TUPE rules & process guide

The Transfer of Undertakings (Protection of Employment) Regulations 2006, otherwise known as TUPE, first came into force in 1981 with the purpose of protecting employees if their employment changed hands. Under the regulations, all employees’ rights – and associated liabilities – move with the employee from the old employer to the new one. The regulations were overhauled in 2006 with subsequent amendments being made in 2014.

As TUPE is very much about the protection of employees, it is extremely important for employers to know how to protect their own positions too.

This guide to the TUPE regulations will help employers to understand their rights under the regulations.

Legal implications of TUPE

A TUPE transfer can occur when an organisation or part of it is transferred from one employer to another, or when a service is transferred from one provider to another, for example when a service is outsourced. It does not matter what size the organisation is that is being transferred: TUPE will still apply if the conditions are met.

As TUPE covers such a broad range of business transactions, an employer needs to know when TUPE will apply, what it means for them as an employer, what their obligations are under the regulations and what the consequences are of non-compliance.

TUPE applies when there is a “relevant transfer”: a “transfer of an economic entity which retains its identity”. In assessing whether a relevant transfer has taken place, a court will consider various factors including what the type of undertaking is that is being transferred, whether any tangible and non-tangible assets are being transferred, whether the majority of employees are transferred to the new employer and how similar the activities carried out by the businesses are, before and after the transfer.

If a relevant transfer has taken place, employees employed in the undertaking to be transferred will have their employment transferred to the new employer. TUPE states that “all the transferor’s rights, powers, duties and liabilities under or in connection with the transferring employees’ contracts of employment are transferred to the transferee”.

Which employees should transfer is also a question that has been developed under case law: the “wholly or mainly assigned” test establishes which employees should transfer to the new undertaking. This is usually easily identifiable and is merely a question of a substantial degree of assignment – the time spent by an employee on the undertaking and the activities associated with it. Employees on maternity leave or long-term sick leave would transfer as well as employees on secondment, if the part of the organisation they work for and are seconded to is to be transferred.

Employees that are deemed to be part of the transfer have the right to transfer to their new employer on the same conditions of employment and with the same rights and liabilities. Effectively, it is as if an employee’s contract of employment has always been with the new employer. This includes the rights an employee has under their employment contract, such as pay, holiday entitlement and bonus schemes (occupational pensions do not transfer), as well as their statutory rights, such as continuity of employment, which is very important for redundancy claims.

An employee maintains the right to bring claims against their employer for unfair dismissal, redundancy, personal injury, and unpaid wages. An employee can refuse to transfer, but they risk losing important rights if they do so. If they resign before the transfer, they will resign from the existing employer and will lose the continuity of employment they would be entitled to if they had agreed to transfer, as well as the right to a redundancy payment.

Whether TUPE applies can often be a complex issue for which specialist advice should be sought.

TUPE rules employers have to follow

Given the fact that an employee is transferred on the existing terms of employment and with the same rights, it is crucial that the new employer knows as much information as possible about all the employees they are to inherit when taking over the business. They will want to protect their position as far as possible with regard to any liabilities that come with an employee.

Employers involved in a transfer have a duty to inform and consult with staff on all measures to be taken and any subsequent changes to their employment, ensuring they give sufficient notice in doing so. There is no set notice for such consultation, but it should be in “good time” before the transfer takes place and the larger the business to be transferred and the more staff that are involved, the longer this timetable or consultation should be. The incoming employer has a duty to cooperate and provide the outgoing employer with all the information it requires to be able to fulfil its duty to inform and consult. Any failure to do so can result in a complaint being made by the affected employee to the Employment Tribunal.

In addition, the outgoing employer has a duty to give the incoming employer all relevant and up-to-date information for all employees affected by the transfer. This includes details such as age and identity, particulars of employment and disciplinary records, as well as all rights and liabilities associated with the employee. All this information should be given not less than 28 days before the transfer, but in practice, it will be given well before this.

How long do TUPE rules last?

The rights afforded to employees under the TUPE regulations last indefinitely. There is no time limit here. If a change to an employee’s contract of employment is because of the transfer alone, it will not be allowed, even if it occurs years after the transfer has taken place. Of course, it may be more difficult for an employee to prove that a change was due to the transfer alone if it does occur a significant time later.

