When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE). This is a complicated area of law and serious penalties can apply where correct procedures are not followed.
TUPE applies to employees of businesses in the UK.
The business could have its head office in another country, but the part of the business that’s transferring ownership must be in the UK.
The size of the business doesn’t matter.
When TUPE applies:
- the employees’ jobs usually transfer over to the new company – exceptions could be if they’re made redundant or in some cases where the business is insolvent
- their employment terms and conditions transfer
- continuity of employment is maintained
When TUPE applies
There are 2 types of transfer protected under TUPE regulations:
- business transfers
- service provision changes
Transfers within the public sector aren’t usually covered by TUPE but some transfers from the public sector into the private sector are. However, public-sector employees get similar protection.
This is where a business or part of a business moves from one employer to another. This can include mergers where 2 companies close and combine to form a new one.
The identity of the employer must change, to be protected under TUPE during a business transfer.
Service provision changes
This is when:
- a service provided in-house (eg cleaning, workplace catering) is awarded to a contractor
- a contract ends and is given to a new contractor
- a contract ends and the work is transferred in-house by the former customer
Employees aren’t protected under TUPE if the contract is:
- for the supply of goods for the company’s use (eg a restaurant changing food suppliers)
- for a single event or short-term task (eg a catering company being used for a large corporate event)
Only the employees who can be clearly identified as providing the service being transferred are protected.
A courier collects and delivers for a business, but the packages are picked up or delivered by a number of different couriers on an ad hoc basis. The courier isn’t protected under TUPE.
A cleaner is employed by a company that decides to use an outside cleaning company instead. They’re likely to be protected under TUPE.
Consulting and informing
Before a transfer of ownership happens, employers must tell the trade union or employee representatives:
- that the transfer is happening, when it’s happening and why
- how the transfer will affect them
- whether there’ll be any reorganisation
- how many agency workers they’re using and what types of work they are doing
Employers can be penalised if they don’t do this.
Employers must consult employee representatives about anything to do with the transfer that would affect the employees (eg reorganisation). They should try to gain agreement about these changes.
Trade union representatives
If there’s a trade union in the workplace, the employer must inform and consult with the representatives from the union.
If there’s no trade union the employer must inform and consult other employee representatives. There might already be representatives, or new ones can be specially elected.
Employers with less than 10 employees can inform and consult directly with employees if there aren’t any appropriate representatives and the transfer will take place on 31 July 2014 or later.
Transfers of employment contracts
Under TUPE, the new employer takes over employees’ employment contracts, including:
- all the previous terms and conditions of employment
- any failures of the previous employer to observe employees’ rights (so employees could make a claim for discrimination against the new employer, even if it took place before the transfer)
- holiday entitlement
- period of continuous employment – an employee’s start date is the same as before the transfer, so continuous employment isn’t broken
- any collective agreements previously made
It’s a breach of contract if the new employer doesn’t meet the terms of the employment contract.
If an employee doesn’t want to work for the new employer
Employees can refuse to work for the new employer. This is the same as resigning – they won’t normally be able to claim unfair dismissal or redundancy pay.
Notice isn’t required. The employee simply tells the employer, or the new employer, before the transfer happens. Employment then ends at the time of transfer.
If an employee’s working conditions are significantly worse because of the transfer, they can object to the transfer, or resign and claim unfair dismissal.
Changing an employment contract
TUPE regulations mean employees shouldn’t lose their existing employment rights.
Before the transfer
If the employer knows an employee is transferring to another company, they can’t normally change the employee’s terms and conditions to make them the same as those of the new company – even if the employee agrees to the change.
After the transfer
The new employer can’t change an employee’s terms and conditions if the reason is the transfer itself.
The new employer can change an employee’s terms and conditions if the reason is an ‘economic, technical or organisational reason’ (ETO) involving changes in the workforce or workplace, such as a result of redundancies or a move from a managerial to a non-managerial position. The employee needs to agree to this change.
‘Economic’ reasons are to do with how the company is performing.
‘Technical’ reasons are to do with the equipment or processes the company uses.
‘Organisational’ reasons are to do with the structure of the company.
Employers can make changes if the employee’s existing contract allows for those changes. But the transfer itself can’t be the reason for change.
Employers can renegotiate terms and conditions in collective agreements after 1 year if the change isn’t less favourable to the employee.
Employees’ company pension rights earned up to the time of a transfer are protected, but the new employer doesn’t have to continue an identical pension.
Employment tribunal Claims
If an employee’s terms are changed or an employee is dismissed because of a TUPE transfer the employee may make a claim for unfair dismissal.