When does TUPE apply to a change in business ownership?
We advise lots of businesses in relation to TUPE transfers which can happen at the time of a sale of a business, or a change in the provision of a service.
Not following the right TUPE process when taking over a business means that employees can bring a claim in an employment tribunal and seek compensation. Understanding what is TUPE in employment law is essential.
This will often rear its head when an employee is bringing a claim for something else, for example, if the new business owner tries to alter the terms in employment contracts after the transfer.
What is a TUPE Transfer?
Transfer of Undertakings (Protection of Employment) Regulations 2006 is the relevant law.
TUPE applies when there is a “relevant transfer”. This basically means:
- When there is a transfer of a business or undertaking
- When there is a transfer of part of a business or undertaking
- Where there is a transfer of any economic entity that retains its identity (a business transfer)
- Reassignment of a contract or bringing work ‘in house’ (this is called a ‘Service Provision Change’)
It doesn’t need to be a formal legal transfer, the identity of the employer just needs to have changed and there needs to be 3 elements for there to be a transfer:
- There must be an economic entity
- This economic entity must be transferred
- The economic entity must retain its identity
The TUPE transfer regulations protect employees when a business or service changes hands, to ensure they enjoy the same contractual rights as before, and they have continuity of service.
Common problem areas around TUPE Transfers in employment law
1. Employers (transferee AND transferor) do not notify and consult affected employees of the transfer
There is an obligation to inform and consult with the affected employees (namely their employee representatives and union representatives if the business is unionised).
To effectively inform the employees this needs to be a letter addressed to them in plenty of time, setting out the proposed transfer and how it will affect them (even the small details need to be identified, e.g. administrative changes such as payroll provider).
The obligation to consult only arises if the new employer will be changing anything (known as ‘taking measures’) (regulation 13, TUPE). If a consultation is needed, if there are more then 10 employees, representatives will need to be selected to collate any concerns and for the consultation to be held with.
If either the transferee or transferor fails to fulfil their obligation to inform and consult then they may be jointly and severally liable for compensation! (Regulation 15, TUPE) Open dialogue about what has been communicated to the employees is really important.
2. Employers try to impose their own contracts or change the employee’s terms and conditions after the transfer
What if an outgoing employer did not have written contracts? Often, transferees say to us ‘the previous owner didn’t have any contracts so we have handed out new ones’. The new contracts often contain new working patterns, hours and policies to adhere to.
Just because no written contracts were in place does not mean they can implement their own with different terms or unilaterally change the contractual terms. Any variation where the reason for varying it which is due to the transfer will be void unless it benefits the employees.
In forcing new employment contracts post a TUPE transfer on employees or by unilaterally varying their working conditions to their detriment (eg cutting their hours) you can be liable for repudiatory breach meaning the employee can resign and claim unfair constructive dismissal when they have the required service. In these circumstances, a resignation would be deemed to actually be a dismissal! (regulations 4(11 and 4(9) TUPE)
It’s for an economic, technological or organisational reason (ETO reason) which entails a change in the workforce. This is not in the regulations so is subject to interpretation from the tribunals.
For example, an economic reason would be to increase the profitability of the transferee’s business – this might be a justification to cut hours where overstaffed. However, these changes must still be made in agreement with the employee and can’t be forced upon them.
Ultimately – you need to seek legal advice on making changes.
3. Employers do not honour continuity of service after a TUPE transfer
Transferees often say to us ‘well they’ve only been with me for 3 weeks’, however, the employee has actually worked for the transferor for well over 2 years.
Actual or potential claims which require continuity of service can be brought against the transferee even though the issue occurred before the transfer took place. That’s why employee liability information is so important!
The employee’s start date is the day they started with the previous employer, so if you plan to implement an incremental holiday scheme, for example, they won’t need to accrue separate service as your employee to earn the entitlement.
4. Employers dismiss those that they are not happy with after a TUPE transfer
Dismissing employees by reason connected to the transfer is automatically unfair (however unlike other cases of automatically unfair dismissal, in TUPE cases there is a 2-year qualifying period!) (Regulation 7(1))
There is only one defence to this; that the dismissal was for an ETO reason. Even when this can be established, the employer will still need to have followed a fair procedure (in line with the ACAS statutory Code of Practice on grievance and dismissals).
5. Not fulfilling the obligation to provide employee liability information
Employee liability information must be provided by the outgoing employer to the new employer. It is information on the transferee’s rights, powers, duties and liabilities in relation to contracts of employment. It must include all information on:
- The ages of all employees
- All information in their contracts of employment (written or verbal)
- Any formal disciplinary or grievance action taken in the previous 2 years
- Details of any legal action (actual or potential)
Employee Liability information is absolutely crucial in a transfer as the new employer after a TUPE transfer completely steps into the shoes of the transferor in terms of liabilities. The transferee may make a claim where this has not been provided (Regulation 12 TUPE).
As you can see, the law around the transfer of employees upon a change of business ownership or service provision change is complex! If you employ people and you are either leaving or taking over a business, take legal advice as early as you can.
How can our employment lawyers and HR advisors help you?
We can advise you on the employment law obligations around a TUPE transfer, prepare all letters and contracts. Our expert HR advisors can come and conduct consultation meetings with your staff if you need this. You may want to read about our interim HR services.