What is a TUPE Transfer?
TUPE is an abbreviation for The Transfer of Undertakings (Protection of Employment) Regulations 2006. This legislation protects employees who are directly impacted by their employer changing ownership (aka business transfer) or where the activities the employee carries out have been transferred to another service provider (aka service provision change).
A service provision change tends to apply where a contract is being brought ‘in-house’, or ‘outsourced’, or in some circumstances, both. It must be noted that this protection does not apply where there is a transfer of shares.
This area of law can be complex. For this reason, it is important to seek legal advice if an employee believes that a TUPE transfer has occurred.
Who is Protected Under a TUPE Transfer?
All employees on a contract of employment will automatically transfer from the seller or ‘transferor’ to the buyer or ‘transferee’. However, there are requirements for the automatic transfer to apply:
- The employee must have been employed immediately prior to the transfer;
- The employee must be part of the team or group involved in the transfer,
- There is no objection to the transfer by the employee, and,
- The employee’s contract would otherwise have been terminated by the transfer.
What Happens if the Transferor is Insolvent?
There are two types of insolvency provisions, and depending on the circumstances, different protection is provided to employees.
Where the transferor is subject to insolvency proceedings but not intending to shut down, then the transferee will have greater scope than normal to vary the transferred employees’ contracts. The intention is to save the business, and as such, this may involve some changes. However, an employee can refuse the change or refuse the transfer and be considered redundant and claim the redundancy payment from the Secretary of State.
Any other sums, such as wages, owed to the employees from the transferor can be claimed from the Secretary of State.
The second scenario is where the business is essentially shut down and parts are sold off. In this scenario, an employee’s protection is limited. They will not be automatically transferred to the new owner, and the new owner can offer entirely new terms and conditions. However, if an employee decides to accept the new terms and conditions, their length of service is preserved.
Employee Protections Under TUPE
All the benefits and rights contained within an employee’s contract of employment will be preserved and transferred to the transferee. This includes preserving the employee’s length of service.
The transferor and transferee are also under an obligation to ‘inform and consult’ with all employees who are affected by the transfer. The duty to ‘inform’ the affected employees is essential, but the duty to consult only arises if the employees will be affected by the transfer itself or by any measures taken in connection with it.
As stated above, an employee will automatically transfer to the transferee if the employee has not objected to the transfer. This means that the employee must be provided with the opportunity to object, and this would usually take place prior to the transfer when the employee has been informed of the transfer.
In respect of consultations, how the consultations take place (including consulting with trade union representatives) and the length of the consultation period will depend on the size of the business and how many employees will be affected.
If the transferor or transferee fails to consult with the affected employees, a claim could be brought against either or both parties, and compensation could be awarded, equivalent to up to 13 weeks' uncapped pay.
Can the Transferor Dismiss an Employee?
In certain circumstances, yes.
Employees will be considered to have been automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer itself. However, a transferee or transferor can defend a claim for unfair dismissal if they can show an Economic, Technical or Organisational (ETO) reason.
Examples of ETO reasons include:
- Where there is a change of location following the transfer. In this case, the dismissal could count as a redundancy and be a fair reason to dismiss an employee.
- If a reduction in labour costs was already planned, and if these reductions would have happened regardless of the TUPE, impacting all employees.
- A change in the number of employees that clearly applies to all employees, regardless of the TUPE transfer. This could, again, count as a redundancy and be a fair dismissal.
Making Changes to Employment Contracts After a Business Transfer
In certain circumstances, a transferor can make changes to employment contracts following a transfer. However, they are to be done under certain circumstances:
1) If the change is unconnected to the transfer
2) The sole or principal reason for the variation is an ETO reason entailing changes in the workforce.
3) Where the terms of the contract of employment allow for the specific variation to be made.
4) Terms have been incorporated by a collective agreement, and their contract of employment provides for the collective agreement to apply to them.
Often, a transferee may wish to make changes to the transferred employees’ contracts to ‘harmonise’ the contracts with their existing employees. However, this would be directly connected to the transfer and would be a breach of TUPE.
An employee can, of course, choose to accept the new contract being offered by the transferee, for example, in circumstances where they may be offering enhanced benefits. However, the change cannot be enforced upon the employee.
It is important to remember that each case is decided on its own facts, and as such, it is important to seek legal advice.
What if the Transferee Enforces Changes to an Employee’s Contract?
If a transferee makes significant changes, without consent, to an employee’s contract of employment following the transfer, causing the employee to resign, the employee can pursue a claim for automatic constructive unfair dismissal under TUPE.
The employee will need to show that there had been a substantial change to their working conditions, and it was a material detriment to them, leaving them with no choice but to resign.
The transferee can, then, defend such a claim if they can show an ETO reason.
About the Author:
Alexandra Hodson is an employment law expert at Redmans Solicitors. She has over 10 years of experience with TUPE, unfair dismissal and constructive dismissal claims, and has also worked on highly complex discrimination and whistleblowing cases.
