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TUPE

EM Law are experts in advising on how TUPE may impact upon a transaction and on guiding businesses through the TUPE process. Our employment and corporate lawyers are from leading law firms with extensive experience in TUPE transactions.

Background to TUPE

TUPE came into force on 6 April 2006 introducing three concepts into UK employment law:

  • The automatic transfer principle: employees transfer to the transferee who inherits all rights, liabilities and obligations in relation to them.
  • Protection against dismissal in connection with a TUPE transfer.
  • The obligation to inform and consult with representatives of the affected employees.

When does TUPE apply?

TUPE applies to a “relevant transfer”, which means either or both of the following:

  • A transfer of a business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity (a business transfer) (regulation 3(1)(a), TUPE). This involves three elements:
  • an economic entity;
  • a transfer of that economic entity; and
  • the economic entity retaining its identity following the transfer.
  • A client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work “in-house” (a service provision change) (regulation 3(1)(b), TUPE). This can, therefore, encompass an initial (or first generation) outsourcing, a subsequent (or second generation) outsourcing or an in-sourcing. However, the supply of goods and “one-off buying-in of services” are excluded.

Some transfers will be both a business transfer and a service provision change.

Share sales

TUPE does not apply to a transfer of shares, but it would apply to an asset transfer carried out as a precursor to a share sale or a transfer of the business or part of the business to the holding company following a share transfer.

Cross-border issues

TUPE applies to:

  • A business transfer, where the undertaking is situated in the UK immediately before the transfer.
  • A service provision change, where there is an organised grouping of employees situated in Great Britain immediately before the service provision change.

It applies even if:

  • The transfer is governed or effected by the law of a country or territory outside the UK.
  • The service provision change is governed or effected by the law of a country or territory outside Great Britain.
  • The affected employees’ employment is governed by any such law.
  • The transfer of a business (which may also be a service provision change) involves employees who ordinarily work outside the UK.

(Regulation 3(4), TUPE).

Automatic transfer principle

Where there is a relevant transfer:

  • The contracts of employment of those employees employed by the transferor and “assigned to the organised grouping of resources or employees that is subject to the relevant transfer” automatically transfer to the transferee on their existing terms, with the exception of old age, invalidity and survivors’ benefits under occupational pension schemes (regulation 4(1), TUPE). This principle applies to all employees who were employed in the grouping immediately before the transfer, or who would have been so employed if they had not been dismissed by reason of the transfer, unless that reason was an economic, technical or organisational reason (ETO reason) (regulation 4(3), TUPE).
  • The transferee effectively steps into the transferor’s shoes with regard to the transferring employees. All of the transferor’s rights, powers, duties and liabilities under or in connection with the transferring employees’ contracts pass to the transferee and any acts or omissions of the transferor before the transfer are treated as having been done by the transferee (regulation 4(2), TUPE).
  • Employees who object to the transfer do not become employees of the transferee. Instead, their contracts of employment terminate by operation of law on the transfer date (regulation 4(7), TUPE). There is no dismissal.

Changing terms of employment

The transferee takes on the transferring employees on their existing terms of employment, and can only make changes to their terms in limited circumstances.

Changes to terms of employment will be void if the sole or principal reason for the change is the transfer itself, unless either:

  • The reason for the variation is an ETO reason.
  • The reason for the variation is the transfer, but the terms of the contract permit the employer to make such a variation.

(Regulation 4(4) – 4(5), TUPE).

Protection against dismissal

TUPE provides enhanced protection against dismissal over and above general unfair dismissal law for employees with (at least) the qualifying period of service.

Dismissals will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself. If, however, the reason is an ETO reason, then they will instead be potentially unfair (Regulation 7(1), TUPE).

Resignations in response to a repudiatory breach of contract or to substantial changes in working conditions to the employee’s material detriment are treated as deemed dismissals to which the enhanced protection against dismissal applies (regulation 4(9) and 4(11), TUPE).

Obligations to inform and consult

Both the transferor and the transferee must inform and (if appropriate) consult with recognised trade unions or elected employee representatives (if there is no recognised union) in relation to any of their own employees who may be affected by the transfer or any measures taken in connection with it. Certain information must be provided to the representatives long enough before the transfer to enable the transferor to consult with them about it.

A failure to comply with these obligations exposes the parties liable to pay compensation equivalent to up to 13 weeks’ uncapped pay.

The obligation to provide “employee liability information”

The transferor must provide the transferee with certain information about the transferring employees (the “employee liability information”) not less than 28 days before the relevant transfer takes place. If the transferor fails to provide this information, then the transferee has a remedy under regulation 11 and regulation 12 of TUPE.

Insolvent businesses

Some of the fundamental TUPE employment protections are relaxed where the transferor is insolvent. This is designed to facilitate the rescue of failing businesses. The extent of these modifications depends on the nature of the insolvency proceedings to which the transferor is subject. In general, more significant employment protections are removed where the transferor is subject to terminal insolvency proceedings which aim to liquidate the transferor’s assets.

For any questions you may have concerning TUPE contact Helen Monson or Imogen Finnegan.

TUPE Lawyers EM Law Helen Monson     TUPE Lawyers EM Law Imogen Finnegan

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