The EC3\Legal Guide to TUPE

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1 The EC3\Legal Guide to TUPE Overview and the 2014 Regulations Marina Garston Legal Director +44 (0) This guide focuses on the main provisions of TUPE and takes into account the new 2014 amendment regulations. Key legislation 1. The Transfer of Undertakings (Protection of Employment) Regulations 2006 ( TUPE ) came into force on 6 April 2006 replacing the Transfer of Undertakings (Protection of Employment) Regulations 1981 and applies to transfers taking place on or after 6 April On 31 January 2014, new legislation, namely the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations, came into force but subject to transitional provisions. What is TUPE? 4th Floor 106 Leadenhall Street London EC3A 4AA T: +44 (0) New London Road Chelmsford Essex CM2 0PE T: +44 (0) Very simply, the purpose of TUPE is to protect the employment of employees when the company they are working for or part of that business is sold on. 4. The following are the three most important elements to remember about TUPE: EC3\Legal LLP. February EC3-0002

2 I. Firstly, employees of the seller transfer to the buyer who then subsequently inherits all rights, liabilities and obligations in relation to these employees. II. III. Secondly, employees are protected against dismissal in connection with a TUPE transfer. Thirdly, ahead of a TUPE transfer, the seller and the buyer are obliged to inform and (if appropriate) consult with representatives of the affected employees. 5. TUPE applies to a relevant transfer, i.e. a transfer of a business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity (a business transfer). 6. Moreover, a client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work in-house (a service provision change) will also amount to a relevant transfer. Employees transfer automatically 7. Where there is a relevant transfer, the contracts of employment of those employees employed by the transferor and assigned to the organised grouping of resources or employees that it subject to the relevant transfer automatically transfer to the buyer on their existing terms. The buyer effectively steps into the shoes of the seller. It is as though the employee's contract of employment was always made with the new employer/buyer. It is for this reason that the seller will need know all about the employees that it might inherit if they are planning to take over a contract or buy a business. This is done through comprehensive due diligence on the seller s contract or business. 8. Employees who object to the transfer do not become employees of the buyer. Their contracts of employment terminate on the transfer date automatically. These employees are not dismissed. Changing terms of employment 9. It is very difficult to make changes to employees terms and conditions of employment following a TUPE transfer. 10. For changes that take place before 31 January 2014, these will be void if the sole or principal reason is either the transfer itself or a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce (ETO reason). 11. Changes to terms of employment after 31 January 2014 will be void if the sole or principal reason for the change is the transfer itself unless the reason is an ETO reason or the reason

3 for the variation is the transfer, but the terms of the contract permit the employer to make such a variation. Automatically unfair dismissals 12. Employees are protected against dismissals which are made in connection with a TUPE transfer. For dismissals taking place before 31 January 2014, the dismissal will be automatically unfair where the sole or principal reason for the dismissal is either the transfer itself or a reason connected with the transfer that is not an ETO reason. 13. For dismissals taking place on or after 31 January 2014, the dismissal will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself. If the reason is an ETO reason, then the dismissal may be potentially unfair. Have you informed and consulted? 14. Both the seller and the buyer must inform and (if appropriate) consult with recognised trade unions or elected employee representatives (if no union is recognised) in relation to any of their own employees who may be affected by the transfer or any measures taken in connection with it in good time ahead of the transfer. There is always a duty to inform on every TUPE transfer. The duty to consult only arises where the buyer envisages taking measures in respect of affected employees. 15. The following information must be given to the appropriate representatives: The fact of the transfer, the date when it is to take place and the reasons for the transfer. The legal, economic and social implications of the transfer for the affected employees. The measures which the employer envisages it will take in connection with the transfer in relation to "any affected employees" or, if no measures are to be taken, that fact. The seller must also provide information about any measures that the buyer envisages it will take in relation to the transferring employees in connection with the transfer or, if the buyer envisages taking no measures, that fact. 16. An employer has a defence for failure to inform or consult if it can show that there were special circumstances making it not reasonably practicable for information to be given or consultation to take place, and that it had done the best it could to comply with its obligations (the special circumstances defence). However, in practice, this defence is likely to be construed very narrowly. Employers are always advised to begin the process as soon as it is commercially possible to do so. 17. The 2014 amendment regulations will allow small businesses with 10 or fewer employees to inform and consult with affected employees directly from 31 July Failure to inform and consult

