and incoming employer. While a failure to inform and consult does not render the transfer void, under Regulation 15(1), a complaint may be presented to a tribunal by either an appropriate representative or the employees themselves.
If a claim is successful, under TUPE Regulation 16(3), the penalty for non-compliance is up to 13 weeks’ uncapped gross pay per affected employee, based on what the employment tribunal considers just and equitable having regard to the seriousness of the failure to inform and consult on the part of the outgoing or incoming employer.
Compensation may be ordered against either or both employers. The employers can also be held jointly and severally liable in respect of the compensation payable, where it will be for the parties to apportion such liability on a contractual basis. However, it is a defence for the outgoing employer to show that any breach was caused by a failure on the part of the incoming employer to provide details of its proposed measures, either in time or at all.
There is also a defence of ‘special circumstances’, under subsection (9) of TUPE Regulation 13, provided the employer can show that it was not reasonably practicable to comply with its obligations to inform and consult, and they have taken steps towards performing that obligation as are reasonably practicable in all the circumstances. However, to rely on this defence, the employer must demonstrate that they were constrained by some event beyond their control, and that this occurrence was sudden and unexpected.
What TUPE Regulation 13 best practice advice should employers follow?
There are various duties arising under TUPE Regulation 13 and around TUPE consultations. However, the following best practice advice will help employers to remain compliant:
Once it has been decided that a transfer is to take place, where at all possible, the employers should seek to agree a way forward, including whether or not TUPE applies to the transfer, which employees are to be transferred or are otherwise affected, and the transfer date. Any discussions between the employers should seek to clarify as soon as is reasonably practicable those changes which are definitely going to take place, so that this information can be passed on to the appropriate representatives in sufficient time prior to the transfer.
The employers should consider meeting up with any relevant trade unions or employee representatives as soon as possible to help to facilitate a smooth transition. The provision of information and consultation must take place with either trade union representatives or, if there is no union representation, with appropriate elected employee representatives. If the workforce is non-unionised and there is no other suitable representative body, employees must be invited to elect their own representatives.
Both employers should carefully consider in advance the timetable involved in a transfer. Most TUPE transfers are time-consuming, not least due to the exchange of information between different parties and the statutory requirements around TUPE consultations. This means that realistic management of time and resources is essential to a successful and legally-compliant outcome. Where the obligation to consult is triggered, there is no set timeframe for consultation, but it must be in good time prior to the transfer, where the larger the transaction and the more staff affected, the longer the timetable for consultation will need to be. Arrangements may also need to be made for the election and training of employee representatives before any consultations can begin.
Both employers must ensure that they comply with the rules under TUPE Regulation 13(5) as to the way in which any information is given to trade union or employee representatives. Under subsection (5), the information must be in writing and either delivered by hand to the union or employee representatives, or sent by post to the union’s main/head office or an address notified by the appropriate representatives. The TUPE letter to employees must set out all of the relevant information as required under TUPE Regulation 13(2).
Next stages
The outgoing employer is also obliged to provide information to the incoming employer. This information must be provided in writing and detail the rights and obligations of the employees who will transfer.
This ‘key employee’ or ‘due diligence’ information includes their name and age, the main details of their employment, information about any collective agreements, any disciplinary action taken against them in the last two years, any grievances raised or legal action taken by the them in the last two years, as well as any potential legal action the employer thinks the employee might raise.
The total number of temporary and agency workers working for the employer must also be detailed.
This information is designed to help the new employer understand their employees’ rights and their own obligations. Although in practice it is helpful for the new employer to be given this information at the earliest possible opportunity, at the very least it must be provided by the old employer 28 days before the transfer.
Once the transfer is complete, employees should receive an up-to-date written statement of employment, giving the name of the new employer and saying that their terms and conditions haven’t changed.
Post TUPE transfer
It is not uncommon for the incoming employer to experience challenges when integrating different personnel groups. A post-transfer strategy is therefore recommended to monitor the effects and outcomes of the transfer. This could include:
- Employee engagement – be proactive in engaging with personnel – both transferring and existing – to keep people informed and facilitate the smooth integration of transferring staff.
- Keep morale up – be proactive in fostering positive workforce morale, as you may have to deal with disruption and changes such as redundancies and variations to contract terms.
- Follow lawful redundancy process – dismissal by redundancy requires a specific process to be followed or you risk costly tribunal claims.
TUPE risks for employers
One of the key risks when managing TUPE transfers is that an employee’s contract of employment automatically transfers to the new employer as if the contract was made originally between the employee and the new employer.
The net effect is that liabilities also transfer from the outgoing employer to the new one, including all statutory and contractual rights. As such, if the old employer has given cause for a claim, liability will pass to the incoming employer, including claims for unfair dismissal and discrimination, even where the conduct in question took place prior to the transfer.
A TUPE transfer can also give rise to all sorts of complex legal problems relating to changes in terms and conditions and dismissals. In particular, unless there is an ETO reason, i.e., economic, technical or organisational, any changes to terms and conditions or dismissals because of the transfer will be automatically unfair and carry with them significant compensation consequences.
A TUPE transfer can also give rise to expensive pension issues.
Penalties
If an employer fails to comply with their duty to consult and inform about a transfer when managing TUPE, they can face penalties. In particular, an employer could be ordered to pay compensation to each affected employee of up to a maximum of 13 weeks’ pay each.
Compensation will be set on the basis of the employee’s actual gross pay. There is no cap on the amount that can be awarded. Compensation could be made to be payable by either the outgoing or the incoming employer, or it can be divided between the two.
Where an outgoing employer fails to supply the necessary information to the incoming employer, the new employer can also apply to the tribunal for compensation. This penalty is paid to the new employer but is calculated on the basis of a minimum award of £500 for each employee whose information was incorrect or not provided at all. There is no maximum cap, so again awards can be expensive.
Further, if an employee feels they have been forced to resign following a transfer, they may be able to complain to an employment tribunal and seek an award.
Need assistance?
There can be serious implications for employers who misinterpret or misapply TUPE, so it is vital that the process is properly managed both to reduce legal risk and to maintain morale and performance through the transition and beyond.
Expert legal advice should be sought by both employers to help manage the risks and potential liabilities within the context of TUPE. In this way, the parties can ensure that the overall process is legally compliant, including the contents of the TUPE letter to employees and conducting a fair TUPE consultation in sufficient time prior to the transfer. As the employers cannot opt out of their statutory obligations, legal advice can also help the parties to factor in appropriate contractual warranties and indemnities before proceeding with a transfer. This means that the employers can agree in advance as to who will bear the costs of, among other things, any failure to comply with TUPE Regulation 13.
DavidsonMorris specialise in supporting employers through transfers, ensuring the TUPE regulations are adhered to while maintaining focus on the business interests and objectives of the transfer. We provide specialist guidance on complex and sensitive matters involving redundancy and variation and harmonisation of contractual terms. For specialist advice, contact us.
