TUPE : The Transfer of Undertakings (Protection of Employment Regulations) 2006 A Brief Guide
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1 TUPE : The Transfer of Undertakings (Protection of Employment Regulations) 2006 A Brief Guide The following is intended to provide a brief introduction to the subject of TUPE. It explains some of the key basic ideas relating to TUPE and should not be taken or treated as legal advice. Please telephone the Markel Helpline with any specific queries or problems relating to issues covered in this briefing note. Please also note that you may have a specific condition in your insurance policy requiring you to contact the Markel Helpline in the event that you are dealing with a TUPE situation. Please review your policy wording or contact your broker if necessary. You may also find it helpful to refer to the guidance on TUPE published by the Department for Business Innovation and Skills (formerly the Department for Trade and Industry), which can be found on their website. 1. What is TUPE? TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations TUPE is legislation introduced in the UK pursuant to a European Directive known as the Acquired Rights Directive. Equivalent laws exist in other EU member states. 2. Why is TUPE important? TUPE gives significant protection to employees if they are to transfer under TUPE. In particular, it: protects employees from dismissal in connection with the transfer; preserves employees terms and conditions of employment after the transfer; gives employees the right to be informed and consulted about the transfer. It can be very costly to fail to take proper account of TUPE when negotiating the terms of a purchase or contract. It is important to recognise a potential TUPE transfer from an early stage to ensure that all parties ask the right questions, undertake the right investigations and consult employees appropriately from the beginning. 3. Does TUPE apply? TUPE can apply in a diverse range of circumstances such as: the sale of a business or part of a business as a going concern; Page 1 of 7
2 transfers between businesses within the same group; the contracting out of a particular business activity. For example, a factory decides no longer to provide its staff canteen service itself but instead to contract with another organisation to provide the canteen service; contracting with a new provider to provide a particular business activity. For example, the factory decides to change its canteen service provider from one organisation to another; contracting a particular business activity back in. For example, the factory decides no longer to contract with an outside organisation to provide the canteen service but to provide the canteen service itself in house. It does not matter whether the parties involved are commercial enterprises or not. TUPE also applies to transactions involving the public or voluntary sectors. TUPE applies as a matter of law regardless of whether the parties to the transaction want it to apply. The rights that TUPE confers on employees involved in the transfer are unaffected by any decision by the parties to proceed on a non-tupe basis. If you are in any doubt, please seek advice from the Markel Helpline as to whether TUPE applies in your specific circumstances. 4. Who transfers? TUPE operates to transfer the employment of all employees who are employed in and assigned to the business or contract which is transferred, from the seller to the buyer or from the old contractor to the new contractor. In some cases, deciding which employees transfer will be straightforward. Where the employees do all their work for the business or services being transferred, they will transfer under TUPE. However, in some cases, some employees may spend some of their time working in the area of business being transferred and the rest of their time on another part or parts of the employer s organisation. In that situation, an assessment will have to be made as to which employees are assigned to the business transferring. Deciding which employees are assigned to the business or contract being transferred, various factors must be considered including: the amount of time spent by the employee in the business or contract; the amount of value given to each part by the employee; the terms of the contract showing what the employee was required to do; and how the costs to the employer of the employees' services were allocated between different parts of the business. Page 2 of 7
3 Although each case will turn on its own facts, as a broad rule of thumb, employees who spend less than half their working time on duties for the transferring business are not likely to transfer under TUPE. Please seek specific advice, however. Employees have the right to formally object to the transfer of their employment under TUPE. If they do so, their employment will automatically end on the transfer date. 5. What Transfers? When an individual s employment is transferred under TUPE, all the old employer s rights, powers, duties and liabilities under the individual s contract of employment will transfer to the new employer. In practice, this means that, following the transfer, the new employer steps into the old employer s shoes. All aspects of the transferring employees employment continue unchanged with the new employer and anything done by the old employer with respect to the transferring employees is treated as having been done by the new employer. The following is a list of key liabilities that will transfer when TUPE applies: to honour existing terms and conditions of employment, including job titles and contractual disciplinary and other procedures; to continue to provide the same pay and contractual fringe benefits, including any bonus or commission schemes, share schemes, profit related pay, contractual employer s contribution to an employee s personal pension, early retirement benefits and enhanced redundancy entitlements; the employee s continuity of employment (length of service); for any outstanding claims which an employee has against the transferor, including for personal injury, unfair dismissal and discrimination; Union recognition agreements may also transfer in certain circumstances. The transferee should also seek information from the transferor about pensions provision for transferring employees and take advice concerning the liabilities that will be transferred in respect of pensions. These liabilities can be costly for the new employer. It is essential to establish precisely what liabilities might transfer by means of due diligence before a transfer. When the extent of the potential liabilities to be taken on by the new employer under TUPE have been established, the true cost of a transferring business or contract can be calculated and, where possible, indemnities sought to protect the new owner / contractor who inherits liability for the fault of the outgoing employer. Page 3 of 7
