The Transfer of Undertakings (Protection of Employment) Regulations 2002 (“TUPE”) applies when a contract for the provision of services changes hands or one business buys part or the whole of another business. This is undoubtedly confusing for both employees and employers – which assets are transferred to the purchasing business, which employees are employed and on what terms, and the rights of the respective parties can often be unclear. This post is therefore intended to shed some light on what an employer should do if they think TUPE may apply to a transaction. We will therefore take a look at:
- What is TUPE?
- What happens when TUPE applies to a transfer?
- What should a business do to safeguard itself?
- What are the potential consequences of getting the law wrong?
What is TUPE?
TUPE is legislation which applies to the transferring of assets between companies. This can involve the change of contracting services (a “service provision change”) or the transfer of a stable economic entity (the part or whole of any business). It doesn’t apply to the sale of company shares. The aim of the Regulations are to ensure that employees are not disadvantaged (unless there is a good reason) because of the transfer and that there is adequate consultation with employees prior to the transfer.
What happens when TUPE applies to a transfer?
TUPE applies when a relevant transfer takes place. A “relevant transfer” occurs in one of two circumstances: firstly, when a part of or the whole of a stable business (“Business A”) transfers in recognisable form to a purchasing company (“Business B”) or, secondly, when there is a service provision change (i.e. where the company providing a service is changed). If a relevant transfer has occurred then certain protections apply to the “assets” of Business A:
- The automatic transfer principle: the contracts of employment of all relevant employees are transferred from Business A to Business B on their existing terms (excepting some specific terms)
- Protection of terms of employment: any change to the terms of conditions of the relevant employees are void if the sole or principal reason for the change is the transfer or itself or a reason connected to it
- Protection against dismissal: the relevant employees receive enhanced protection against dismissal
- Obligation to inform and consult: both Business A and Business B have a duty to inform and consult with recognised Trade Unions or elected employee representatives
- Obligation to provide information on employees: Business A must provide Business B with certain information regarding the relevant employees being transferred within a certain time frame
What should a business do to safeguard itself?
Business A must provide sufficient information to Business B to allow Business B to analyse what liabilities it is taking on in the relevant transfer. Business B needs this information to allow it to undertake due diligence on the relevant transfer and to allow it to analyse what action it should take regarding the employees that may be being transferred over.
What are the potential consequences of getting the law wrong?
If either business fails to comply with the Regulations then it can result in serious legal trouble – dismissing employees without a good reason (known as an ETO reason) can result in a claim for automatic unfair dismissal (where the relevant employees don’t require the period of continuous service that they would otherwise be required to have to enforce their rights). If you are thinking of offering a compromise agreement solicitors can help you. Businesses that think that TUPE may apply should consult an expert employment law solicitor if they are unsure as to their obligations.
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