TUPE provides legal protection for employees when a business changes ownership. It’s a complex area of law affecting many business transfers, making it essential that companies understand the liabilities that can arise. This guide provides an overview of TUPE and its implications for employers. We also look at ways to support the integration of transferring employees into an existing workforce. Detailed information on TUPE is available on the gov.uk website: Business transfers, takeovers and TUPE
What is TUPE?
TUPE is an acronym for Transfer of Undertakings (Protection of Employment) Regulations 2006. The purpose of TUPE is to protect and preserve employees’ rights if a business changes ownership. Where TUPE applies, the buyer takes on ‘the rights, responsibilities and liabilities of the seller towards the employees’ (CIPD). The transferring employees are afforded the following legal protection*:
- Employees are automatically transferred to the new employer;
- Terms and conditions of employment are preserved;
- Employees are protected against dismissal; and
- There is an obligation to inform and consult.
*exceptions apply if the business is insolvent.
When does TUPE apply?
TUPE applies where there is a ‘relevant transfer’ including:
Business transfers
A business transfer is when a business, or part of a business, moves from one employer to another. This can include mergers, where two companies are merged into one. The identity of the employer must change to be covered by TUPE.
Service provision change
A service provision change occurs when contracts are reassigned, for example:
- Outsourcing: a service provided in-house is awarded to a contractor;
- Retendering: a contract ends and is transferred to another contractor; and
- Insourcing: a contract ends, and the work is transferred in-house
For example, a typical service provision change could be outsourcing cleaning to a contractor.
It is important to note that TUPE does not apply to the supply of goods (such as a restaurant changing food suppliers) or if a service is provided for a single event or a task of short-term duration (such as a catering company used for a large event).
Transfer of employment liabilities
Under TUPE, the employment contracts belonging to the transferring employees’ will automatically transfer to the new employer, as well as any liabilities. Effectively, the new employer steps into the shoes of the old employer.
What responsibilities transfer?
- current terms and conditions of employment;
- holiday entitlement;
- continuity of service, i.e. the employees’ start dates remain the same;
- any statutory or contractual rights, such as sick pay, enhanced maternity pay etc;
- any arrears of pay; and
- any failures of the previous employer to observe employees’ rights. This means that employees could make a claim for unfair dismissal or discrimination against the new employer, even if it took place before the transfer.
Protection against dismissal
Employees are entitled to enhanced protection against unfair dismissal. Subject to the two years’ continuous service criteria, any dismissal will be automatically unfair if the reason for the dismissal is the transfer itself.
The enhanced protection will also apply if the employee resigns in response to a serious breach of their contract, for example, if the new employer doesn’t honour existing terms and conditions of employment.
Your obligation to Inform and Consult
TUPE imposes an obligation on both employers to inform and consult with representatives of transferring employees. This may involve trade union or elected employee representatives. Businesses with fewer than ten employees may inform and consult directly with employees.
The following information must be provided ‘in good time’ for sufficient consultation to take place:
- that the transfer is happening and why;
- the transfer date;
- how the transfer will affect employees; and
- any measures proposed in connection with the transfer that will affect employees. This could include a reorganisation or a comparatively minor measure such as a change to salary payment date.
Although the obligation to inform always arises, the duty to consult is only triggered where an employer envisages taking measures in relation to transferring employees.
If an employer fails to comply with the obligation to inform and consult, it could be ordered to pay compensation to transferring employees of up to a maximum of 13 weeks’ pay each. Compensation may be ordered against either or both employers.
How to identify which employees will transfer
The employees involved in the transferred activity will automatically transfer to the new employer. In most cases, it is simple to identify the transferring employees. For example, if a business is sold, all employees will transfer to the new employer.
However, where a service provision change occurs, it can be difficult to identify who the transferring employees are. An employee may be responsible for a variety of different tasks, including the transferred activity. Employers should assess whether there is a ‘clear organised grouping of employees designated to that contract’ and therefore, which employees should transfer. A multifactorial approach is recommended to identify transferring employees, i.e. assessing the percentage of time worked on the transferred activity as well as the nature of the duties carried out. Recent case law has indicated that where working time is split, it may be appropriate to transfer only part of an employee’s employment.
Previously it was assumed that TUPE applies to employees only, not workers. However, the employment tribunal decision in Dewhurst v Revisecatch indicates that workers should be afforded protection under TUPE in the same way as traditional employees. While a tribunal decision is not binding, employers may choose to take a risk adverse approach and assume workers are protected by TUPE. Self employed and agency workers are not covered by TUPE.
The identification of transferring employees can be very complex. For further advice, please contact our team on 0330 223 5253 or office@fitzgeraldhr.co.uk.
Employee liability information
The transferring employer has a duty to provide the new employer with written details of transferring employees no later than 28 days before the transfer. This includes: identity, age, terms and conditions of employment, disciplinary and grievance records, employee claims (including potential claims) and collective agreements, and any other rights and liabilities that will transfer. Information regarding temps and agency workers must also be provided. Failure to comply with this duty may result in uncapped financial penalties, with a minimum award of £500 per employee.
What about transfers with insolvent businesses?
To help rescue failing business, TUPE rules are relaxed if the transferring employer is insolvent. Depending on the circumstances, liability for redundancy and notice may not transfer over. Furthermore, the new employer has greater scope to change terms and conditions of employment.
