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TUPE: A Guide for Employers

Selling a company involves more than just performing a valuation, preparing a listing, or hiring a broker. Employment law plays a prominent role in these dealings courtesy of TUPE, a mechanism that protects employees during a “transfer of undertakings”.

If you are an employer involved in a TUPE process and wish to seek legal advice on overcoming the regulatory challenges associated with it, don’t hesitate to contact our employment law experts at IAS Law. Call us at 0333 305 9375 today.

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    What is TUPE?

    TUPE stands for “Transfer of Undertakings (Protection of Employment)”. The purpose of these provisions is to preclude any actions in the course of a company’s ownership or service provision change that could affect employees and their acquired rights.

    Both former and new employers must act in coordination with employees and their representatives to ensure that the transition goes smoothly and that existing employment rights are maintained whenever a business or economic entity is sold or transfers some of its economic activity.

    For assistance with navigating TUPE, call us at 0333 305 9375 today.

    Why You Should Know About TUPE

    Overview

    Employers, no matter the size of their business, should get acquainted with TUPE regulations, considering the many cases in which these norms may be applicable.

    It may be wrongly assumed that employers only need to heed these norms in the event of a business sale. Nevertheless, current TUPE regulations employ the term “relevant transfer” to describe the circumstances that could prompt their application, a term that has a much broader meaning.

    The 2006 TUPE regulations define the following situations as “relevant transfers” and, therefore, subject to its provisions:

    • A total or partial transfer of a business or undertaking located in the UK to another person while the entity maintains its identity.
    • A service provision change whereby a client forwards a responsibility or activity over to an external contractor, either from another contractor or from the client’s own organisation.
    • A service provision change by which clients withdraw a responsibility or activity from an external contractor so that it’s carried out on their own behalf.

    A cursory reading of the provisions contained in these regulations already offers us some relevant terms worth discussing. Let’s start with the first one:

    Service Provision Change

    Service provision changes consist of the actions by which an activity is transferred from an internal department or agent of a business (client) to a third-party provider (outsourcing) or vice versa (insourcing). These events constitute relevant transfers, even when they don’t entail ownership change.

    Outsourcing a task normally assigned to members of your staff to an external provider could automatically constitute “unfair dismissal” (more on this later), and – provided that some conditions are met – the workers may, in turn, file a claim at an employment tribunal. Similar treatment is provided in the case of a contractor whose job has been reassigned to a subsequent contractor or an internal department.

    Principal Purpose

    Nevertheless, not all the situations outlined above are subject to TUPE regulations, but only those in which there was a dedicated group in the UK that carried out the outsourced or insourced duties “… as its principal purpose”.

    But what does “principal purpose” mean in this context? No definition is given in the provision, spawning several legal conundrums.

    For example, in the case of an external group working for various clients, the percentage of time dedicated to a given client might serve as a clue to determine whether the activity performed for that client could be construed as the group’s principal purpose and, as a consequence, this group could be pigeonholed within the categories that the TUPE regulations protect.

    Organised Grouping

    The normative text also speaks of an organised grouping. Hence, it’s not enough to have scattered individuals performing non-relevant tasks for specific clients. Rather, the regulation concerns itself with entire groups or departments dedicated to the same goal, and that goal has to be discerned as its “principal purpose”.

    Activities Not Connected to a Specific Event or Short-Term Task

    Another requirement laid out by the oft-quoted regulation is that the outsourced or insourced activity must not be bound to a specific event or short-term duration task, meaning that it should be a regular activity that is carried out in the same manner as before the transfer.

    So, for example, if external contractors were hired to build a specialized facility, this action would not constitute a TUPE violation to the detriment of employees or contractors who ordinarily perform other types of construction work for the client.

    Activities Do Not Consist Wholly or Mainly of Supplying Goods

    A client who decides to find another goods supplier would not breach TUPE clauses, provided that this was the main or only activity entrusted to the previous contractor.

    The BIS guidance also brings up the example of a contractor that supplies food and drinks to a canteen’s staff. In that scenario, even supposing that there was a team on the site making the food, the contract would still be considered wholly or mainly for the supply of goods. This would not be the case if that team was destined to run the client’s canteen instead.