4 6. Dismissing employees When staff are inherited on a TUPE transfer the ability to dismiss those staff fairly or to harmonise their terms and conditions of employment to match the terms and conditions of existing staff will be very limited. Specific advice should be taken as to what may be permitted following a transfer in any particular circumstances. The dismissal of any employee for a reason connected with the transfer, will be automatically unfair unless it is for an economic, technical or organisational ( ETO ) reason entailing changes in the workforce. This applies whether the dismissal is before or after the transfer. ETO reason is not defined in TUPE. However, government guidance gives the following examples: economic reason a reason related to the profitability or market performance of the transferee s business; technical reason a reason related to the nature of the transferee s equipment or production processes; or organisational reason - a reason related to the management or organisational structure of the transferee s business. The concept of entailing changes in the workforce is also not defined in TUPE but existing case law has established the need for a change in the numbers or functions of employees. A dismissal that is for an economic, technical or organisational reason entailing changes in the workforce will not be automatically unfair. However, it will still have to be conducted in accordance with general principles of fairness to ensure the dismissal is not unfair on the usual unfair dismissal test. Often, an ETO reason entailing changes in the workforce will mean redundancies. To ensure such dismissals are fair, the employer will have to comply with the usual procedural requirements in a redundancy situation, including fair selection, warning and consultation, and looking for suitable alternative employment for employees at risk of redundancy. As a result of TUPE any liability associated with a dismissal before the transfer, including any finding of unfair dismissal or unlawful discrimination, will in most cases pass to the transferee. 7. Changes to terms and conditions after a TUPE transfer Changes to terms and conditions, where the main or only reason for the change is connected with the transfer, will be void unless the changes are for an ETO reason (see above). Page 4 of 7
5 Often an employer who simply wants to have all employees on the same terms, but who is not restructuring the workforce, will not be able to show an ETO reason, with the result that any changes made to terms of employment will be void and unenforceable. This will be the case even if the employees concerned have purportedly agreed to the changes. In such circumstances employees will still be able to rely on their old terms. From 31 January 2014, changes to workforce location post transfer can amount to an ETO reason. The longer the period of time between the transfer and the change to terms and conditions, the less likely it is that the change would be found to be connected to the transfer. Unfortunately, however, there is no hard and fast rule in relation to the lapse of time and even a period as long as two years might not be enough, if there is no other reason for the changes than a desire to harmonise the terms and conditions of the two workforces after the transfer. From 31 January 2014, transferees will be able to renegotiate terms derived from a collective agreement 1 year after the transfer, provided the changes are no less favourable overall. Where an employer decides to introduce changes to employment terms, in addition to the restrictions imposed by TUPE, the general rules of contract relating to changing terms and conditions must also be adhered to. In most cases, this means obtaining the express consent of the employees to the proposed changes. This is the case even where the employer can show an ETO reason for the change. If a substantial detrimental change in terms and conditions is proposed, the transferring employees may be able to resign before the transfer and claim constructive dismissal. 8. Duty to inform and consult Both the transferor and the transferee have a duty to inform and consult either trade union representatives or employee representatives on all TUPE transfers. There is no time period over which the information and consultation exercise has to take place. TUPE simply states that it must be "long enough before the relevant transfer" to enable consultation with representatives to take place. Where no suitable employee representative body exists, representatives should be elected for the purpose of TUPE consultation, and the employer has an obligation to invite employees to elect representatives for this purpose. Where there is no recognised trade union if the affected employees fail to elect representatives within a reasonable period of time then the employer must give the necessary information to employees directly. Under TUPE, the employer of affected employees must inform the representatives of: Page 5 of 7
6 the fact that a relevant transfer is to take place; when it is to take place; the reasons for it; the legal, economic and social implications of the transfer; the measures which the employer envisages taking in relation to the affected employees e.g. a change of site or redundancies (or if no measures are envisaged, that fact); and the measures which the transferee envisages taking in respect of the transferring employees (or if no measures are envisaged, that fact). If measures are envisaged by either the transferor or the transferee then, as well as informing the appropriate representatives about the above matters, the employer has an obligation to consult with the representatives. If no measures are to be taken there is no obligation to consult. There is no definition of "measures" under TUPE, but the term will be interpreted quite broadly and will cover proposed redundancies, restructuring, contract changes including relocations and changes to working practices. Failure to inform and consult under TUPE can lead to a protective award against the employer, which can be up to a maximum of 13 weeks' pay per employee. 9. Employee liability information TUPE imposes obligations on the transferor to provide the transferee with employee liability information in relation to the transferring employees. This must be provided in writing or made available in a readily accessible form and comprises: the identity of the employees who will transfer; the ages of the employees; information contained in the statements of employment particulars for the employees; information relating to any collective agreements which will apply to the employees after the transfer; details of any disciplinary action taken within the previous two years by the old employer in respect of the employees in circumstances where the ACAS Code applies; details of any grievances raised by the employees within the previous two years in circumstances where the ACAS Code applies; and details of any legal actions taken by the employees against the transferor in the previous two Page 6 of 7
7 years, and of potential legal actions which the transferor has reasonable grounds to believe the employees may bring. To comply with TUPE, the employee liability information must include the required details, as at a date no more than 14 days (28 days from 31 January 2014) before the date on which it is provided to the transferee. Any subsequent changes must be notified to the transferee. The information must be provided 14 days before the transfer. In most business transfers, this will be too late to be of any practical use to the transferee, who is likely to want to have done advance planning in relation to the new workforce. As a result, most buyers of businesses or potential new providers of services, will require disclosure of information much earlier, through the terms of the business transfer or outsourcing agreements. Failure to provide employee liability information may result in the new employer bringing a claim against the old employer in the employment tribunal. Employee liability information need not be anonymised. However, other information supplied about employees as part of the due diligence process should be anonymised, to comply with data protection law. DAC BEACHCROFT LLP January 2014 Page 7 of 7
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