4 18. If a seller and buyer fail to inform and consult with affected employees, they could be liable to compensation equivalent to up to 13 weeks uncapped pay per affected employee. 19. The seller and buyer may be held to be jointly and severally liable for this. A failure to comply with the provisions of TUPE can, therefore, expose the buyer and the seller to very costly Tribunal claims. Employee Liability Information ( ELI ) 20. TUPE also requires the buyer to provide the seller with information about the transferring employees (ELI) no less than 14 days before the transfer takes place. 21. ELI includes the identity and age of the employee, the information that must be included in the employee's written statement of employment particulars under s.1 of the Employment Rights Act 1996, information on any disciplinary procedure taken in relation to the employee or grievance procedure taken by the employee, information on any court or tribunal claim brought by the employee against the seller and any potential claim against the buyer arising out of the employee's employment with seller and information about any collective agreements that will have effect after the transfer in relation to the transferring employee. 22. For transfers that take place after 1 May 2014, the time for the seller to provide the ELI will be increased from 14 days to 28 days before the transfer. TUPE in insolvency situations 23. TUPE is relaxed to protect incoming employers where the exiting employer is insolvent. The liability for redundancy, notice and some other payments to employees will not transfer to the incoming employer. The reason for this is for companies to be able to rescue insolvent businesses. Outsourcing and TUPE what is it? 24. Outsourcing is where an organisation that previously provided services using its own resources in the form of employees transfers the whole or some part of those resources to an external supplier on terms that it will purchase services from that supplier for a specific period. This is also known as a "first generation outsourcing". 25. A subsequent transfer of the services from an outgoing supplier to an incoming supplier is known as "second generation outsourcing". 26. The process of the customer taking the outsourced services back in-house is known as "insourcing" or "contracting-in".

5 27. TUPE provides that there will be a relevant transfer where there is a service provision change and certain listed conditions are met. An outsourcing, second generation outsourcing or an in-sourcing is likely to fall within the definition of a service provision change. 28. An outsourcing agreement will need to address the following issues, including: a) "entry provisions" relating to the initial transfer of the services from the customer to the supplier; b) the general, day-to-day provision of services during the term of the agreement; and c) "exit provisions" relating to the termination of the services by the supplier and the subsequent transfer back to the customer (or to a different supplier). 29. Where employees are being transferred, the outsourcing agreement will need to make reference to the transfer of the employees at the start of the arrangement, the parties' ongoing obligations in relation to the employees and the arrangements at the end of the contract term. A scenario A Limited is proposing to sell its business to B Limited on 30 April A Limited has 25 members of staff and it does not recognise a Union. In broad terms, what do A Limited and B Limited have to do? A. Due diligence Ahead of 30 April 2014, B Limited needs to undertake a thorough due diligence exercise so as to ascertain the terms of employment of those employees of A Limited and the accrued liabilities and obligations it will be inheriting. A Limited and B Limited will need to start negotiating terms on the business purchase agreement in advance of 30 April B Limited should seek to obtain warranties and indemnities from A Limited. The warranties should cover the accuracy of the information provided by A Limited such as the existence of potential claims and other liabilities. A Limited must indemnify B Limited for all pre-completion liabilities. B Limited must indemnify A Limited for all post-completion liabilities. A Limited must provide B Limited with Employee Liability Information by 16 April 2014 at the latest. B. Information and consultation A Limited needs to inform its employees of the transfer in good time ahead of the transfer and before 30 April A Limited will need to start organising elections for employee representatives.

6 A Limited should consider informing the employees of the proposals initially by way of a staff meeting and also that A Limited will be starting elections for employee representatives. All communications regarding the transfer should be confirmed in writing to ensure full understanding. Once the employee representatives have been elected, A Limited needs to consult with them about the transfer and the reasons for it. If B Limited are going to be taking any measures with regard to the transfer, B Limited need to consult with employees about that. A Limited and B Limited need to ensure a smooth transition of the employees into the business of B Limited. For more information on these topics or advice on any employment law issue, please contact Marina Garston. Marina Garston Solicitor Marina has extensive experience across the whole spectrum of employment law, from giving day-today employment advice to companies to litigating employment disputes in the Employment Tribunal. She has advised a wide variety of corporate clients over the years. Marina also advises senior employees as to their employment position. Further advice should be taken before relying on the contents of this summary. All copyright and rights to this Memorandum belongs to EC3\Legal LLP, and no part of this Publication should be used, reproduced or published in any manner without prior consent. EC3\Legal LLP is not responsible for the content of external websites. EC3\Legal LLP a firm authorised and regulated by the Solicitors Regulation Authority EC3\Legal LLP is a limited liability partnership registered in England under company number OC

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