    When Could TUPE Apply According to Case Law?

    We have already disclosed that TUPE applies from the moment that a “relevant transfer” takes place. Additionally, the courts have also devised a list of different indicators that may help ascertain its applicability, such as:

    1. The type of undertaking that is transferred;
    2. Whether tangible assets are being transferred – such as mobiliary or real estate – as well as intangible assets of significant value;
    3. Whether customers or the majority of employees are also being taken on by the new employer;
    4. Whether the activities performed under the new employer are similar to those under the former employer;
    5. Whether there was a period of suspension.

    The question concerning the potential need for an employer to abide by TUPE rules is one that is fraught with unclear answers. While it’s always important to err on the safe side, it’s also imperative to confide any doubts to an acknowledged law firm or employment solicitor in order to receive advice on how to move forward.

    What Happens If TUPE Applies?

    Initially, whenever TUPE applies to a specific situation, all the transferor’s capabilities, rights, liabilities, and obligations are passed on to the transferee (new employer). This includes all assets and, most importantly (for the purposes of this writing), contracts of employment.

    When transferring employees in this situation, the transferred employees would have the same rights and duties that they had under the former employer, meaning that their contract remains intact for the most part. They could initially object to the transfer, but this may cause them to lose valuable legal rights.

    We help employers with matters relating to TUPE. Get in touch with us today to discuss.

    Employers’ Obligations Under TUPE Regulations During a Business Transfer

    New employers faced with TUPE regulations must strive to preserve existing employment rights by the time the transfer takes place.

    They must likewise take the time to know their staff, as well as any existing liabilities. The old employer or seller must provide the buyer or transferee with a copious amount of employment-related documentation. One of these documents is ELI (employee liability information).

    What Is Employee Liability Information (ELI)?

    This “employee liability information” encompasses the following data about staff members:

    • Their identity and age
    • Their written statements containing relevant employment terms
    • Disciplinary and grievance records (including cases that are still underway) from the past 2 years
    • Collective agreements between the former employer and a trade union that could apply to the employee.
    • Claims made by the employee against the old employer during the last 2 years, as well as possible claims that could be made under the transferee.

    This information must be given to the new employer at least 28 days prior to the transfer date, though it’s always advised to provide it earlier.

    The former owner must also notify the transferee about any updates in the liability information, as well as the unwillingness of any of the employees to get transferred (if applicable).

    Before ELI is sent, the seller must make sure that all staff policies are laid out -including those not found in the individual employment contracts – as well as any non-written agreements such as flexible working arrangements or similar.

    If there is any error in the ELI, the new company could make a claim before an employment tribunal for compensation.

    What Is the Next Step After the New Employer Receives the ELI?

    The new employer also has an obligation to communicate to the old employer the measures that they’re planning to carry out after the transfer is complete.

    These measures typically amount to changes in working or payment conditions. They may include:

    • Redundancies
    • Location transfers
    • Changes in pay dates
    • Changes in working hours

    Obligation to Inform

    Old employers, in turn, must notify the affected employees – including those who are on maternity, adoption, paternity, or sick leave – and employee representatives of the proposed measures.

    The obligation to inform and consult should be fulfilled as soon as possible. The time it takes to complete the information and consultation process may vary according to various factors, such as the size of the organisation, the number of people affected, and the intricacies of the changes.

    Inform Affected Employees

    Affected employees who must be informed of a business transfer include:

    • Those who are being transferred to the incoming employer.
    • Those who will stay with the old employer but whose colleagues will transfer to the new one.
    • Those working under the new employer whose employment may get affected by the incoming staff.

    Inform and Consult Employee Representatives on Proposed Changes

    During the course of a transfer of undertakings, there is an obligation on the part of both old and new employers to inform appropriate representatives or trade unions of the motivations behind the transfer, as well as consult them regarding the proposed measures to be taken afterwards in order to get their respective feedback.

    During these conversations, you would want to discuss with the staff representatives what information may or may not be disclosed to individual employees.

