TUPE 2006 Fact Sheet

What is a transfer of an undertaking?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) protect employees when a business changes to a new owner and apply to what are known as ‘relevant transfers’ which may occur in many situations. The two broad categories are business transfers and service provisions changes.

Business transfers

To determine if there is a TUPE transfer, the relevant definition asks if there is a transfer of an economic entity that retains its identity. The factors to consider include:

Is the type of business being conducted by the transferee (incoming business) the same as the transferor’s (outgoing business)?
Has there been a transfer of tangible assets such as building and moveable property (although this is not essential)?
What is the value of the intangible assets at the time of the transfer?
Have the majority of employees been taken over?
Have the customers been transferred?
Is there a high degree of similarity between the activities carried on before and after the transfer?

If the answer to all (or in some cases several of) the above questions is ‘yes’, it is safe to assume that there has been a transfer of a stable economic entity.

Service provision changes

A ‘service provision change’ occurs when a client who engages a contractor to do work on its behalf is either:

reassigning such a contract (whether by contracting out, outsourcing or re-tendering), or
bringing the work ‘in-house’ (where a contract ends with the service being performed in-house by the client themselves).

The activities undertaken must also be essentially the same after the transfer as before it.

It will not be a service provision change if:

the contract is wholly or mainly for the supply of goods for the client’s use, or
the activities are carried out in connection with a single specific event or a task of short-term duration.

The relevant law

TUPE 2006 is the main piece of legislation governing the transfer of an undertaking, or part of one, to another. The regulations protect employees enabling them to enjoy the same terms and conditions, with continuity of employment, as they had before the transfer. TUPE 2006 applies to all relevant transfers including situations where services are assigned to a new contractor, for example in labour-intensive services such as office cleaning, catering, security and refuse collection.

TUPE regulations were introduced to comply with relevant EC Directives concerning transfers of undertakings. The main Directives are:

the Acquired Rights Directive (77/187/EC)
the Acquired Rights Directive (98/50/EC)
the Acquired Rights Amendment Directive (2001/23/EC).

The further statutes and regulations which have an effect on TUPE include:

The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995 (SI 1995/2587)
The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999 (SI 1999/1925)
Pensions Act 2004, especially sections 257 and 258
The Transfer of Employment (Pensions Protection) Regulations 2005 (SI 2005/649)
The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16).

The Department for Business, Innovation and Skills (BIS) has published updated guidance on TUPE 2006 for employers, employees and their representatives. The guidance covers both before and after January 2014 when some changes took effect.

The situations where TUPE applies

By way of broad guidance, TUPE has been found to apply to:

mergers
sales of businesses by sale of assets
a change of licensee or franchisee
the gift of a business through the execution of a will
transfers out of companies in administration
contracting out of services
changing contractors
where all or part of a sole trader’s business or partnership is sold or otherwise transferred.

However, TUPE does not apply to:

transfers by share take-over
transfers of assets only (for example, the sale of equipment alone would not be covered, but the sale of a going concern including equipment would be covered)
buying in services from a contractor on a one-off basis – rather than entering into an ongoing relationship for the provision of the services
a situation where there is a change of business identity, for example if the nature of the work or the organisational structure changes radically
the supply of goods for the client’s use (for example, supplying food to a client to sell in its staff canteen, rather than a situation where the contractor runs the canteen for the client).
transfers of undertakings situated outside the United Kingdom (although these may be covered by the regulations of other member states).

It is important to remember that overall TUPE only applies to situations where a business or part of it retains its identity after the transfer; if it does not then there is no transfer as envisaged by the regulations.

Changes of contractors for labour intensive activities, such as security, catering, refuse collection and cleaning, has given rise to confusion in the past but in many of these situations TUPE 2006 does apply. TUPE 2006 may also apply where an organisation such as an advertising agency or a law firm takes over a client from another firm following a tender process. The new firm may be under an obligation to take on the staff working on the client account for the previous firm.

Managing a TUPE situation

All employees employed in the organisation, or part of the organisation, that is to transfer are covered by the law. All those employees transfer to the new organisation with their existing terms and conditions of employment, and their continuity of service is also preserved.

