Legal Article - Employment Law

The Transfer of Undertakings: Protection of Employment Regulations


The Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) apply when;

a) an undertaking (whether or not a business or part of a business) which is an economic entity capable of operating as a going concern and which retains its identity is transferred from one employer to another.

The new employer (transferee) is required to accept all the employees engaged in the undertaking being transferred (transferor).

b) A business engages a contractor to carry out work on its behalf, or assigns work in house previously done by a contractor. This is known as a service provisions change.

All the terms and conditions of the employees contract of employment are transferred (except pensions) and also most liabilities associated with these contracts (and associated collective agreements) transfer as well, including outstanding claims for sex discrimination.

The Process of TUPE Transfer

The Process of TUPE Transfer

“Undertaking” means any distinct economic unit, which has a degree of autonomy. It can include an entire company, a department, or even a single employee who performs a specific task.

An Economic Entity relates to an organised group of resources such as premises and equipment or employees and assets that pursues an economic activity.
The Courts have identified a number of considerations relevant to determining whether a business has been transferred. The crucial point is whether “an economic entity” has been transferred and remains in existence performing the same or similar activities. Several factors have been identified that clarify when this happens, although an overall assessment has to be made in any one transfer case.

The factors are:
• Whether or not the tangible assets of the business (e.g. buildings, equipment and moveable property) have been transferred

• Whether the majority of employees are taken over by the new employer (transferee)

• Whether the customers of the former business are transferred

• The degree of similarity between the activities carried on before and after the transfer, and the length of any period during which those activities were suspended

• Whether intangible assets (e.g. goodwill, know - how) have been transferred.

A transfer can still occur when one or more of the above do not occur, although normally there must be at least a transfer of assets or employees.

Some examples of when TUPE has occurred in practice are:

• when there is a change in the person responsible for employing people in the entity even if it arises without any arrangement relating to the business activities as such

• Change of a lease, franchise, licences and concessions (e.g. a lease of a pub or petrol forecourt; transfer of a motor vehicle dealership from one dealer to another provided the contract territory remains the same or similar. In one case a company held the franchise to run a car hire business under the name of an international car hire firm in a particular town.

The company went into administrative receivership and the franchise was transferred back to the international company. This company then transferred the franchise to a third company who operated it from different premises, with different cars, but retaining the international company’s name. All the employees of the first company went to work for the third one the next day
• Where an undertaking enters into a contract with another undertaking to provide a service which had previously been managed directly (e.g. contracting out car valeting jobs, canteen facilities or transport operations) This is known as a Service Provision Change.

• Change from one contractor to another

• taking a service provided by a contractor “in-house”.

On the other hand, a transfer does not take place when

• Where only physical assets are transferred (e.g. if the vendor sells a plot of land with buildings, which the purchaser uses for a purpose quite different to that of the vendor

• Where a company makes workers and materials available to another company for completion of some short-term work (e.g. building subcontractor assigned the completion of some work to another subcontractor).

• Where a company buys in contractors for a one off service

• If shares are sold to new shareholders as the employer remains the same. Known as “transfer by share takeover”.

• The business ID or organisation structure changes dramatically

 

What do the Regulations require?

What do the Regulations require?

The new employer (transferee) takes over liability in respect of the contracts of employment of all employees who were employed by the previous employer (transferor), or those employed in the part of the company transferred (including “assigned” employees), immediately before the transfer and of any persons who would have been so employed if they had not been unfairly dismissed for a reason connected with the transfer.

Thus, TUPE does not apply to
 
• Those who do not work in the undertaking (or part)

• Employees lawfully transferred out of the undertaking (or part) prior to the transfer

• The self employed.

The transferee is bound by all the terms and conditions of the contracts of employment of the employees transferred including associated liabilities (e.g. accrued holiday pay, unfair dismissal compensation, liability to pay damages for industrial injury and redundancy pay i.e. if the transferor makes employees redundant because the transferee says it does not want to employ them, the transferee would be responsible for the redundancy payments).

This means that even if prior to the transfer the employees agree with the transferee changes to their terms and conditions of employment when the transfer takes place, they can change their minds immediately after the transfer takes effect and insist on retaining their original terms and conditions of employment.

The only rights and obligations which do not automatically go across are

• Liability for pre-transfer dismissals entirely unconnected with the transfer (e.g. dismissal for misconduct prior to the transfer being completed)

• Criminal liabilities

• Occupational pension rights which relate to benefits for old age, invalidity or survivors.

Thus the exclusions would not apply to provisions in pension schemes dealing with “non-pension matters” such as redundancy payments, or an employer’s obligation to contribute to a personal pension. It is probable that the transferee may have to provide “broadly comparable terms”.

The new employer also takes over any collective agreement made on behalf of the employees, which is in force immediately before the transfer and the recognition of any independent trade union.

However, the new employer will be in exactly the same position as the existing employer in deciding whether they wish to continue to operate such a collective agreement or trade union will automatically lapse if the transferred business does not continue to have an identity distinct from the remainder of the new employer’s business.

Employees in the old employer (transferor) can object to their contracts of employment automatically passing over to the new employer. This will be treated as a resignation and the employee will have no redundancy or unfair dismissal rights.

If this resignation is linked in any way to anything other than the mere change of the identity of the employer, then the employee may be able to claim constructive unfair dismissal.

