TUPE — overview

The Transfer of Undertakings (Protection of Employment) Regulations 2006 have been in force since 6 April 2006.

TUPE implements the Acquired Rights Directive 77/187/EEC, as amended by Directive 98/50 EC and consolidated in Directive 2001/23/EC.

TUPE is European economic social policy. The clue is inside the brackets: protection of employment. Remember that TUPE exists to protect employees and you will not go far wrong. This means that:

• TUPE could apply whenever a client buys something which has employees. It might look like an asset, or an activity, and not a business, but TUPE may well protect those employees' rights. For example, a shopping centre is likely to have cleaners, security guards or caretakers, whose employment will be transferred to a client when it buys the building. Equally, if a client is taking over the provision of a service, the employees currently providing that service may become the client's employees

• TUPE could apply regardless of who the employees' current employer is

• if the rights of those employees are threatened (for example, by dismissal or reduction in pay or other rights), it is reasonable to expect that an employment tribunal will try to find that their rights are protected by TUPE

When TUPE applies

It is not possible to contract out of TUPE — but the risks and liabilities resulting from it can be managed commercially.

TUPE applies when there is a 'relevant transfer'. This covers:

• business transfers: a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity. A change of contractor may still be a business transfer even when it is not a service provision change

• a service provision change: the contracting out (or back in again) of activities or a change of contractor

What TUPE transfers

TUPE transfers all the transferor's rights, powers, duties and liabilities under or in connection with employment contracts of transferring employees (and anyone automatically unfairly dismissed in connection with the transfer).

TUPE transfers from transferor to transferee all employees assigned to the business being transferred. It also preserves their continuity of employment and their terms and conditions of employment. When the transfer takes effect, they automatically become employees of the transferee on the same terms and conditions (except for certain occupational pensions rights). TUPE applies regardless of the size of the transferred business, whether it is in the public or private sector and whether or not it has any profit motive underlying the activities.

Information and consultation

An employer must inform employee representatives of the fact and proposed date of the transfer, the reasons for it, the legal, economic and social implications of the transfer for the affected employees, and whether there are any and, if so, what transfer-related 'measures' it envisages taking in relation to its employees. Consultation (with a view to reaching agreement) is only required if the transferor/transferee envisage measures in relation to their respective employees.

The obligation to inform and consult applies to any employee affected by the transfer or measures connected with it. This will usually include not only the transferring workforce, also but the transferor's and transferee's non-transferring workforces.

The penalty for non-compliance is up to 13 weeks' pay per affected employee. Claims can be made by representatives or, in some circumstances, employees themselves. Both transferor and transferee have joint and several liability for the transferor's failure to inform and consult. There is also joint and several liability for any compensation award which either party has failed to pay.

Information and consultation must be with trade union representatives, or if there are none, with elected employee representatives. If there are none, elections must be held in the prescribed manner. If the employees fail to elect representatives within a reasonable time having been invited to do so, the employer must inform each employee individually (but the consultation requirement falls away).

It is a defence for the transferor to show that its breach was caused by the transferee's failure to provide details of measures. It should give notice of this defence to the transferee, thereby joining it to the proceedings. If the defence is successful, the award is made against the transferee.

The transferor must also give the transferee 'employee liability' information for each transferring employee (and any who would have been transferred had they not been automatically unfairly dismissed). Failure to comply entitles the transferee to bring a tribunal claim for compensation of at least £500 per employee (although less than the minimum can be awarded for trivial or unwitting breaches).

Variation of contracts and dismissal

Changes to employment contracts of any employee of the transferor or transferee before or after the transfer are void and dismissals are automatically unfair UNLESS:

• they are for reasons unconnected with the transfer (and even then such dismissals may still be ordinarily unfair)

• they are for an economic, technical or organisational reason connected to the transfer that entails changes in the workforce (in which case dismissal is treated as for a potentially fair reason, but may still be procedurally unfair)

Employees will not transfer if they notify the transferor or transferee that they object to becoming employed by the transferee. Instead, their employment will end, but this will not amount to a dismissal.

Employees can treat themselves as dismissed if the transfer involves a substantial change in working conditions to their material detriment. They cannot claim wrongful dismissal (for wages during any unworked notice period) but can claim ordinary unfair dismissal.

Trade union recognition, and any collective agreements the union has with the transferor relating to transferring employees, transfer to the transferee.

Insolvency

On the transfer of an insolvent business, the contracts of employment of transferring employees (and of those automatically unfairly dismissed in connection with the transfer) can be varied, whether or not this is done for an economic, technical or organisational reason entailing changes in the workforce. However, the variations must be agreed and signed by the employees' representatives and, before the agreement is signed, a copy of the agreement (with guidance to help them understand it) must be given to all affected employees. Obligations to pay the employees statutory redundancy pay (or the unfair dismissal basic award) or various debts (eg arrears of wages, notice pay, holiday pay) only pass to the transferee to the extent that they are not met by the National Insurance Fund.

Pensions

Occupational pension rights earned up to the time of the transfer are protected by social security legislation and pension trust arrangements. Rights relating to old age, invalidity or survivors' benefits under occupational pension schemes do not transfer under TUPE but early retirement benefits do transfer. Employees who were members of the transferor's occupational pension scheme are entitled to an alternative scheme provided by the transferee, but it does not have to match the type or value of the transferor's scheme. The transferee must provide them with a specified minimum level of pension provision to replace the occupational pension rights they had with the transferor, under a defined benefit (final salary) scheme, defined contribution (money purchase) scheme or stakeholder arrangement.