If your employer is transferring ownership of the business to a new employer, as an employee, you are eligible for certain rights. These rights include the continuation of your employment contract and are detailed under TUPE regulations.
TUPE (Transfer of Undertakings (Protection of Employment) Regulations) (SI 2006/246) protects employees of the business when ownership of it is transferred. It transfers the legal liability associated with the employers from the old employer to the new one. TUPE implements the EU’s Acquired Rights Directive and the European Union Transfer of Undertakings Directive. The Regulations were passed initially in 1981, replacing the old 1981 regulations (SI 1981/1794). They were re-examined in 2006 and further amended in 2014 (through the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014, SI 2014/16, also known as CRATUPEAR) and later in 2018.
When do the regulations apply?
TUPE regulations are enforced when employers buy or sell a part of or the entirety of a business, outsource or make a service provision change (involving initial outsourcing of a service or a subsequent transfer or bringing the service back in-house), grant or take over a lease or license of premises and begin to operate the business from those premises.
TUPE applies only if the part of the organization that is transferring is in the UK. The size of the organization does not matter but the transfer of the business must be a relevant one. The 2006 Regulations clarified the requirements to be a relevant transfer as one that is a ‘transfer of an economic entity which retains its identity.
To further determine the identity of the entity, courts consider the type of undertaking that is being transferred and whether any tangible assets (buildings, moveable property, etc) or intangible assets are being transferred and their value, whether the majority of the employees are taken on by the new employer and the degree of similarity between the activities carried on before and after the transfer.
During transfers merely through the sale of a company’s shares (a share sale), as the original employer remains the same legal entity, all contractual obligations stay the same and there is no relevant transfer in the business.
There is a high level of uncertainty regarding whether and the specifics of the application of TUPE. Therefore, it is common to seek specialist advice, if possible. Additionally, due to the confusion, it is also common for this area to be contractually regulated.
What do the regulations do?
The regulations’ main aims are to ensure that, during the transfer, employment is protected and continued. Employees are not to be dismissed, the terms and conditions of their contracts are not to be changed, more specifically, worsened and if there are any affected employees, they are to be informed and consulted through representatives prior to the transfer of the business.
Previous to 2014, it was prohibited for the new to make any changes to the terms and conditions of employment of the transferred employees if the principal reason for the variation is the transfer itself.
However, TUPE 2014, included certain amendments that made it easier for the new employers to effect changes to the existing terms and conditions where the contract allows for a change (application of a mobility provision), or where employer and employee agree to the change only if the sole or principal reason for the variation is an ETO (economic, technical or organizational) reason under the fair dismissal provisions of the Employment Rights Act 1996 (s.98(2)(c)).
If based on such a reason, an employee is made redundant, they must receive a compensation payment if they have been an employee for more than two years under s.135 ERA 1996.
Post-2014, the terms, and conditions of collective agreements may be renegotiated after one year, providing that they are not overall less favorable to the employee.
Employees of the original company are entitled to have their employment transferred, along with the existing terms and conditions. They may seek to refuse and object to their transfer but might lose some valuable legal rights if they do object. Their other statutory employment rights remain, such as the right to bring a claim against their employer (for unfair dismissal, redundancy or discrimination or unpaid wages).
The duty of carrying out these obligations is placed on both the old and new companies. It is therefore imperative since the new employer is taking over the entirety of the employment contract, that they are aware of all that they will be liable for. The previous employer is thus required to provide the new one with written details of all employee rights and liabilities that accompany the transfer.
Case law in the UK has developed a (wholly or mainly) assignment test to assess the process of the transfer. The test includes factors that help identify which employees should transfer. It looks for a substantial degree of assignment by assessing the time spent on the transferring undertaking.
The definition of employees that are protected under TUPE is all those with worker status.
The obligations detailed in the provision are relieved if there is an ‘economic, technical or organizational’ (ETO) reason for the termination of employment (Regulation 7(1)(b)), or alteration to employees’ terms and conditions (Regulation 4(4)(b)). Any dismissals following the transfer where the reason is the transfer itself will be deemed unfair unless they are based on an ETO reason (economical, technical, or organizational reason).
Types of Transfers that TUPE applies to
TUPE regulations can apply to both the public and private sectors. It also applies to transfers from the public sector into the private sector or from one public authority to another. However, it does not apply to transfers within the public sector where the employer does not change. For example, transfers within the Civil Service.
There are two types of transfers protected under TUPE are – business transfers and service provision changes.
These are when a business or part of a business moves from one employer to another. This includes mergers of businesses. The employer must change to gain protection under TUPE and an automatic transfer happens.
Service provision changes
These are where contracts are taken over because of outsourcing (when a service provided in-house is taken over by a contractor), insourcing (when a contract ends and the work is transferred in-house), or retendering (when a contract ends and is taken over by a new contractor). The simple supply of goods or a short-term task is not protected under TUPE.
TUPE requirements that an employer must comply with
Inform and consult staff
Employers of a business transfer must inform the appropriate representatives of the affected employees of the transfer and of any measures proposed. This information must be followed by a consultation with employees or their representatives of the proposed measures. The new employer must also provide the original employer with information on these proposed measures such that the old employer can comply with their duty to inform and consult the employees.
In cases where employers fail to inform and consult, a complaint can be made to the Employment Tribunal. If they are successful, the Tribunal will award whatever compensation they consider just and equitable regarding the seriousness of the employer’s mistake. This compensation is up to a maximum of 13 weeks’ pay for each affected employee.
