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Going down the TUPE: avoid the pitfalls of TUPE regulations

The words “TUPE transfer” can strike terror in the hearts of organisations that are looking to take over a business or dealing with the transfer of a service provision. 

TUPE, or Transfer of Undertakings (Protection of Employment) Regulations, to use the full legal title, is designed to protect employees who find themselves being moved to a new employer when the undertaking they work in is transferred. It ensures that the employees’ terms and conditions are protected and maintained under the new employer.

It is not just the organisation taking over a service provision that needs to be aware of the obligations around TUPE; those transferring their employees to another company also need to be aware of their obligations to consult with employees and provide employee information to the new employer.

The obligations a business faces will be very different depending on whether it is the transferor (i.e. the organisation transferring employees to another organisation) or the transferee (the organisation taking on the employees of a transferred service).  With this in mind, Fiona Miller, director in employment law at business law firm, DWF, looks at the practical and legal aspects of TUPE, from both points of view.

When will a transfer involve TUPE?

There are two main circumstances when a business may find itself subject to  TUPE either as a transferor or a transferee.

First, when part or all of a business is being transferred to another organisation and the transferred entity retains its identity after the transfer, it is likely to be a TUPE transfer.  Employers proposing to acquire a business as a going concern (rather than simply by way of an asset sale or a sale of company shares) should be making preparations for a TUPE transfer of  the employees of that business. 

The second, and more complex, situation is where there is a service provision change. There will be a service provision change (SPC) where:

  • Activities stop being carried out by a business itself and are instead carried out by a contractor on behalf of the business, eg a business outsources its catering provision to a contractor; 
  • Activities stop being carried out by a contractor on a business’ behalf and are carried out instead by a subsequent contractor, eg the business terminates the catering contract with the contractor and gives the contract to a new contractor; or,
  • Where a business brings a previously outsourced activity back in-house, eg the business terminates the catering contract and brings it in-house.

 

The transferor may be a business that has decided to outsource some of its operations or alternatively, it may be a contractor that has been carrying out the service provision for the business and the contract is either going back in-house or transferring to a second generation contractor.

 

If TUPE applies, those employees currently carrying out the work will automatically transfer to the other company on their existing terms and conditions.

 

What this means for transferors…

In many circumstances, it will be in the best commercial interests of the business that is transferring its activities to another organisation to argue strongly that TUPE applies, so that their employees will move across.  If the employees don’t transfer over, there is a real risk they won’t have any work. That could mean that the business may face the costs and issues involved in making those employees redundant, which could result in employment tribunal claims. In large scale undertakings, these costs can be significant.

However, there are situations where a transferor may wish to retain the employees who would otherwise transfer on the TUPE arrangement. For example, those employees may have particular skills or contacts that the business wants to retain.

 

…and for transferees

The company taking over the transferring service will naturally look at matters from a different perspective from the transferor. On one hand, it may be happy to take on the employees who have been carrying out the activities to make sure it has the necessary resource and skills to provide the services. Otherwise, it could face immediate resourcing issues. 

 

On the other hand, however, a transferee may already have sufficient resources to enable it to carry out the activities, and the staff from the transferring entity may be surplus to requirements, or be structured in such a way that does not suit its business model. 

What’s more, when a business takes on the employees, it will not only be liable for their employment costs from the date of the transfer, but also any outstanding liabilities up to the date of the transfer.

With that in mind, the organisation taking over the business activity or service provision has two main points to consider. Firstly, it is important to ascertain if there is an organised grouping of employees whose principal purpose is carrying out the services being transferred. Sometimes there may be no specific employees dedicated to the service, with the work instead being carried out by a fragmented group of employees.

Secondly, the post-transfer services may be carried out in a significantly different way to how the activities were carried out before the transfer.  For example, if prior to the outsourcing of the catering contract there was a full service café, but then only a vending machine and tables are provided afterwards, TUPE would not apply

In this position, the transferee may sometimes take a strong stance and argue that TUPE does not apply, so that it is not liable for the employees. At this point it is left to the transferor to argue that it does.  In such a stand-off, the employees are at risk of being left in 'no-man’s land' – with the transferee arguing that they have no requirement to take them on, and the transferor arguing that it does.  

Thankfully, in most cases, this initial argument is resolved fairly quickly as neither party usually wishes to resort to having to go to a tribunal. The parties will usually come to a consensus  on how to deal with the employees. It should be borne in mind that generally, where there is a SPC, the tribunal will take the view that TUPE applies.