The transferee also takes over the liability for all statutory rights, claims and liabilities arising from the contract of employment, for example liabilities in tort, unfair dismissal, equal pay and discrimination claims. The exception to this rule is criminal liabilities. It may be possible for a legal representative to negotiate warranties and indemnities which will provide a partial, or total, cushion against the financial impact of any claims resulting from the application of TUPE.

Dismissal

If an employee is dismissed because of the transfer, their dismissal is automatically unfair.

Employees need at least one year’s continuous employment to claim unfair dismissal if they were employed before 6 April 2012. After that date there is a two year qualifying period. The dismissal will not be automatically unfair if the employer can show an ‘economic, technical or organisational’ (ETO) reason entailing a change in the workforce.

The table below sets out three different categories of dismissal and whether they are fair or unfair.

Type of dismissal	Fair or unfair
Dismissals for which the sole or principal reason is the transfer itself and that is not for an ETO reason.	Automatically unfair under the unfair dismissal legislation.
Dismissals for which the sole or principal reason is not the transfer itself, but is for an ETO reason.	Potentially fair subject to the normal test of reasonableness under the unfair dismissal legislation.
Dismissals for which the sole or principal reason is entirely unconnected with the transfer.	These fall outside TUPE as they are unrelated to a relevant transfer and the usual unfair dismissal principles will apply. This is the case even though the dismissals may be made around the time of such a transfer.

Consultation and notification

The transferor must onduct a full and meaningful consultation with employees at the earliest practicable time. Failure to consult properly can result in payment of compensation of up to 13 weeks’ pay. The transferor and transferee are both liable for this award of compensation.

If there are no trade union or employee representatives, then representatives must be elected by the affected employees for the purposes of consulting over the transfer. The employer must facilitate the election process. From January 2014 onwards, micro businesses (under 10 employees) can inform and consult with employees directly if there is no trade union.

The employer must provide the following information to the representatives:

that a transfer is to take place
the reason for the transfer and when it is expected to take place
the implications for the employees
the measures that the employer expects to take in relation to the employees
the measures that the new employer expects to take in relation to the employees.

Pensions

Strictly speaking, obligations relating to provisions about benefits for old age, invalidity or survivors in employees’ occupational pension schemes do not transfer under TUPE. However, the provisions of the Pensions Act 2004 sections 257 and 258 do apply. In effect, this means that provisions equivalent to the TUPE regulations apply to pension rights. In essence, if the previous employer provided a pension scheme then the new employer has to provide some form of pension arrangement for employees who were eligible for, or members of the old employer’s scheme. It will not have to be the same as the arrangement provided by the previous employer but will have to be of a certain minimum standard specified under the Pensions Act.

Information

Transferors are obliged to give the transferee written information about the employees who are to transfer and all the associated rights and obligations towards them. This information includes, for example, the identity and age of the employees who will transfer, information contained in the employees’ written particulars of employment under section 1 of the Employment Rights Act 1996 and details of any claims that the transferor reasonably believes might be brought.

If the transferor does not provide this information, the transferee may apply to an employment tribunal for such amount as it considers just and equitable. Compensation starts at a minimum of £500 for each employee in respect of whom the information was not provided or was defective.

The ETO reason

The economic, technical or organisational (ETO) reason entailing a change in the workforce is one of the few legitimate factors for a refusal to take on the transferor’s workforce by the prospective transferee. The reason has to be the main cause of the dismissal. If so, the dismissal may then be justifiable provided an employment tribunal decides that the employer acted reasonably in all circumstances. If it can be shown that there was not really a change in the job functions of the employees, or an actual change in the number of employees making up the workforce, then the economic (or other reasons) may be a ‘sham’. If the workforce were not taken on in order to avoid the application of the TUPE regulations, then the transferee will be liable for potential claims.

The regulations governing transfer related dismissals and ETO reasons changed from January 2014 onwards.

TUPE is a complex area so it is essential to seek HR & legal advice for individual circumstances. Where a business, or part of one, is being transferred, both parties (that is the transferor and the transferee) should seek such advice at the earliest possible stage. It isn’t possible to prevent TUPE applying, as the law prevents employers and employees from ‘contracting out of’ the effects of TUPE. However, it is common practice for old and new employers to negotiate on how to divide any liabilities which arise by including ‘indemnities’ in the agreement. The key to successful TUPE transfers lies in good planning. This will include identifying key risks at an early stage and holding a genuine dialogue with employees.