TUPE Or Not TUPE? Key Issues For Businesses.

The TUPE Regulations (Transfer of Undertakings (Protection of Employment) Regulations) were brought in to protect employees of any business which changes hands and where the services provided by employees of one employer are transferred to another employer. We take a look at the key implications of TUPE such as when does TUPE apply?, provision of employee liability information, informing and consulting with staff, changes to terms and conditions, dismissals and other obligations for employers.

More often than not, there will be employment law aspects to any business reorganisation. Employees have long been protected from dismissal or detriment where there is a transfer of business or services from one organisation to another. The protection stems from the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("the Regulations").

When does TUPE apply? A "Relevant Transfer" to which the Regulations apply includes "Business Transfers" (transfer of an economic entity, situated in the UK, that retains its identity after the transfer). The definition also includes "Service Provision Changes" (e.g. contracting out, re-tendering or bringing services back "in- house").

On purchasing a business or upon providing new services, the new proprietor or service provider ("the Transferee") automatically takes over the contracts of employment of all those employed immediately before the transfer. The transferee also takes over liability to employees stemming from employment related events which occurred before the transfer, e.g. liability, for unfair dismissal.

Provision of employee liability information The Regulations contain an obligation on transferors to provide certain information to the transferee prior to the transfer regarding the employees who will transfer. This mainly relates to the identity and age of employees, written particulars of employment, details of any collective agreements, disciplinary proceedings, grievances and details of any claims brought by the employees, as well as claims that the transferor might reasonably believe that any employee may bring.

The Regulations prescribe how and when the employee liability information must be given. Employers should be aware that Employment Tribunals will interpret these provisions narrowly and businesses cannot simply hide behind the banner of "commercial sensitivity".

Where the transferor fails to provide this information or where such information is defective, the transferee can present a complaint to the Employment Tribunal within 3 months of the transfer. The compensation is set at a minimum of [pounds sterling]500 for each employee unless it would be unjust or inequitable to award this minimum payment.

Changes to terms and conditions of employment  The Regulations specify that changes to an employee's terms for a reason connected to the transfer are void unless the sole or principal reason for the change is an economic, technical or organisational reason entailing changes in the workforce (an ETO reason).

However, there is still very limited scope to allow either a transferee or transferor to vary an employee's terms and conditions of employment. The new Regulations do not permit the transferring employer to make changes simply to harmonise the terms and conditions of the transferred workers to those already in place for the transferee's existing staff. It is still a matter of "why are the changes being" made rather than "when". There is no specific period of time following the transfer after which it is safe to assume that the transfer did not impact, either directly or indirectly, on the decision to make the changes.

Furthermore, it does not matter that an employee agrees to the changes, they will still be void if they were made for a reason connected to the transfer, unless the change is for the benefit, not the detriment, of the employee. Essentially, employees can 'cherry pick' what changes suit them best. Dismissals

Dismissals where the sole or principal reason is not the transfer itself but is a reason connected with it and there is an ETO reason are potentially fair dismissals. There is still a duty on employers to act reasonably and comply with the other requirements of the general law on unfair dismissal. It is a difficult hurdle to cross to establish an ETO reason for dismissals relating to the transfer.

Peculiarly, where there is a TUPE transfer, liability for related unfair dismissal automatically passes to the transferee. This is why it is important to have properly drafted contracts for business sale/purchase and contracting out etc of services. If the transferor has indemnified the transferee against that liability, it is the transferor who will ultimately bear the cost under the terms of the agreement, even though it has no liability to the dismissed employee under the Regulations. In absence of these indemnities, the transferee will be on the hook for dismissals which took place prior to the transfer. Furthermore, an employee dismissed by the transferor a short while before the transfer will be deemed for TUPE purposes to have been an employee immediately before the transfer, if the dismissal was for a reason connected with the transfer.

Obligations to inform and consult affected employees Those employees affected by the transfer must be given certain information regarding the proposed transfer, e.g., the social, legal and economic implications of the transfer and there must be consultation with these affected employees. The information and consultation process must be conducted in a particular way and employee representatives should be elected. The transferor and transferee can be jointly and severally liable for failure to inform and consult with employees who are affected by the TUPE transfer. It will be a matter for the Tribunal to apportion compensation between the two parties and an award of up to 13 weeks' pay per employee can be made. Obvious difficulties remain depending on the financial viability of the transferor and transferee.

Insolvent businesses There is now a more relaxed approach to the application of the Regulations in certain insolvency situations with a view to allowing businesses to continue which should at least protect some jobs rather than none.

The Regulations ensure that some of the transferor's pre-existing debts to employees do not pass to the transferees, for example, statutory redundancy pay, pay in lieu of notice and holiday pay.

There are also greater powers to vary terms and conditions of employment where the variation is made with the intention of safeguarding the employment opportunities by ensuring the survival of the business post transfer. The Regulations prescribe a specific procedure for agreeing such changes. This must be followed in order for the changes to be valid.

Buyers and sellers beware Claims for breaches of the Regulations can be brought not only by employees, but also by workers, trade union officials, employee representatives and the transferee employer. Employers should remember that the common law of constructive dismissal still operates in tandem with the Regulations. TUPE is, in short, a minefield. Courts will always be minded to interpret the Regulations in favour of the employee to ensure that the 'P' ("Protection") is kept in TUPE.

If you have any questions about how TUPE may affect your business, please contact us. We'll be happy to help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Barbara Stewart 

Biggart Baillie

310 St Vincent Street

Glasgow

G2 5QR

UNITED KINGDOM

Tel: [phone]

Fax: [phone]

E-mail: [e-mail]

URL: www.biggartbaillie.co.uk

Click Here for related articles

(c) Mondaq Ltd, 2008 - Tel. [phone] - http://www.mondaq.com