Thackray Williams

The following is a brief summary of some of the main effects of the TUPE Regulations which is provided for your information. It is not intended to be comprehensive or to replace the need for tailored personalized advice.

BUSINESS TRANSFERS

If you are buying or selling a business (or part of one) in which people are employed (other than by share sale) or are involved in in-sourcing, out-sourcing, tendering, re-tendering or franchising, you need to be mindful of the  Transfer of Undertakings (Protection of Employment) Regulations 2006 “TUPE”.

The Regulations can also apply if you lose a client to another work provider, or conversely if a client transfers its work to you; if the employer from whom the work was moved employed a dedicated grouping of one or more staff wholly or largely engaged on performing this client’s work. Essentially, as is set out below, these staff could automatically transfer with their work, so that in taking on a new client the unwary could take on substantially more than they may have bargained for.

If you are in one of these situations we would urge you to take specific advice on your plans for the affected staff at the earliest stage in the proposed transaction.

Victoria Wright, Lisa Judd or Emma Thompson in our employment department (based at our Bromley offices) will be happy to provide a fee estimate for provide this advice.

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The Transfer of Undertakings
(Protection of Employment)
Regulations 2006 “TUPE”.

Transfer of Employment Regulation 5(1)

The main effect of these regulations applying to a business transfer is that the contracts of employment of any employees covered by the Regulations are automatically transferred “novated”, without variation to the new owner of the business / new contractor (the “transferee”). In effect the employment contract is treated as if it were originally made between the employee and the transferee.

For all purposes the period of continuous employment which the transferring employee had accrued with the old employer / ”transferor” counts towards the continuous employment the employee then continues to accrue with the transferee.

Employee Objections Regulation 5 (4a) and (4b)

Although this transfer is automatic, an employee’s contract of employment will not transfer if prior to the transfer or upon being notified of it the employee objects to his employment transferring. 

Depending on the employee’s reasons for refusing to transfer such an employee may have a claim for compensation for constructive unfair dismissal.

Transfer of Liability Regulation 5(2)

All of the former employer’s liabilities (except criminal liabilities and old age invalidity or survivors benefits) towards any employee covered by the Regulations will also pass to the new employer. In effect anything done by the former owner in respect of the employee’s employment is deemed to have been done by the transferee. This can include liability for personal injury claims and liability for claims in respect of discrimination predating the transfer. That said the transferee will also acquire the benefit of any insurance cover the transferor had in relation to the transferring employees. The transferee may also assume liability for bonuses, profit related pay etc so may have to provide a scheme of substantial equivalence. Benefits under collective agreements can also transfer if these have been incorporated into the employment contracts of the affected employees.

Transfer Related Dismissals Regulation 8

Any transfer related dismissal will be Automatically Unfair – unless there is an Economic Technical or 0rganisational (“ETO”) Reason for it.

Even then, where applicable the Standard Statutory Dismissal and Disciplinary Procedure should still be followed.

A dismissal may be “transfer related” even if it occurs before the transfer takes place and whether affected by the old employer/transferor or the new employer/transferee.

A seller cannot dismiss in reliance on the purchaser’s ETO reason e.g. that the purchaser has a reduced need for staff of a particular type (redundancy).

Any automatically unfairly dismissed employee who at the point of dismissal had over 51 weeks’ continuity of employment will be eligible for compensation for the unfair dismissal. As at February 2008 the maximum compensatory element of this compensation is £63,000. 

Changes to terms and conditions of employment Regulation 9

As stated above, usually in a TUPE situation the contracts of the transferring staff will transfer, without variation. Whilst the Regulations do allow variations these may only be made in extremely limited circumstances. Changes cannot usually be made, for example, simply to harmonize terms with any existing staff.

Detrimental transfer related changes made before, at, or even weeks or months after a transfer are void. This is so even if the employee consents to them, or if overall the revised terms are to the transferring employee’s benefit. Effectively some months or even years after a transfer, and after an employee’s apparent acceptance of revised terms, the employee may sometimes be able to declare any detrimental changes void whilst cherry-picking and retaining any beneficial changes e.g. retaining a pay rise or bonus but rejecting a new restrictive covenant or notice provision.

Notification Requirements Regulation 11

The transferor is obliged to provide the transferee with “Employee liability information”, in writing or in a readily accessible form, not less than 14 days before any relevant transfer.

This information must be accurate to a particular date not more than 14 days before the date on which it is provided.

Failure to do so can expose the transferor to liability in the employment tribunal to pay compensation to the transferee which will usually be a minimum of  £500 per employee in respect of whom the transferor failed to provide the information. If a number of employees are involved this can amount to a sizeable sum. Regulation 12.