Employees being transferred with the company must be informed that the transfer is happening and they must be given a copy of the ‘measures letter’ explaining any changes the new employer is planning to make. There is, however, no set length of time for this notice. Employees of a company to which individuals are being transferred too, have some rights. They must be aware that the transfer is happening and be consulted regarding any changes they would like to the working practices.
– The outgoing employer must provide employee liability information to the incoming employer
The outgoing employer has a duty to provide the incoming employer with specific details of the transferring employees including but not limited to their identity, age, and disciplinary and grievance records. This information must not be provided less than 28 days before the transfer.
Here too, in cases where the old employers fail to comply with this duty, the incoming employer can apply to the Tribunal for compensation which will be assessed with regard to the losses suffered. A minimum of £500 must be awarded to each employee if the claim is successful.
TUPE could still apply if one works abroad but their employer is based in the UK or the purpose of the transfer is to move the organization, or part of it, abroad. However, this area is quite complex so one might want to get legal advice.
Rights of employee representatives
The employer must consult with trade union or employee representatives about the transfer and who it will affect. If there are no existing trade union or employee representatives, the old employer should arrange an election to elect employee representatives that they may consult with. In smaller organizations with less than 10 employees, employers must consult with employees directly unless there is a recognized trade union.
Employees may be able to make a claim to an employment tribunal if there was no recognized trade union and no employee representatives elected, or in smaller organizations, if they were not properly consulted with directly. Either the old or new employer could be liable to pay the compensation, or it could be split between them.
During the process of the transfer, these employee representatives have the right to a reasonable amount of paid time off for representation duties and reasonable access to affected employees and workplace facilities. They may also be given paid time off for TUPE training and they cannot be dismissed or treated unfairly because they’re a trade union or employee representative.
If employees do not want to transfer
Employees must inform their current employer in writing if they do not want to transfer. This will be treated as a resignation. If the transfer occurs before the notice period ends, the employee will not be paid for the remainder of their notice period.
Alternatively, the current employer may decide to offer an alternative job. If they do so and it is accepted, the length of service of continuous employment will continue if this new job begins before the date of the transfer. Your employer will tell the new employer you will no longer be transferring.
Transferring a pension
Since the start date of one’s employment remains the same post transfer of employment, the pension that is built up to the date of the transfer is protected. Additionally, whether or not the pension will transfer to the new employer will depend on if one has a personal pension, that they arranged themselves or a workplace pension, that was arranged by the employer.
Personal pensions automatically transfer to the new employer with them paying the same amount into the pension as previously done by the old employer. Workplace pensions are exempt from TUPE so employers are not expected to continue the same payments but they must provide a reasonable alternative scheme and match employee’s contributions up to a maximum of 6%.
If one has been made redundant after a TUPE transfer, the new employer is responsible for any redundancy pay. This redundancy pay must be based on the length of service and includes the time worked for the old employer before the transfer. This transfer might be the reason for employees to be eligible for enhanced redundancy pay.
The rules of redundancy stay the same and employees are eligible to consult on ways to avoid or reduce the redundancies if more than 20 people are being made in one establishment within a period of 90 days. These must commence at least 30 days before the first redundancy is made if there are greater than 20 redundancies.
Rights of employees of insolvent companies under TUPE regulations
TUPE protects new employers when the old one is insolvent. Here, liability for redundancy, notice, and some other payments to employees will not transfer to the incoming employer. If the trade union or employee representatives are in agreement with the employer, the limit on the terms and conditions of employment that can be changed (ETO) will be removed.
Employee rights will depend on the type of insolvency and whether it happened before or after the TUPE transfer. If the employer is insolvent and the organization is being rescued and transferred or taken over by a new owner (non-terminal insolvency), employee rights and existing terms and conditions will be protected under TUPE.
However, if the organization is closing down, employees will not be protected under TUPE and an insolvency practitioner will be appointed to deal with the situation. The new employer or the insolvency practitioner could make changes to employee employment terms and conditions if doing so would help protect job status and keep the business afloat but such changes must be discussed with employee representatives.
If the TUPE transfer occurred before the old employer declared insolvency, the new employer is responsible for any money owed (wages and holiday pay). If the transfer occurred after the old employer became insolvent, employees may claim some or all of the money owed to them from the Redundancy Payment Service.
In cases of terminal insolvency, where the organization itself goes into ‘liquidation’ and closes down the organization or becomes bankrupt before potential TUPE transfer, it is likely that employees would be made redundant.
Transfers by share take-over, transfer of assets only, transfers of a contract to provide goods or services without the transfer of a business or part of a business, and the transfers of undertakings situated outside the United Kingdom are not protected under TUPE regulations.
TUPE in the time of coronavirus
Most employers in the UK, whose businesses are negatively affected by the COVID-19 pandemic, who have acquired new employees through a transfer, have the ability to agree to put the newly transferred employees on furlough. HMRC guidance confirms this provided that they satisfy the eligibility requirements regarding the dates of transfer specifically.
The TUPE regulations aim to protect the interests of employees of organizations and build immunity against the transfer of organizations. Various different duties are owed by employers towards their employees and employees themselves have independent rights. Although simplified above the regulations are quite convoluted so it is recommended to get expert legal advice in more complicated cases.