 

Who, exactly, is in scope?

If TUPE applies, the transferee will want to know which employees are assigned to the service provision, and are, therefore, within the scope of the TUPE transfer. However, this can be a complex task; case law says that this is not a simple question of arithmetic. It is not as straight forward as saying that an employee who spends more than 50 per cent of their time on the relevant activities is automatically assigned and transferred to the other company or contractor.

The European Court of Justice has provided guidance on how to decide whether an employee is assigned to the business or service provision that is transferring. However, this guidance is not clear-cut, and, in practice, it is left to the employment tribunal to determine whether an employee is within the scope of a TUPE transfer.

Employment tribunals have stressed that it is crucial to consider all the relevant circumstances of the particular case when assessing whether an employee is assigned to the business or service provision transferring.  The tribunal will look at how much time the employee has spent on duties related to the transferring undertaking. Even if they spend time looking after other parts of the employer’s business, they may be regarded as having been assigned to the transferring part of the business or undertaking. The issue of assignment cannot necessarily be determined by establishing the relative percentages of time spent by the employee on the transferred activities alone.

 

Preparing for the transfer – the transferor  

Once it is clear that a transfer will be subject to TUPE, the transferor should start preparing employee liability information (ELI) [See box out 1 for more information on ELI requirements] for the employees who are in scope of the transfer. This will cover, for example, the identity and age of the employees; statement of particulars of their employment; information about any disciplinary procedure or grievance procedure in the last two years; information of any court or tribunal case, claim or action brought by the employee against the transferor within the last two years; and any collective agreements.

Employees affected by the proposed transfer will have to be informed and consulted regarding the matter.  Where there is a recognised trade union, the consultation must take place with the trade union representatives.  If, however, there is no recognised trade union, consultation will take place with the elected or nominated employee representatives and if there are none in place, it may be helpful to start the process to elect employee representatives at an early stage.

 

Considerations for the transferee

The business taking on the transferred staff will need to consider what information it wants from the transferor regarding the employees who fall in scope. Although ELI information does not need to be provided until 14 days before the TUPE transfer, this may simply be too late for the transferee to plan for the transfer. A transferee might want to drill into the detail of the duties and activities carried out by particular employees so it can challenge whether the employee is assigned to the service or undertaking.  It is advisable, therefore, to ask the transferor to provide the ELI information as early as possible. 

Given that there is an obligation to inform and consult the employees affected, the transferee must, as a matter of urgency, identify the measures it envisages taking with regard to the TUPE transfer. For example, the transferee should identify whether there may be any business reorganisation, changes to working locations, or redundancies. The transferee will be aware of the difficulties of harmonising terms post-TUPE transfer, but it is common for some terms to change, such as pay dates, pension providers, bonuses and share options.

At this stage the two parties should also review the employment costs and liabilities. Where there is a contract between the parties, they will negotiate where any costs should fall.  While the transferee is obliged to cover all employee costs from the date of the TUPE transfer, the parties have contractual freedom between themselves to negotiate how costs are to be divided up.

 

Information sharing and the consultation process

Businesses handing employees over to the transferee in a TUPE transfer are under a legal obligation to inform the representatives of the affected employees (ie either the trade union or nominated employee representatives) of: 

  • The fact that the transfer is to take place, the date or proposed date of the transfer and the reasons for it
  • The legal, economic and social implications of the transfer for any affected employees
  • The measures which it envisages taking in connection with the transfer in relation to the affected employees (or if no measures are envisaged, that fact)
  • Any measures it expects that the new employers will take regarding the transferred staff
  • Information must also be provided about agency workers
  • If measures are envisaged by either party, the obligation to consult is triggered

The transferor must make sure that it informs and consults all employees affected by the transfer, which may be a wider group than just the employees who are potentially transferring.  For example, some retained employees may have their duties changed or working practices altered.

The business taking on the transferred staff must inform the transferor of any measures it envisages taking. It must also consider whether it needs to inform and consult any of its current employees, if there are any measures that may affect them.  This could be the case if their duties might change or if there will be any restructuring.

In many cases, the organisation handing over the employees will find it helpful to involve the business receiving them in the consultation process,. There is joint liability between the transferor and transferee for any failure to inform and consult, so it is in both parties’ interest to make sure they comply with this obligation.