Harmonisation of terms and conditions under TUPE
One of the key principles of TUPE is the preservation of transferring employees’ terms and conditions. This is one of the most challenging aspects of the regulations as it means the transferring employees and the existing workforce of the new employer will be employed on different contracts. Not only can this be an administrative burden, it can also create resentment between employees. For example, the employees may have different pay rates, bonuses, annual leave or sick pay entitlements, while some may be required to work weekends or bank holidays while others not.
While the new employer may wish to harmonise terms and conditions, any variation will be unlawful unless it falls within one of the exceptions permitted by law, including:
- where the reason for the change is unrelated to the transfer;
- where the variation is favourable to the employer (such as an increase to pay or benefits); or
- where there is an economic, technical or organisational reason (an ‘ETO reason’) requiring changes in the workforce, and the variation has been agreed with the employee.
Other options for employers wishing to harmonise terms and conditions include:
Waiting
The more time that has passed since the transfer occurred, the less likely the changes will be seen to be linked to the transfer. Nevertheless, in London Metropolitan University v Sackur, the employment appeal tribunal held that a link still existed two years after the transfer took place.
Red-circling
Businesses may choose to red-circle pay until the pay of lower paid employees gradually increases to the same level.
Offering financial incentives
Another option is to offer financial incentives to agree to a voluntary contractual change. This option is risky because it does not prevent the employee from bringing a TUPE claim, although it makes it far less likely to happen if an employee has voluntarily agreed to the variation.
Redundancies following TUPE
Following the transfer, the new employer may find that the organisation is no longer structured in a way that meets business needs. The general rule is that transferring employees are protected against dismissal if the reason for the dismissal is the transfer itself. However, if the employer is able to establish that there is a genuine redundancy situation and an economic, technical or organisational reason requiring a change in the workforce, then redundancies can be made.
The correct redundancy procedures must be followed, and both groups of employees (the transferring employees and the existing workforce) must be treated equally and fairly. The new employer must ensure that the selection process and criteria is not biased towards the existing workforce.
Find out more about redundancies in our guide: A complete guide to handling redundancies for employers
How to integrate transferred employees
A successful TUPE process isn’t just about identifying which employees transfer over and adhering to the obligations to inform and consult. That’s the simple part! The hard part is successfully integrating the transferred employees into the existing workforce and creating a ‘one team’ culture. This can be particularly challenging when the two groups of employees are on different terms and conditions. Imagine if some employees get extra sick pay, higher wages or the option of taking time off in lieu; this is likely to impact on morale and can make it harder to integrate employees.
The new employer should take steps to welcome the transferred employees into the organisation, and help them settle in. This is likely to be a stressful and uncertain time for the transferred employees as well as the existing workforce; all of whom may be worried about job security.
Here are some tips on how to manage the integration of employees effectively:
Communication is key!
Effective communication before, during and after the transfer is essential to its success. Communication needs to take place not only with transferred employees, but also with the existing workforce who will be impacted by the changes.
Sharing information with employees about the transfer as early as possible will help employees to adjust, and will increase the chances of a smooth transition. Employers should meet regularly with employees to discuss the transfer and answer any questions. Employers would be wise to listen to employees, who may be able to provide constructive feedback or information that is useful to the transfer.
As the CIPD states, meaningful employee engagement can optimise the transfer’s success and reduce the likelihood of employment claims.
Transparency
Most employees won’t be familiar with TUPE. Providing transparent information regarding TUPE will help the intregration process. For example, the employer should explain that there are two contractual arrangements, and that businesses are legally prevented from changing terms and conditions following a TUPE transfer. This will help employees understand why their colleagues are being treated differently to them, and may make it easier for them to accept.
Induction programme
An induction programme should be arranged for the transferred employees, to introduce them to the company and ensure they understand their role in the organisation. The induction can help employees learn where things are, how things work and who their colleagues are. The new employer needs to achieve a difficult balance between welcoming them to company as if they were a new employee, while still respecting their knowledge, expertise and experience in the work they do.
A buddy and/or mentoring programme is also a great way of supporting the integration of transferred employees.
Physical work environment
The new employer should consider the physical work environment. Ideally the transferred employees will sit near existing team members to enable working relationships to develop.
Recognition
Where two groups of employees are on different contractual arrangements, there is a risk of employees feeling undervalued in comparison with their colleagues. This is most likely to apply where there is a significant difference in pay. Ensuring all employees feel recognised and valued for the work they do is imperative. Recognition can be as simple as saying ‘thank you’ or providing positive feedback. For recognition to work well, it ’should be timely, regular and authentic’.
Team building
To help employees develop relationships with their new colleagues, opportunities to meet as a team are essential. This could be a weekly team meeting, group project work or a regular coffee date with colleagues. Social events and team building activities are also tools for developing a ‘one team’ culture.
Avoiding ‘them versus us’
To avoid a ‘them versus us’ culture emerging, it is extremely important that managers do not show any form of bias towards one group of employees, and are fair at all times. This is particularly important when it comes to reorganisations where there is a risk that decisions may be perceived as unfair.
What can we do to help?
If you would like advice on TUPE transfers, please contact our team on 0330 223 5253 or office@fitzgeraldhr.co.uk. We would be delighted to help you.
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