What is TUPE?
The TUPE (‘Transfer of Undertakings’) regulations are rules that protect the rights of employees if the organisation they work for changes hands or merges with another. They also apply if an outsourced service, such as office cleaning, catering or security, is due to be taken over by a new contractor.
Under the TUPE regulations, where there is a change of employer, the employee should transfer across to the new employer with all of their terms and conditions intact. The employer is not usually allowed to change those conditions or dismiss an employee unless they can demonstrate an ‘economic, technical or organisational’ reason to do so – that is not just because of the transfer itself.
For a successful TUPE transfer, it is vital for the transferor and the transferee (i.e. the original employer and the new employer, who will be taking over employment responsibilities) to work together from an early stage to plan the process, identifying risks and engaging in meaningful dialogue with employees.
It is important for employers to seek professional legal advice when the ownership of an organisation – or a part of it – is going to be transferred. TUPE transfers are a complex legal area and employers cannot legally ‘contract out of’ the regulations to stop them applying.
When does TUPE apply?
According to the legislation, the TUPE regulations apply to “the transfer of an economic entity which retains its identity” – this typically means business transfers or service provision transfers. It can also apply to the public sector.
TUPE will almost certainly apply if you buy or sell part or all of a business as a going concern. It may also apply to a company that grants or takes over the license or lease of a premise and runs the same business from those premises.
TUPE also applies to most outsourcing service provision changes, so long as the services offered before and after the change of supplier stay broadly the same. For example TUPE would apply if a new supplier took over the contract to run an office canteen but it might not apply if the services the new supplier ran were fundamentally different (for example if they stopped preparing hot meals on the premises and moved to only selling pre-packaged sandwiches).
The question of when TUPE does and does not apply is complex and open to interpretation so it is essential for employers to seek professional legal advice.
The TUPE process
The TUPE regulations impose legal responsibilities on both the transferor and the transferee.
The key responsibilities are to inform and consult with existing staff throughout the process and for the transferor to pass on detailed information about its existing employees to the transferee at least 28 days before the transfer.
This information is called Employee Liability Information (ELI) and it includes:
- each employee’s name and age
- the details of their employment, including their full disciplinary and grievance records
- any employee claims and collective agreements that apply to them
- details of all of their existing rights and liabilities which will transfer to the new employer.
In certain instances the old and new employer can negotiate to divide up their liabilities by including ‘indemnities’ in their agreement.
The responsibilities of the two employers involved in the transfer are summarised below:
Responsibilities of the transferor (outgoing employer)
Before a transfer has been agreed, the outgoing employer should:
- consider whether to consult employees or employee representatives about the possibility of a sale/merger/contract expiry; and
- in the case of service provision changes, consider whether or not to rebid or bid for a contract.
Once the outgoing employer is at the stage of preparing for a TUPE transfer, they must:
- inform and consult employees about the transfer and its possible impact on them;
- identify which employees will transfer;
- and provide Employee Liability Information (ELI) to the transferee (incoming employer) at least 28 days before the transfer.
When the transfer occurs, the transferor will lose their transferring employees. At this stage the transferor:
- must inform their remaining staff about the transfer and consult them;
- and they should also make sure any remaining employees are settled, managed and clear of their duties.
When the transfer is complete, the outgoing employer:
- must inform and consult regarding any potential redundancies;
- and they should continue to keep the remaining workforce informed and address their concerns, to maintain staff performance and morale.
Responsibilities of the transferee (incoming employer)
Before any transfer has been agreed, the incoming employer should:
- consider informing trade unions and employees (or employee representatives) of a possible purchase or bid;
- assess the implications of signing up to a transfer or new service provision;
and begin planning the TUPE process.
Once the incoming employer is at the stage of preparing for a TUPE transfer, they must:
- inform and consult existing employees about the transfer and its likely impact;
- identify who will transfer;
- and request Employee Liability Information (ELI) from the outgoing employer.
When the transfer occurs, the transferee will take responsibility for all transferring employees. At this stage the transferee:
- must inform and consult existing and transferred employees about the transfer;
- they should also make sure all employees are settled, managed and clear of their duties.
When the transfer is complete, the incoming employer:
- must inform and consult all employees about any potential redundancies;
- they should also inform/consult the workforce in general and review the effectiveness of the new organisation;
- and make sure reasonable allowances are made while employees integrate and adjust.
Risks and pitfalls of TUPE process for the employer
Both parties, but especially the transferee, are exposed to risk during a TUPE transfer. Key risk areas include:
In most TUPE transfers, employees from both organisations will be affected by the proposals. Employers must provide certain TUPE-prescribed information to “affected employees” (or their “appropriate representatives”) and, if they are proposing any changes to their situation beyond the transfer itself (termed as “measures” in the legislation), they must also consult with employees.
It is essential for both the outgoing and the incoming employers to take legal advice to ensure they comply fully with this aspect of the legislation because failure to consult properly could result in awards of up to 13 weeks’ pay for each individual employee affected being made (often with joint and several liability).
The transferee is at particular risk because it could be held liable for consultation failures made by the transferor, so it should take steps to check that the transferor is meeting its obligations.
Failings in the provision of Employee Liability Information
The transferor is at particular risk if it fails to provide accurate or timely Employee Liability Information. If a tribunal finds that it has not met its responsibilities to provide the transferee with full details of the terms on which employees’ are employed, it will have discretion to award a ‘just and equitable’ amount of compensation to the transferee (at least £500 per employee).
Unfair dismissal claims
Under the 2006 TUPE regulations, if an employee is dismissed solely or principally because of a TUPE transfer, that dismissal is automatically deemed to be unfair. The only defense is for the employer to demonstrate how the dismissal was for “an economic, technical or organizational” (ETO) reason. This applies whether the dismissal occurs before or after the transfer, and transferees should particularly beware because they will be held liable for an automatically unfair dismissal even when it occurred before the transfer.
To mitigate the risk of unfair dismissal claims, both outgoing and incoming employers are strongly advised to seek professional legal guidance well in advance of – and throughout – the TUPE process.