TUPE the basics
TUPE, Transfer of Undertakings (Protection of Employment),
TUPE the basics. The purpose of the TUPE Regulations is to protect the rights of employees when an undertaking, or part of one, transfers to another undertaking.
The TUPE Regulations apply when there is a business transfer or a service provision change. A business transfer is where an economic entity transfers to a new owner and remains an identifiable economic entity after the transfer. A service provision change occurs when a client engages a contractor to carry out some work on its behalf i.e. contracting out, retendering, or bringing work in house from a previous contractor.
TUPE does not apply when the business transfer occurs by
- share takeover
- transfers of assets (Sales of equipment only)
- supply of goods for clients own use
- transfer outside the UK (Check legislation of destination country)
- some bankruptcy and insolvency situations
What is the impact on a business purchase?
Regardless of the application of TUPE in addition to the employees, you will also be getting the responsibility to honour all existing employment contracts, terms and conditions of employment. You will be taking responsibility for any on-going disputes, tribunal claims and collective agreements relating to the transferring employees.
If TUPE applies you must enable the employees to enjoy exactly the same terms and conditions and continuity of employment as they did under the previous employer. You may be able to make changes to the transferred employees terms and conditions if you are able to prove that these changes are for economical, technical or organisational reasons (ETO) but you will need to ensure that a fair procedure is followed. In practice, the scope for acceptable ETO reasons is very narrow and difficult to prove and any changes can lead to Constructive Dismissal claims..
Most SME business sales are completed through share takeover or sale of assets.
Impact on a share takeover
In this situation, after the purchase, you may change employee terms and conditions as the TUPE regulations do not apply. This is permitted using the three accepted methods.
- with express agreement of the employee through consultation,
- by dismissal and re-engagement on new terms if employee refuses (risky because of unfair dismissal potential),
- by implied consent – impose contract anyway and if employees continue to work to the new terms and conditions they are deemed accepted.
Any staff reductions following the purchase will need to follow the formal dismissal process as this will be a redundancy situation. You should follow any policies and procedures that are in place. The first step is to place the affected employees “at risk” of redundancy whilst you consult with them or the staff representatives on ways to avoid the redundancies
Impact on a business purchase through transfer of assets alone
Once again the TUPE regulations do not apply. The main question is what happens to any employees that will not transfer with the assets? In the first instance the affected employees should be placed “at risk” of redundancy. You should then begin consultation with the staff representatives or individuals on ways to avoid the redundancy situation. The consultation should explore all the redeployment options before any conclusion can be made regarding redundancy.
I’m buying a business what should I be doing?
It is essential to conduct thorough “due diligence” in order to fully understand exactly what and who is transferring. You are entitled under the TUPE legislation to receive written information from the seller of the business about all employees that are to be transferred, and all the associated rights and obligations towards them. If you do not receive this, you may be entitled to compensation. Ask for detailed information on any existing disputes or claims against the current employer so that these can be reflected in the transfer contract.
Is there anything excluded from the legislation?
Employees who refuse to work for the new employer are entitled to do so however they forfeit all rights to compensation from you as an employer.
Although this is not specifically covered under TUPE, existing legislation under the Pensions Act 2004 requires you to provide some form of pension arrangement for all those who were previously eligible under the previous employer.
The TUPE regulations were originally designed to protect employee rights where businesses are privatised or large contracts are transferred between providers. For many transactions where a business is sold by way of share takeover or sale of assets then TUPE will not apply.
If there is any doubt over whether TUPE applicable to your situation it is essential to seek legal advice.