Due Diligence

As part of the Due Diligence process usual when purchasing a business or part of one (though less usual in a tendering situation) the parties may elect to exchange additional information to that required by regulation 11. For example the transferee might request sight of any recent letters of resignation to confirm no grievances may be lurking, overlooked, within them. It might ask about all grievances, including those which may only have been raised informally i.e. which have not yet have been put in writing, which would not necessarily be notifiable under Regulation 11 – but which still might lead to a claim. We would suggest that the information a transferee should request goes beyond that required to be provided under regulation 11. We can advise on this.

Duty to Inform Regulation 13

Any employees affected by a TUPE transfer must be informed:-
• that the transfer is to take place,
• when it is to take place,
• the reasons for it,
• the legal, economic and social implications of the transfer,
• any measures the employer or the vendor envisage taking in  relation to the affected employee.

Duty to Consult - if “measures” are anticipated –Regulation 13.

If you intend taking measures (dismissals including redundancies/ changing terms and conditions etc) in relation to any staff  affected  by the Transfer, including amongst your existing workforce, then in addition to providing the information set out above you need to engage in collective consultation with representatives of any recognized union or appropriately elected employee representatives under Regulations 10(2a), 11(2a) and 11(2b). This must occur sufficiently in advance of the transfer date (completion)  for it to be effective.

Mobility

If the transfer will involve a change in workplace for any affected employees it will be necessary to consider whether their employment particulars contain a mobility clause giving the employer sufficient discretion to affect the change of workplace without this constituting a potentially void change in terms, or constituting a repudiatory breach of contract, or a significant change in terms (which whilst short of a repudiatory breach might nonetheless still entitle the employee to claim compensation on the basis that as a result of the proposed move he objects to the transfer of his employment).

Redundancies

If collective redundancies are planned which relate to a TUPE transfer (i.e. 20 or more redundancies within any rolling 3 months) collective redundancy consultation must also take place – TULCRA s188. There are minimum periods (30-90 days) for this collective consultation (dependant on the number of employees being made redundant) which must occur before any employee is put on notice of redundancy.

If you have sufficient staff already it should not be assumed that it should be staff who would transfer under the TUPE Regulations with the business, contract or client acquired who would be made redundant in preference to the transferee’s existing staff, both should be placed in any redundancy selection pools and the staff to be retained should then be selected based on objective criteria in the usual way.

Protective Awards

Failure to inform and if necessary consult in a TUPE transfer situation can give rise  to liability to both the transferor and transferee jointly for a Protective Award of up to 13 weeks pay per affected employee (including those with less than 1 years continuity of employment who could not claim unfair dismissal).

A similar liability to a further Protective Award can arise if the TUPE measures in question relate to a collective redundancy where proper s188 collective redundancy consultation has not occurred.

Only one employee or employee representative needs to win such a claim to expose the employer to liability to pay the Protective Award to all affected employees (those transferring or dismissed for a reason connected with the transfer and any of the employer’s existing staff also affected by it).

Getting this wrong can get very expensive, especially as such awards are punitive – not loss based. An Employment Tribunal will start at the position that they should award the maximum of 13 weeks’ unless persuaded otherwise.

Restrictive Covenants

The interpretation of these clauses is not straightforward in a TUPE transfer situation. References to clients/customers etc of “the Employer” may following the transfer continue to mean the clients and customers of the transferor – offering no protection against post termination solicitation or dealing with the transferee’s clients/customers etc.

Pensions

If the transferor contributed to the pensions of any transferring employee (or if they were eligible to benefit from such employer’s pension contributions) then under the Transfer of Employment (pension Protection) Regulations 2005 and the Pensions Act 2004 the purchaser/transferee will  be obliged to provide continuing pension benefits at a prescribed level - which may exceed the transferor’s level of pension contribution.

Tips to Transferors

Provide full and comprehensive information to fully satisfy your notification requirements under Regulation 11 remembering the  details of any relatives you employ. Not doing so can get extremely expensive, especially when larger numbers of staff are involved. When complying remember any written grievance must be disclosed including emails/texts etc even if the employee does not use the word “grievance” or use the company’s formal grievance procedure. Resignation letters often contain grievances which are mistakenly overlooked as being merely the employee’s reason for resigning.

Also consider your solicitor drafting a clause within any business sale agreement limiting liability for failure to comply with the clause 11 notification requirements.

Early within the transaction instruct your solicitor to get a written measures statement  from the transferee setting out the measures the transferee envisages taking in respect of the affected employees and take employment advice regarding whether these will trigger a duty to consult and regarding how this consultation should  be handled.

Do not promise to make any staff redundant prior to the proposed transfer without first taking legal advice.

Contacts:
Victoria Wright           0208 461 6153
Lisa Judd                    0208 461 6154
Emma Thompson       0208 461 6185

This is only a general guide to aspects of employment law and should not be seen as a substitute for legal advice. In all cases legal advice should be sought to ensure compliance with current employment legislation.