Understanding TUPE: a guide for employers

TUPE (The Transfer of Undertakings Protection of Employment) Regulations protect employees where there is either a business transfer or a change in service provision. 

But what are these, and what do you need to do as an employer? To help ensure you remain compliant during a business transfer or a change in service provision, we discuss the key details your business needs to know about TUPE.

When does TUPE apply?

In a nutshell, TUPE applies to a “relevant transfer”, which means:

• A transfer of a business or undertaking (or part of a business or undertaking), where there is a transfer of an economic entity which keeps its identity; and/or
• A service provision change where –

• Activities stop being carried out by a person (“a client”) and are carried out by another person on the client’s behalf (“a contractor”) (i.e. a client engages a contractor to do work for them)
• Activities stop being carried out by a contractor on a client’s behalf and are carried out by another person (“a subsequent contractor”) on the client’s behalf (i.e. a client reassigns a contract for a contractor to do work for them)
• Activities stop being carried out by a contractor or a subsequent contractor on a client’s behalf and are carried out instead by the client (i.e. bringing the activities in-house).

The business/economic entity must be situated in the UK immediately before the transfer for TUPE to apply. An economic entity is defined as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.

It’s worth noting that a share sale (on its own) will not amount to a business transfer, but there can be a business transfer between two companies within a group of companies. The supply of goods and “one-off buying-in of services” are excluded from being a service provision change, and the activities carried on after a change in service provider must be “fundamentally or essentially the same” as before.

What happens if there is a relevant transfer?

If TUPE applies, it means that the employees employed by the economic entity (“the transferor”) before the transfer, automatically transfers to the business now carrying out those activities (“the transferee”). This is unless the employee objects to the transfer.

The definition of ‘employee’ is wide and so in some cases might also protect workers. It’s worth consulting individual employment contracts.

The transferee then takes on all of the “rights, powers, duties and liabilities under or in connection with” the transferring employees. It’s worth being aware that there are special rules relating to pensions, collective agreements and union recognition. The employees keep their continuity of service; their salary and benefits arrangements; their holiday entitlements, etc. 

Is there anything that doesn’t transfer?

The main exception to the automatic transfer rule relates to old age, invalidity and survivors’ benefits under occupational pension schemes (known as the “pensions exception”). The pensions exception means that these rights do not transfer under TUPE. 

Be aware that if an employee has a contractual right to receive a percentage of their salary into their personal pension scheme, it will not fall within the pensions exception and that right would transfer.

There are other responsibilities that will still lie with the transferee, including rights to exercise share options; accrued occupational pension rights; criminal liabilities and PAYE.

What’s the consultation process?

Where TUPE applies, the employer has to inform “appropriate representatives” of certain information “long enough before the relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees”. In other words, in good time.

The obligation to consult with affected employees is on an employer who “envisages that he will take measures in relation to an affected employee, in connection with the relevant transfer, [to] consult the appropriate representatives of that employee with a view to seeking agreement to the intended measures”.

Where employers have fewer than 10 employees, they do not need to inform/consult with appropriate representatives but can consult with the affected employees directly. This is as long as there are no existing appropriate representatives, and the employer has not asked the employees to elect representatives.

What is Employee Liability Information?

The transferor must provide the transferee with specific information about the employees who are transferring. This is known as the Employee Liability Information, and must be provided at least 28 days before the transfer. Ideally, this information should be anonymised and must be processed in line with data protection laws.

What happens if an employee is dismissed (before or after the transfer)?

If the employee has the necessary period of continuous employment, a dismissal will be automatically unfair if the sole reason is the transfer. This is unless there is an “economic, technical or organisational reason” (“ETO”). However, the business would need to state the ETO reasons very clearly and there is still the potential for it to be considered unfair.

Liability for dismissals depends on when the dismissal takes place (pre or post transfer), and the reason for the dismissal.

Currently, this is as follows:

• If the reason for dismissal is the transfer itself, the transferee will be liable for both pre-transfer and post-transfer dismissals.
• If the reason for dismissal is the transfer itself, there was an ETO reason, but the dismissal was unfair under ordinary unfair dismissal rules, the transferor will be liable for pre-transfer dismissals and the transferee will be liable for post-transfer dismissals.
• If the reason for dismissal is not due to the TUPE transfer, but the dismissal was unfair under ordinary unfair dismissal rules, the transferor will be liable for pre-transfer dismissals and the transferee will be liable for post-transfer dismissals.

Wrapping up

TUPE sets out very strict rules for employers and employees when there is a business transfer or service provision change. Employers must follow these rules, and if they fail to do so there can be serious consequences.

If you’re an employer wondering how TUPE will apply to your business and employees, speak to one of the expert lawyers at LawBite.

About the author 

Kim Knox is an experienced employment lawyer, having worked with a large regional law firm for several years on a wide range of employment issues. For the last 6 years, Kim has worked as a consultant solicitor advising clients of various law firms in Devon and Somerset on employment-related issues.