Navigating TUPE Regulations in Business Transfers

When businesses undergo mergers, acquisitions, or outsourcing arrangements, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) often come into play. These regulations are designed to protect employees’ rights when their employment transfers to a new employer. Navigating TUPE effectively requires a clear understanding of the legal obligations and processes involved. Here, we break down the key aspects of TUPE to help businesses manage employee rights during such transitions.

1. What Is TUPE?

TUPE applies when a business or part of a business is transferred from one employer to another. This includes:

• asset purchases: Transferring operational business assets along with employees; and
• service provision changes: For example, outsourcing, insourcing, or changing service providers.

The purpose of TUPE is to:

• protect employees from dismissal solely due to the transfer;
• ensure that employees’ terms and conditions of employment remain unchanged; and
• obligate employers to inform and consult affected employees.

2. Employee Rights Under TUPE

Under TUPE, full-time and part-time employees are entitled to the below, whereas agency workers and consultants are not:

• automatic transfer: employees’ contracts transfer to the new employer with their terms and conditions intact, including salary, holidays, and redundancy rights;
• protection against dismissal: employees cannot be dismissed solely because of the transfer unless there is an “economic, technical, or organisational” (“ETO”) reason; and
• consultation rights: employees must be informed and consulted about the transfer and its implications.

There are not any hard and fast rules as to the threshold for types of employment, however, as guidance:

• full-time employee: works a standard number of hours (usually 35 to 40 hours per week) as contained in their employment contract, has direct employment with the employer, is entitled to statutory employment rights, and typically has benefits such as paid annual leave, sick pay and pension contributions;
• part-time employee: works for fewer hours in a week than a full-time employee in the same organisation (as contained in their employment contract); has direct employment with the employer, and is entitled to statutory employment rights;
• agency worker: is employed by or supplied through an agency (not by the business they work for day-to-day), works on temporary or fixed-term assignments, has an employment contract or contract for services with the agency, and who is not entitled to the same rights under TUPE; and
• consultant: works as a self-employed contractor or through a personal service company (often under a contract for services, not employment), provides specific expertise or services to a business (usually for a fixed term or on a project basis), is responsible for their own tax and National Insurance contributions (unless deemed as an employee under certain conditions), and typically does not receive benefits such as sick pay, redundancy rights, or paid annual leave.

3. Employer Obligations

Both the outgoing employer (transferor) and incoming employer (transferee) have specific duties under TUPE:

• transferor obligations:
  • notify the transferee of employee details and liabilities; and
  • inform and consult employees or their representatives about the transfer.
• transferee obligations:
  • honour the transferred employees’ contracts; and
  • inform and consult employees about any planned changes post-transfer.

Additional Considerations for Smaller Businesses:

Smaller businesses, particularly those with fewer than 10 employees, have some flexibility under TUPE. In micro-businesses (fewer than 10 employees), the employer can consult directly with employees rather than appointing representatives. This streamlined process can make compliance easier while still ensuring employees are informed and consulted about the transfer.

4. Key Challenges in TUPE Transfers

• Identifying affected employees: determining which employees are directly involved in the transfer.
• Harmonising terms and conditions: post-transfer, the new employer may face challenges in aligning employment terms across the workforce without breaching TUPE protections.
• Potential claims: employees can bring claims for unfair dismissal, breach of consultation duties, or changes to their terms of employment.

5. Economic, Technical, or Organisational Reasons

ETO reasons are one of the few permissible grounds for dismissals or changes to employment terms under TUPE. Examples include:

• economic: business downturns necessitating layoffs;
• technical: implementation of new systems or technologies requiring workforce changes; and
• organisational: restructuring the workforce or relocating operations.

6. Steps for a Smooth TUPE Process

To ensure compliance and minimise disruption, businesses should:

1. conduct due diligence: assess which employees will transfer and identify any potential liabilities;
2. plan early: establish a clear timeline for consultation and communication;
3. engage legal and HR expertise: seek advice to navigate complex TUPE requirements and mitigate risks;
4. consult with employees: communicate openly and involve employee representatives to address concerns; and
5. document agreements: Maintain a clear record of communications, decisions, and agreed terms.

7. Common Misconceptions About TUPE

• “TUPE only applies to large businesses”: TUPE applies to businesses of all sizes if the transfer criteria are met.
• “Employees can refuse to transfer”: employees can object, but this usually results in termination of their employment with no redundancy entitlement.
• “TUPE overrides all other laws”: TUPE works alongside existing employment laws and does not nullify other statutory rights.

8. Potential Penalties

If an employer fails to comply with their duty to consult and inform an employee subject to TUPE about a transfer, they can face penalties. An employer could be ordered to pay compensation to each affected employee of up to a maximum of 13 weeks’ pay each.

Compensation will be set based on the employee’s actual gross pay. There is no cap on the amount that can be awarded. Compensation could be made to be payable by either the outgoing or the incoming employer, or it can be divided between the two.

Where an outgoing employer fails to supply the necessary information to the incoming employer, the incoming employer can also apply to the tribunal for compensation. This penalty is paid to the incoming employer but is calculated based on a minimum award of £500 for each employee whose information was incorrect or not provided at all. There is no maximum cap, so again awards can be expensive.

9. Conclusion

TUPE regulations are designed to balance the interests of employers and employees during business transfers. By understanding these regulations and planning proactively, businesses can navigate TUPE effectively, minimising legal risks and fostering a smoother transition for all parties involved. For more information or assistance, contact our team today.

Navigating TUPE can be complex, but with the right guidance, businesses can ensure compliance while maintaining employee trust.

If you are considering a business sale or purchase, our experienced solicitors can help. For most new matters, we offer a 20-minute introductory call to find out more and discuss the issues before providing you with a relevant fee quote.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.