What is TUPE and when does it apply?

Friday March 10, 2023

Mergers and acquisitions raise a lot of big questions. One of the biggest questions is what happens to the employees. Workers have contracts with their employers that mandate specific responsibilities and grant specific compensation and benefits. So what happens when the company they work for now has new owners? TUPE covers such concerns.

TUPE stands for Transfer of Undertakings (Protection of Employment), which are a set of regulations that protects UK employees’ entitlement to the same terms and conditions of their employment prior to the transfer of their employer’s ownership. It applies when a business transfers and service provision changes.

When does TUPE apply?

There are certain circumstances of company ownership changing hands where TUPE comes into play, and circumstances where it doesn’t.

TUPE applies to the following situations:

  • Mergers
  • Businesses sold through sale of assets
  • Licensee and franchisee changes
  • Inheritances
  • Transfers from companies in administration
  • Contracting out of services
  • Changing contractors
  • Sale or transfer of a sole proprietorship or partnership in whole or in part

TUPE does not apply to the following situations:

  • Share take-over transfers
  • Transfer of assets only
  • One-off contracting
  • Radical transformation of business identity though the nature of work or organisational structure
  • Supplying goods for client use
  • Transfers of undertaking outside the UK

A core principle to follow to know if TUPE applies is if the business or part of it keeps its identity intact once the transfer is complete. If the business’ identity has significantly changed, TUPE typically doesn’t apply.

How does the TUPE process work?

The details of a TUPE process can vary from one transfer to another, but there is a general outline that most TUPE transfers follow.

The owners of the two business entities involved identify who will be affected by the transfer.

The current owners consult with employees about the transfer – usually via employee representatives – going into detail about when and why it’s happening, how it will affect employees and what measures will be in place for employees. They also provide information about their employees to the new owners, including but not limited to details such as:

  • Identity and age of employees
  • Employment contracts
  • Date of continuous employment
  • Entitlements and benefits
  • Pay details including all payments
  • Pension rights
  • Disciplinary record

The employee terms and conditions as outlined in their contracts of the employees are protected upon transfer to the new owners. Failure by the new owners to adhere to these terms may be deemed a breach of contract.

The current owners must communicate with the affected employees throughout the process to address concerns and manage effects on work performance as morale could be impacted during a time of change.

Employees’ rights under TUPE

All workers that are legally recognised as employees of the company being transferred, as long as it’s in the UK, are protected by TUPE. Size does not matter, as employees of enterprises and small businesses are all covered.

Information and Consultation

Employees have the right to be informed in writing and consulted regarding the transfer.

For companies with 10 or more employees, employers must consult a recognised trade union or employee representatives. If there is no trade union or employee representatives, the employer has to set up an election for employee representatives.

For companies with fewer than 10 employees, employers can directly consult with their employees unless there is a recognised trade union.

The time period for informing and consulting with employees is not fixed. It should be long enough for employees to be informed before the transfer happens to properly discuss the transfer.

Contract of Employment

As the primary goal of TUPE, employees have the right to maintain their contract of employment, including all the terms and conditions, from their previous employer to their new employer.

Changes to the contract can only be made if the changes are beneficial to the employee, or if there is an ‘economic, technical, or organisational’ (ETO) reason that requires the change. If this is the case, these changes must be communicated prior to the transfer.

Redundancy

Employees cannot be made redundant before a transfer.

Employees can only be made redundant after a transfer for genuine redundancy situations and ETO reasons.

Employees affected by redundancy after a transfer must be consulted with and paid redundancy pay by the new employer.

Employer responsibilities under TUPE

The primary responsibility for employers while going through a TUPE transfer is to keep all parties involved informed about what’s going on. Failure to inform and consult with the employees could result in an Employment Tribunal claim and lead to compensatory actions..

The current employer must provide all the necessary information regarding their employees to the new employer, as laid out earlier in the ‘How does the TUPE process work?’ section. New employers will inherit liabilities for statutory rights, except for criminal liabilities. They may also negotiate for warranties and indemnities to protect themselves from claims that come about after the TUPE transfer is done.

For employee pension rights, only personal pensions will transfer from the previous employer to the new employer. Workplace pensions do not carry over. However, the new employer must provide a new pension scheme and match contributions up to a maximum of 6%.

Professional TUPE Assistance for Smooth Transfers

We’ve only covered the bare necessities to understanding what TUPE is in this article. There are plenty of complexities that make each business transfer unique, as is to be expected during a tumultuous time when companies and entire livelihoods are shifted around when ownership transfers from one employer to another.

To make sure you don’t get tripped up by the strict requirements and tricky exceptions, call on the HR Dept to provide professional assistance with TUPE compliance from start to finish.

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