TUPE – what it is and what you need to know

The Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended by The Collective Redundancies Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014.

TUPE applies when:

• an organisation, or part of it, is transferred from one employer to another. This is known as a business transfer and can also include mergers.

• a service is transferred to a new provider, such as when another company takes over the contract for office cleaning. These are known as service provision transfers but they will not apply:

• for those working temporarily in the transfer group

• where there is a supply of goods only

• for any services that are single-event activities, such as a conference or a party

Who transfers?

In business transfers, all those employed by the business (or the part that is transferring) will transfer with it.

In service provision transfers, only some employees will transfer. When deciding which ones, you will need to think about:

• the amount of time the employee spends on the service that is transferring, or

• the nature of the job before the transfer and the nature of the job proposed after the transfer

What transfers?

For employees who are in the transferring group, the following are transferred:

• contracts of employment (terms and conditions, pay, bonus, holidays or sick pay)

• contractual provisions

• continuous service

• accrued entitlement, such as annual leave

• liabilities, such as any unfair dismissal claims

• any collective agreements made by, or on behalf of, the outgoing employer’s company with a recognised trade union. These will include terms and conditions of employment which have been negotiated through trade union collective bargaining

• union recognition, but only where the business unit keeps its identity and is not merged into the incoming employer’s wider organisation

The following do not transfer:

• criminal liabilities

• company occupational pension schemes.

When an employee transfers under TUPE, they are not regarded as having been dismissed. Therefore, there is no entitlement to notice pay or redundancy pay.

Disagreements about transfers

If there is a disagreement over who should transfer under TUPE, the two employers – the incoming (transferee) and the outgoing (transferor) – should try to reach an agreement before the transfer happens. If agreement does not seem possible, then it is important that both parties seek legal advice.

Changes to contracts after transfer

The protection bestowed by TUPE continues indefinitely. If at any point (even years later) the incoming employer wants to change terms and conditions, they must have a valid reason that is unrelated to the transfer. The more time that passes between TUPE and any changes to terms and conditions, the less likely that an employee will be able to argue the changes were the result of the transfer.

However, if the change is because of the transfer, the employer can only change the terms and conditions if:

• the contract gives the employer the authority to do so or;

• it improves terms and conditions (e.g. if it increases annual leave entitlement of transferred employees to match the entitlement of other staff) or

there is an economic, technical or organisational (ETO) reason which entails a change in the workforce i.e. headcount by way of redundancy.

Examples of ETO reasons include:

• trade has fallen so the company needs to reduce costs and dismiss some employees (economic)

• processes are increasingly done by machines or computers, so fewer employees are needed (technical)

• the business needs to restructure and that may result in some redundancies (organisational)

Can an employee refuse to be transferred?

An employee can object to be transferred under TUPE. If so, their employment will end, but they will not be regarded as being dismissed. Instead they will be deemed to have resigned. In this case, you should:

• confirm their notice period and agree a leaving date. If they resign with immediate effect, they will not be entitled to notice pay

• pay them any outstanding wages and notice pay (if applicable)

• pay for holidays accrued but not taken

Employees who refuse to transfer are not entitled to redundancy pay and lose their right to claim unfair dismissal when their employment ends.

Consultation obligations

When preparing for the transfer, both parties must identify which employees will be involved in the transfer and inform and consult with them about the measures.

During the transfer process, both employers need to make sure that staff are kept fully informed about what is happening; for example, key dates and what their duties will be after the transfer concludes.

When the transfer is finished, both the outgoing and incoming employers must consult on any redundancies. The outgoing employer should also take steps to manage morale within the company and take into account any worries or concerns from the employees who were not involved in the transfer. The incoming employer should take whatever steps are necessary to help the new employees settle in and look at whether their processes need reviewing or changing now that the new employees are in place.

Failure to consult

If an employer, either the outgoing or incoming, breaches their duty to inform or consult, they may be either individually or jointly liable and could find themselves being taken to an employment tribunal. This could be by either the employees who are involved in the transfer or their trade union.

An employer will be deemed to have failed to inform and consult if they did not consult the representatives of a recognised trade union or – in the absence of a recognised trade union – they did not arrange an election of employee representatives with whom consultations could be carried out, or it can be proved that they did not enter into a genuine and meaningful consultation process with employee representatives.

If the employer has fewer than 10 employees and they did not consult them directly or their appropriate representatives, then this will also count as a breach of the duty to inform and consult.

Who is liable?

If a tribunal claim by an employee or a union is successful, then a penalty may be imposed against either employer, even if the failure to consult was that of the other employer. That penalty could be up to 13 weeks’ gross uncapped pay for each affected employee.

It makes sense therefore for both parties to include what is known as an indemnity in the transfer plan so that in the event of costs caused by a failure to inform or consult, it will already be agreed who will meet those costs.

The ELI

The outgoing employer needs to provide information to the incoming employer about employees who are transferring across. This is known as Employee Liability Information (ELI) and should include:

• identity and age

• written terms of employment

• whether there are any active disciplinary or grievance records from the last 2 years

• details of any agreements with a trade union that affect employees’ terms and conditions

• any claims employees have made against their employer in the last 2 years, or any claims the outgoing employer thinks employees may make when they transfer

Before sending ELI, the outgoing employer needs to verify whether:

• they have included any staff policies that cover written terms and conditions

• there have been any recent changes to terms and conditions

• any terms and conditions are not in writing – some may have been verbally agreed

• there are any terms and conditions that affect only some employees – for example, flexible working arrangements

Timescales

ELI must be provided to the incoming employer at least 28 days before the transfer date.

After ELI is shared

After the incoming employer has received the ELI, they must tell the outgoing employer of any measures they plan to put in place after the transfer, such as changes to working patterns. The outgoing employer can then tell affected employees before the transfer.

If ELI is incorrect or late

The incoming employer may make a claim to an employment tribunal if:

• the ELI is not provided at least 28 days before the transfer date

• any information is incorrect

• the outgoing employer does not tell the incoming employer of changes to ELI

If the claim is successful, the outgoing employer may have to pay at least £500 for each employee for whom they gave incorrect or no information.

The TUPE regulations are quite complex, and it is easy for an employer who tries to go it alone to get something wrong. As always, it is a very good idea to obtain legal guidance before starting the process.

Our team is on hand to help – contact us if you need support.