The obligation to inform and consult has a sting in the tail - employees who claim that their employer has failed to inform and consult with them under TUPE may be entitled to an award of up to 13 weeks’ pay.

Furthermore, if collective redundancies are envisaged, the TUPE consultation may overlap with the obligation to consult under section 188 TULRCA where 20 or more redundancies are proposed within a certain time frame.

 

Advice on the consultation process

Given the importance for both sides to ensure that they meet their obligation to inform or consult, some things that transferees and transferors should consider include:

  • When should consultation start?

Consultation should be started “long enough before the transfer to enable the employer to consult the representatives”.  This is a somewhat vague definition, but for a consultation to be effective in practice it must be meaningful and if it is started too late, then the consultation may not be compliant.

  • How should information be provided?

The information has to be delivered to the representatives or sent by post. In the case of consulting with a trade union, correspondence should be sent to the trade union at the address of its head or main office.  It makes sense to provide the information in writing, although this is not expressly stated.

  • Who is entitled to the information?

The trade union representatives where there is a recognised trade union or the employee representatives where there is none.

If there are no trade union or employee representatives, the information must be provided directly to the affected employees.

  • What happens if the information is not provided?

The tribunal may award up to 13 weeks’ pay to each affected employee.  Both the transferor and transferee will be jointly and severally liable for any award.

 

Conclusion

TUPE can seem like a frightening prospect to many organisations involved in service provision transfers. At times, a TUPE transfer can seem like a combative process between transferring parties, but, at its core, the regulations are designed to protect employees.

The challenges facing the transferor and the transferee may differ, but the key to success on both sides is taking time to plan the transfer so as to take account of the issues involved and to analyse the liabilities and risks so as to put itself in the best commercial position.

 

ELI and Due Diligence [BOX OUT SECTION 1]

 

Advice for the transferor

The organisation transferring employees to another organisation must notify the receiving organisation of the ELI for any employee who is assigned to the organised grouping of resources or employees that is the subject of the relevant transfer. 

As stated above, the transferor is under an obligation to notify the receiving organisation of the ELI for all transferring employees no more than 14 days before the transfer – or as soon as is reasonably practicably thereafter if this is not possible.  This must be done either in writing or by making it available in a readily accessible form.

The transferee may also want additional information over and above the ELI and this may be part of the negotiations leading up to the contract.

 

Advice for the transferee

Any employees who transfer under TUPE will have legal protection, so an organisation taking on the employees should make sure that it reviews the ELI and due diligence information carefully.

Some things to be aware of when reviewing ELI and additional information include:

  • Are there restrictive covenants in place? 
  • Do they need to be reviewed to make sure that they protect the new business and employer? 
  • Are there long notice periods that will make it difficult to re-organise? 
  • Are there outstanding employee relation issues? 
  • Is there a recognised trade union or collective agreement? 

It is worth bearing in mind that if the transferor fails to provide the ELI, the transferee may bring a claim against them in the employment tribunal.  The tribunal may award a minimum of £500 compensation per employee in respect of whom the transferor has not provided information. 

 

Common Questions and Issues Regarding TUPE

The simple answer is no.  If the transaction falls within the definition of a transfer under the TUPE regulations, TUPE will apply, whatever the transferring parties agree.  The parties do, however, have contractual freedom to agree to allocate the employment costs between themselves.

 

Is it possible to choose which employees transfer?

Under TUPE, no, but under the contract, yes.  The employees have rights under TUPE, but the contract may change the position between the parties.  Remember also that employees may object to the transfer and remain in employment with the transferor (provided the transferor agrees).

 

What about cross-border issues?

TUPE can apply to transfers from the UK to other countries within the EU or outside the EU, in which cases employees would be entitled to transfer to the new employer on their existing terms. In practice, however, the employees are likely to be reluctant to move abroad on their existing terms and so would be made redundant. There would also be issues of employment tribunal awards against an offshore party.

TUPE does not apply if a service is being transferred from outside the UK into a UK-based organisation. 

 

How are pension schemes affected?

Where there is an occupational pension scheme, benefits for old age, invalidity and survivors do not transfer. However, the transferee must replace the scheme with minimum benefits, usually matching employer contributions up to six per cent in a defined contribution or stakeholder scheme. So called “Beckman” benefits, ie benefits that are not old age, invalidity or survivors, do transfer. This might include a pension scheme which has provision for early retirement and redundancy.