    It’s always commendable to inform individual employees about the transfer, and the proposed changes – insofar as the information to be relayed is allowed to be disclosed- even if they’re not affected by the transfer, for not every employee is an active member of a trade union and may not be notified of any updates from its representatives.

    Organisations with fewer than 10 employees may arrange an election with the affected employees so that they may choose their representatives. Alternatively, the manager can consult directly with all the affected employees individually or in a group meeting.

    Which Employees Are Transferred to the New Employer?

    Overview

    This is a question that has been hotly debated in European and British courts, considering that both issued very controversial decisions on the matter in 2020 and 2021, respectively. These decisions emphasized that it would be possible to transfer the employee’s contract partially to a transferee if the contract is split.

    Case law initially designed an assignment test with a list of factors that should help identify which employees should be transferred, called the “wholly or mainly assigned” test. This falls in line with the “principal purpose” criterion that was defined earlier.

    In summary, the test would establish which part of the relevant service is “wholly or mainly assigned” to the employee and how much time the latter spends fulfilling that assignment.

    However, given the most recent rulings on the matter, the subject is, as of this writing, marred with uncertainty.

    Employees vs. Workers

    In a strict sense, the term “workers” designates individuals who work under a contract whereby they agree to perform a personal service or work for another party under more “casual” conditions, meaning that they’re not offered regular hours and have no obligation to make themselves available for work but are only bound to do the work they have agreed to.

    In the past, workers were not protected under TUPE regulations owing to the generally sporadic nature of their role within an organisation. However, a relatively recent ruling by a London employment tribunal (eCourier and CitySprint case) has muddied the waters on this topic by establishing that workers, even on the altered contracts, were entitled to TUPE protections.

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    Unfair Dismissals During Transfer

    As was explained before, employees who were made redundant due to outsourcing or who were dismissed during a transfer have the right to claim unfair dismissal before an employment tribunal.

    Yet, a judge may acknowledge the transfer as the “sole or principal reason” for the dismissal only inasmuch as there are no other proven clear grounds such as organisational reasons or a previously undergone fair dismissal process.

    How to Protect your Company from the Effects of a TUPE Transfer

    It’s not possible to completely elude TUPE in any capacity. Notwithstanding, you could, as an outgoing or incoming employer, devise mechanisms to split up TUPE liabilities with the other party. From a seller’s point of view, this may additionally help build confidence in prospective business buyers who are unsure about taking the bulk of the responsibility from day one, not knowing what they will find along the way.

    There are, in addition, other methods that could help you circumvent the application of TUPE measures, for example, in the event of a service provision change. This may be achieved via a variety of means, such as structuring assignments in specific ways.

    Since each individual case has its own set of peculiarities, it’s always recommended to seek legal advice from competent employment law solicitors, such as those at IAS Law.

    How We Can Help

    At IAS Law, we have ample experience assisting employers – transferors or transferees – in their TUPE compliance duties, mitigating employment law risks associated with a business transfer or service provision change.

    Our law firm has also dealt extensively with TUPE issues on both sides of the conflict, so employers are guaranteed to get an all-encompassing consulting job that tackles every possible claim that may come their way.

    Call us now at 0333 305 9375 to learn more about the services we provide and how we can help you.

    Get in touch with our team today to learn more about our professional services and to find out how we can help.

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    Frequently Asked Questions

    This depends on the specific circumstance. While the recent rulings in favour of including certain workers are not necessarily binding, employers should tread carefully when dealing with workers, as the modern trend in case law appears to be very protective towards them in the context of TUPE.

    Nevertheless, each case is different, so the best course of action is to seek personalized legal advice on the matter.

    Employment tribunals are public bodies spread across England, Wales, and Scotland, with statutory jurisdiction to hear disputes between employers and employees concerning redundancy payments, employment discrimination, and unfair/constructive dismissals.

    That depends on what type of work is being off-shored. If a redundancy exists in the sense that a particular activity is no longer demanded at your UK facility, you could make the case as an employer for a fair dismissal.

    However, you could run into trouble in the case of certain assignments that may be purely performed in a digital workspace and do not require moving the workforce to foreign soil.

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