Tackling TUPE

There is nothing quite like TUPE to send lawyers and HR professionals alike scrambling for cover. Who knew a simple acronym could have even the most seasoned advisor shaking in their boots? It seems to appear randomly within service contracts, it always crops up when buying and selling a business… so what even is it?

Transfer of Undertaking (Protection of Employment) Regulations 2006 (shortened to TUPE) broadly provides protection for employees when the business they’re employed by changes ownership or there is a change in service provider in relation to activities that they have been carrying out.

When does TUPE apply?

TUPE can apply in two cases. The first being a business transfer. This is when the assets of a business are sold. Unfortunately, the precise circumstances when TUPE will apply for an asset transfer are not entirely straightforward. They involve an “economic entity”, a transfer of that economic entity, and the entity retaining its identity after the transfer. There's no simple tick list answer to this so it's advisable to get advice to determine the factors.

TUPE can also apply in service provision changes, such as; outsourcing, changing contractor; or bringing a service in-house. Naturally, as with an asset transfer, it’s not entirely straightforward! TUPE won’t apply every time you decide to outsource a service.  For TUPE to apply, you need an organised group of employees; the services to be carried out afterwards to be "fundamentally or essentially the same" as those carried out before the transfer; the transferring contract should not be wholly or mainly for the supply of goods for the client's use; and the activities should not be carried out "in connection with a single specific event or a task of short-term duration".

What does TUPE do?

The employees “transfer” from being employed by the original company (the one selling its assets or who originally provided the service) (the transferor) to being employed by the new company (the transferee). It’s as if the transferred employees have always been employed by the new employer.

The new employer will inherit the good, the bad and the ugly – in other words: They get all of the great staff that are a huge asset, but they also get “that” member of staff!  You know the ones! The new employer also inherits all rights and liabilities relating to the transferred staff. For example, if the transferred employee had the contractual right to a bonus, that means the new employer has to pay that bonus. And if the transferred employee has complained they’ve encountered discrimination at work, it might be the new employer that has to deal with the claim.

Some employment rights (such as notice period/pay) depend on length of service and this will be retained upon the transfer, as do employment contract terms. This means that the previously agreed working hours, location, notice period will transfer across with the employee.  This can be a pest if you end up with new staff on better terms that your existing employees.  And you can’t simply align the terms post-transfer as any change to employees’ terms connected to the transfer will be void – although see below.  

Because TUPE applies automatically (ie the parties cannot decide they want it to apply or not, it’s a default protection the employees get – remember this is all about protecting them) – it is important for both the old and new employer to understand if TUPE applies to a situation, and if it does – which employees have been affected.  

What issues does TUPE cause?

A common conflict seen is parties disagreeing on whether or not TUPE actually applies. This might happen if the “transferor” wants to get rid of staff but the “transferee” doesn’t want them, or conversely if both parties want the staff. Inheriting staff you don’t want or losing key member of the team as a result of a transfer can cause a lot of negotiation. In terms of the latter, there are ways to help avoid this, such as shifting the employee to an area/team which will not be transferring. But do remember that if this is an asset transfer the transferee is likely to want key staff to be part of the deal.

Inheriting more staff than needed can be problematic as this would result in a potential redundancy situation.  Please be mindful that in circumstances like that, the new staff and your existing staff need to be pooled together. You should NOT automatically select the TUPE’d staff for redundancy.

Another area for grievance is inheriting contractual terms that are not in line with terms of your existing staff. Please note that while you can’t simply amend the transferring employees’ terms because you aren’t happy with them, this does not mean they can never be changed. If you decide that terms are genuinely causing issues for the business, you could undertake a full contractual review.  Not because of the transfer but because you need to ensure that the terms are working for the business and the staff. For instance, following a transfer, you can’t reduce contractual sick pay just because you aren’t happy with the terms you have inherited. However, you could potentially undertake a full contractual review where you decide that sick pay needs to be reduced as a result of the cost to the business or because you’ve noticed a trend of excessive sickness absence.  You would need evidence to show that this is a genuine review and not just a way of getting round the transferred terms. Time and a decent paper trail would help with this.

How can we help?

For a business, when entering into a TUPE situation, you'll want to make sure you're putting yourself in the best possible position. We specialise in guiding employers through the complex TUPE processes - making the world of work, work for you. If TUPE is on the horizon for you, get in touch with our employment team.

How to get started

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