What is the TUPE process?

It is always advisable to follow a clear process when carrying out a TUPE transfer, to ensure the transfer goes as smoothly as possible; this is especially important in more complex transactions. There are four key stages of the TUPE process.

Stage 1: Before committing to the transfer

An employer considering taking over a business should consider all the advantages and disadvantages of doing so at an early stage. They should ask themselves important questions such as whether the benefits outweigh the risks, the total cost of taking on the business and all the implications TUPE will bring, including the costs involved of paying two sets of staff or making redundancies.

Employers should gather as much information as they can about the business and take early advice on the possible issues arising from a takeover. They also need to weigh up whether it’s beneficial to keep the employees informed of any possible transfer at such an early stage in the process or wait until a transfer has been decided upon.

Stage 2: Preparing for the transfer

Once a transfer has been agreed, the incoming and outgoing employers should meet to discuss the way forward, particularly whether TUPE will apply to the transfer and if so, to which employees. It is always advisable to invest as much time as possible in due diligence at this stage to ensure there are no nasty surprises on the date of the transfer itself. Preparation is key. It is good practice to appoint a specific person to manage the transfer. Representatives for the employees concerned should be selected, and these representatives should be continuously updated on issues relating to the transfer.

The outgoing employer should provide the incoming employer with accurate and current employee liability information and all other due diligence at least 28 days before the transfer. Upon receipt of this information, the incoming employer must consult with the affected employees and inform them of the measures they intend to take after the transfer as well as provide the outgoing employer with all relevant information about the transfer.

Stage 3: The transfer

The day of the transfer should be about welcoming new staff, checking existing staff are successfully integrated and ensuring the general company morale is kept up. It is always a stressful time, but an incoming employer can manage employee expectations by being prepared and mindful of all employees.

An outgoing employer needs to ensure that the company reorganisation has been carried out successfully post transfer and that the remaining staff are happy and have enough work to do.

Stage 4: After the transfer

Employers need to engage regularly with the employees after the transfer to ensure they are settling well. Employees’ suggestions should be listened to, and regular team meetings should be held to help them adjust to the new situation. Any required redundancy consultations and dismissal processes should be initiated at this stage if they have not already been so. If redundancies are required, the employer should continue to inform and consult with the employees and their representatives.

Risks to avoid

Any dismissal of an employee will be deemed unfair if the sole reason for the dismissal is the transfer. However, it may not be deemed unfair if the reason is economical, technical, or organisational (an “ETO” reason), requiring a change in the company workforce. This defence is narrow in scope though and hard for an employer to establish.

Likewise, an employer is also prevented from making any changes to an employee’s employment contract if the reason for the change is solely the transfer itself, as the employee has transferred under TUPE under the same conditions of employment. However, again, if the reason for the change is an ETO reason, or the contract itself stipulates that a change can be made, it may be upheld as a valid change.

A failure by an employer to inform and consult with employees under TUPE can result in a successful claim by the employee to the Employment Tribunal. The Tribunal can award any compensation it considers just and equitable up to a maximum of 13 weeks’ pay per employee, taking into account the seriousness of the employer’s breach of the regulations. This liability may be joint and several between the incoming and outgoing employers.

A failure of the outgoing employer to provide the incoming employer with requisite employment liability information can result in the Tribunal awarding the incoming employer with compensation of at least £500 per employee, depending on the losses suffered.

In a bid to protect their positions, the outgoing and incoming employers can agree to divide up their TUPE liabilities by way of contractual indemnities.

In an insolvency situation, the effects of TUPE are relaxed. Where an outgoing employer is insolvent, the liability for notice and redundancy will not transfer to the incoming employer. On occasion, the terms of an employee’s employment contract can also be changed without the need for an ETO reason, if agreed. This is to encourage takeovers of failing companies and protect the employment of the existing employees. This is more likely if the liabilities which an incoming employer will take on are not so onerous.

The importance of TUPE should not be underestimated. If in doubt, employers – and indeed employees – should always seek legal advice.

TUPE rules FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.