Unfair Dismissal Rights

Unfair Dismissal Rights

Under new regulations, employers are obligated to inform and consult Trade Union representatives of the employees affected by the transfer. The employee’s continuity of employment will remain intact, thus maintaining any relevant unfair dismissal rights.

Any dismissals prior to transfer will become the liability of both the new and existing employers. The employee would have been part of the undertaking had they not been unfairly dismissed regardless of whether the dismissal was connected to the transfer or not.

If an employee refuses to transfer, they will resign of their own accord and not have a claim to unfair dismissal as no dismissal has occurred.
 
Any dismissals, whether by the transferee or transferor, related to the transfer are automatically unfair, unless the dismissal is necessary for an economic, technical or organisational reason entailing changes to the work force (the ETO defence).

Dismissals are automatically unfair where

• The transferor dismisses in order to facilitate the transfer rather than because the state of the business requires dismissals

• The transferee “makes” the transferor dismiss employees prior to the transfer, whether for redundancy or otherwise (e.g. the new employer says they will charge less for providing a service if the old employer agrees to dismiss the existing work force

• The transferee refuses to honour fundamental terms of the contract of employment that transfers

• The transferee after the transfer tries to change the fundamental terms of the contracts without the employees consent.

The ETO defence has been interpreted narrowly by the courts, but may be fair where

• Demand for an employees’ output has fallen to such an extent that profitability could not be sustained unless staff are made redundant (an economic reason)

• An employer wishes to use new technology and the employees of the previous employer do not have the necessary skills (technical reason)

• The new employer operates at a different location from the previous employer and it is not practical to relocate the staff (organisational reason).

In such cases, for the dismissal to be fair the employer must apply normal fair dismissal rules i.e. act reasonably in all the circumstances. In such situations, the employee concerned may be eligible for a redundancy payment.

The old employer will be liable for redundancy payments if the redundancy takes effect before the transfer. If the redundancy takes effect after the transfer, the new employer will be liable for redundancy payments including payments in respect of any continuous service with the previous employer.

If they are not subsequently renegotiated, those payments must be on the same contractual terms as those in force before the transfer.

Information and Consultation Requirements

Information and Consultation Requirements

Both the old and the new employer must inform and consult elected representatives of the workforce about the proposed transfer and any measures, which will affect the employees they represent. The representatives may be elected ad hoc when needed, or can be elected on a permanent basis.

Where staff is covered by recognition agreements with independent trade unions, the employer may choose to consult either the union or non-union elected representatives. How representatives are elected is entirely a matter for the employer and employees concerned.

Once elected, the representatives must be allowed access to the employees affected and must be provided with appropriate accommodation and other facilities. The representatives also have the right to reasonable time off with pay during working hours to fulfil their duties.


The information must be provided sufficiently in advance of the transfer to give adequate time for consultation to take place. The information to be provided must include

• Notification that the transfer will take place, its approximate timing and the reasons

• The legal, economic and social implications of the transfer for the affected employees

• Whether the employer intends to take any action which will affect the employees and, if so, what

• Where the previous employer is required to give the information, the activities, which the prospective new employer processes to carry out.

The consultation must take place with a view to reaching agreement. During these consultations the employer must consider and respond to any representations made by the representatives and if they reject these representations, they must state the reason.

Failure to comply with these requirements means the representatives can complain to an industrial tribunal. The affected employees can also complain to an industrial tribunal when an employer has neither consulted with elected representatives nor taken steps to arrange for the election of representatives.

Compensation of unto four weeks’ pay for each affected employee may be awarded.

 

TUPE Transfers and Employee Rights

TUPE Transfers and Employee Rights

Where a company is contemplating

• A merger

• Transfer of assets to a new owner

• Transfer of employees to a contractor

• Change of contractors/franchise/lease

• contracting out services or tendering for work

• putting work out to tender where the contractor is likely to offer work to existing employers

The Employment Affairs, Legal or Helpline departments should be consulted at the earliest possible moment.

A timetable should be agreed by the parties to a transfer that provides for timely and adequate consultation with elected representatives. Such consultation is more effective if machinery for consultation is already in place (e.g. consultative committee or works council).
 
The purchase price and other terms of acquisition should reflect the requirements and effects of the TUPE Regulations. For example, the transferee may wish to insert a suitable worded indemnity as follows:

“The Vendor shall discharge and indemnify the Purchaser against all liabilities, claims, costs and demands arising from any dismissal by the Vendor of his/her employees whether such demands be for redundancy, unfair dismissal or otherwise.”

Other decisions, which may be embodied in indemnities, are

• Who is to pay notice pay or wrongful dismissal damages?

• How long will the Vendor’s agreement to indemnify the purchaser continue after the transfer?

• Who is responsible for salaries, other benefits, expenses, NT contributions up to the completion date? This is particularly important when the purchaser begins to assume control over the business before completion of the transfer

The transferee should obtain from the transferor prior to completion of the transfer information on

• The employees (ages, salaries, notice entitlement, benefits, numbers employed etc.)

• Details of unions involved, if any
• Health and safety policies

• Collective agreements

• Outstanding employment related litigation (e.g. sex discrimination claims, employment law claims, personal injury claims).

Published: 27 May 2011

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