The purpose of TUPE is to protect employees if the business in which they are employed changes hands. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law.
Why do you need to know anything about TUPE?
TUPE applies every day to an enormous number of different business transactions and it is essential that employers of all sizes understand what employment liabilities can arise. TUPE can apply when employers:
* sell or buy part or all of a business as a going concern;
* outsource or bring a service back in-house;
* grant or take over a lease or licence of premises and operate the same business from those premises.
What do you need to know about TUPE?
To protect your business from claims, you need to understand:
* when TUPE is likely to apply;
* what TUPE means legally;
* what you have to do to comply with TUPE and the penalties for failing to do so;
* what other steps you can take to protect your business from the effects of TUPE.
When is TUPE likely to apply?
In essence, TUPE applies where there is a transfer of an economic entity which retains its identity. In determining whether this has happened, the courts take into account factors such as:
*the type of undertaking being transferred;
*whether any tangible assets (buildings, moveable property etc) are transferred;
*whether any intangible assets are transferred and the extent of their value;
*whether the majority of the employees are taken on by the new employer;
*whether any customers are transferred;
*the degree of similarity between the activities carried on before and after the transfer;
*the period for which the activities were suspended, if any.
What does TUPE mean legally?
Employees who are employed in the undertaking which is being transferred have their employment transferred to the new employer. Employees can refuse to transfer (or “opt-out”), but depending on the circumstances of the case, they can lose valuable legal rights if they do.
Employees therefore have the legal right to transfer to the new employer on their existing terms and conditions of employment and with all their existing employment rights and liabilities intact. The new employer steps into the shoes of the old employer and it is as though the employee’s contract of employment was always made with the new employer.
Any dismissals will be automatically unfair, where the main reason for the dismissal is the transfer or a reason connected to the transfer – there is a defence but it is narrow in scope and can be difficult to rely upon. The new employer is required to take on the employees on their existing terms and conditions of employment and is prohibited from making any changes to them – unless the aforementioned defence applies. This often makes it difficult, if not impossible, for incoming employers to harmonise terms and conditions of employment of staff after a TUPE transfer.
What do you need to do to comply with TUPE?
(1) Outgoing employer must inform and consult with staff
Affected employees must be consulted on the transfer, any measures proposed, and on changes or proposals for change following the transfer. A failure to inform and consult may result in a claim to the tribunal which may award up to a maximum of 13 weeks’ pay per affected employee.
(2) Outgoing employer must provide employee liability information to incoming employer
Written details of the transferring employees, together with all associated rights and liabilities that will transfer, must be provided not less than 14 days before the transfer. A failure to comply with this duty may result in a claim to the tribunal for compensation which will be assessed with regard to the losses suffered with a minimum award of £500 per employee.
A failure to comply with TUPE could therefore expose employers to claims large enough to undermine the entire transaction.
What other practical steps can you take to protect your business from the effects of TUPE?
Although there is nothing anyone can do to prevent TUPE applying (it is not possible to contract out of TUPE), there are steps which both the outgoing and incoming employers can take to divide up TUPE liabilities contractually between them.
Whilst under TUPE employment liabilities connected to the transferring employees will always transfer to the incoming employer (so employee claims should always be made against the new employer), the parties can still agree contractually to divide up the liabilities between them in a different way. This ought to be done by means of contractual indemnities. If this is something you think would be useful for your business, you should always take specialist legal advice.
TUPE in insolvency
Finally, TUPE is relaxed to protect incoming employers where the exiting employer is insolvent. The liability for redundancy, notice and some other payments to employees will not transfer to the incoming employer. Also, terms and conditions of employment can be changed (without the noted businesses, thereby safeguarding employment, where the inherited liabilities are not so onerous.