A transfer of undertakings occurs, broadly speaking, in one of two situations – either where a business or part of a business transfers, or where there is a service provision change.
The law on this area is regulated by the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE). TUPE came into force in April 2006, replacing the previous 1981 TUPE Regulations.
TUPE introduced three main concepts into UK law, namely:
- Employees automatically transferring from the transferor to the transferee who is required to take on all the rights, liabilities and obligations of the transferring employees.
- Protection against dismissal for a reason connected with the transfer
- A duty to inform and consult with affected employees or their duly elected representatives.
TUPE applies where there is a ‘relevant transfer’, and this covers two scenarios:
- This is a transfer of the whole or part of a business, or undertaking where an economic entity transfers and that entity retains its identity after the transfer. Broadly speaking, this means a collection of resources (i.e. assets and people) which pursue a specific economic objective being transferred from one business to another and performing the same, or a similar, objective.
- Where there is a service provision change. Typically this means an initial outsourcing of services, a subsequent outsourcing, perhaps after a re-tendering process, or an in-sourcing of services.
Where a business moves to a new owner in one of the above situations, TUPE operates to protect the rights of those employees transferred so that they are on the same terms and conditions of employment, including continuous employment, after the transfer as they were before the transfer.
Generally, TUPE does not apply to a transfer of shares.
Automatic Transfer
Where there is a relevant transfer, the contracts of those employees employed by the transferee and assigned to the particular organised grouping of resources or employees automatically transfer to the transferee on their existing terms except for certain benefits under occupational pension schemes. This not only applies to employees employed before the transfer but also those that were dismissed because of the transfer, unless it was a permissible economic, technical or organisational (ETO) reason.
The ‘new employer’ steps into the shoes of the ‘old employer’ in terms of all rights obligations duties of the old employer to the employees.
If an employee objects to being transferred, then his contract is deemed to come to an end by operation of law. It is not treated as a dismissal in the eyes of the law. This will not apply, however, if their objection and resignation is a result of certain failures to comply with TUPE requirements.
Changing Employment Terms
The new employer has very limited rights to change the terms and conditions of employment of the transferred employees.
If the reason for the variation or amendment is an ETO or if the reason for the variation is the transfer, but the contract of employment allows the employer to make the variation, then it will be valid.
Protection against Dismissal
TUPE gives employees greater protection against dismissal above and beyond general unfair dismissal rules, subject to satisfying the qualifying period of service requirement. A dismissal will be automatically unfair if the sole or principal reason for the dismissal is the transfer, unless there is an ETO reason, which could render the dismissal fair.
Inform and Consult
The new and the old employer are under a duty to inform and if appropriate, consult with recognised union representatives or elected employee representatives in relation to any employees who may be affected by the transfer. If any measures are envisaged by the transfer then the duty to consult is triggered.
If the parties fail to comply with this obligation, they could be liable to pay compensation of up to 13 weeks’ pay and the employers could be jointly and severally liable for this.
Among other things the 2014 amendment regulations enable the transferee to consult with representatives of affected employees, including transferring employees, before the transfer, as long as the transferor has been notified in advance and agrees.
Employee Liability Information
The transferor is obliged to provide the transferee with specific information about the transferring employees not less than 28 days before the transfer, and if he fails to do so, there are remedies available to the transferee.
For more information about TUPE, the Regulations and how they apply in practice, please call Amanda Badley on 0116 402 9019 or email on amanda.badley@bhwsolicitors.com.