Business Transfers and TUPE

TUPE is the commonly used abbreviation for the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Employees are often the most vital asset involved in any business acquisition or service provision contract change. Any slips up in relation to handling the employee aspects of a deal can result in extremely complex and expensive litigation. This will clearly have a massive impact on the future profitability of the business, and it is therefore prudent to take legal advice at an early stage not only in relation to the legal aspects of TUPE but equally the practical and commercial aspects.

Our employment team has a huge amount of commercial experience in this area and we regularly work alongside our busy corporate team to advise employers about the people aspects of these transactions. We know what the risks and issues are and can help you as an employer managing a particular deal to a successful outcome.

When does TUPE apply?

The single most asked question in relation to TUPE is whether it applies or not. Whilst it is impossible to provide a definitive answer as each transaction turns on its own facts, generally, if there is the transfer of assets as opposed to the transfer of shares, then TUPE may well apply.

TUPE can apply in two instances; (1) where a business is transferred which retains its identity following the transfer or (2) where a client engages a contractor to carry out work on its behalf or brings the work back in-house or assigns a contract to a new contractor (second generation out-sourcing). Please note that some transfers will constitute both a business transfer and a service provision change.

If TUPE applies this means that employment contracts will transfer from the seller (or outgoing contractor) to the buyer (or incoming contractor or (or client)) and all rights, powers, duties and liabilities in connection with those employment contracts will also transfer to the buyer. The key issue here is that employees’ employment will transfer on the same terms and conditions as they were employed with the seller. In order to change those terms and conditions, e.g. to harmonise with those of the buyer, there will need to be an economic, technical or organisational reason entailing a change in the workforce (ETO) in order for that change to be effective and not be void. ETO reasons can include redundancy or a change of location.

Consultation

If TUPE applies, then the seller must inform and/or consult with appropriate employee representatives in sufficient time prior to the transfer in relation to things such as the reasons for the transfer, the proposed date of transfer, the legal, economic and technical consequences of the transfer, and it should also deal with any measures that the buyer envisages taking post-transfer. Measures effectively means any changes that the buyer is looking to make e.g. administrative changes such as date that people are paid or more significant changes such as potential redundancies. It is then for the seller to inform and/or consult with affected employees. Failure to inform and consult can lead to compensation of up to 13 weeks’ gross pay being awarded to each affected employee.

There are no specific time frames for information and/or consultation as there are with redundancy, however, twenty eight days prior to the transfer the seller should supply employee liability information to the buyer which effectively sets out the following:

age and identities of employees;
information required under section 1 ERA 1996;
any grievances or disciplinaries in the last two years prior to transfer;
information on collective agreements affecting those employees; and
any legal action taken by those employees against the seller in the previous two years.

We can support your business on all aspects of the transaction including drafting the warranties and indemnities and the sale or purchase agreement, support you in relation to the information consultation issues with employees, preparing or viewing employee liability information and advising on the practicalities of potentially harmonising terms and conditions or restructuring post-transfer.