TUPE Regulations Staff contracts when you buy or sell a practice Advice Note 20

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1 Advice TUPE Regulations Staff contracts when you buy or sell a practice Advice Note 20 The Transfer of Undertakings (Protection of Employment) Regulations 2006 (known as TUPE ) provide legal protection to employees when a transfer of a business occurs, for example when a dental practice is sold. Generally, employees are entitled to continue working under the same contractual conditions as before. If an employee is dismissed or their contractual terms are changed, it may give rise to a claim for unfair dismissal. TUPE would not apply to self-employed contractors such as associates. When do dentists need to consider TUPE? TUPE can be relevant for dentists in a number of ways. Purchasing a practice: The most common is when a dentist purchases a practice. TUPE will almost certainly apply, in which case the buyer must take on the existing employees as their own. This is the case whether the practice is being bought by an external dentist or an existing associate. It should be noted, however, TUPE would not apply when a practice owner starts a practice in a premises that was previously a non-dental business such as a shop. Selling a practice: The other side of a practice purchase is the sale of a practice and TUPE also places obligation on sellers. Incorporation: Some members find that there are advantages in incorporating the practice; in this situation TUPE would apply because the business transfers from the dentist as an individual to a corporate body. Further information on incorporating can be found in advice sheet A9 Corporate Dental Practice. TUPE would not apply when the practice owner intends to form a partnership with another dentist and ownership of the practice will transfer to the partnership. In these circumstances it is best practice to communicate the change to the staff as soon as possible confirming changes, if any, in writing. Advice sheet A10 Partnership Agreement contains guidance on forming a partnership. Service provision changes As well as applying to the straightforward sale and purchase of a practice, TUPE also covers the situation of a service provision change. This includes outsourcing, changing contractors and the opposite scenario of bringing an outsourced service in-house. For instance, many practices contract with cleaning companies who provide cleaners to them. Although such cleaners are employed by the cleaning company, they may be covered by TUPE if most of the work they do for the cleaning company is at the practice in question. Practice owners should be careful if they to terminate the contract with the cleaning company, possibly due to receiving a poor quality of service. If the cleaners main job is working at the practice, their employment may automatically transfer to the new provider of the cleaning services, whether another cleaning company, or the practice itself. An external cleaner who also works for a significant amount of time at other businesses would be unlikely to be protected by TUPE. 1

2 TUPE would probably not cover situations such as changing your laboratory because each piece of laboratory work is a single specific task rather than an ongoing contract and the technicians at the laboratory are likely to have a number of dentist clients. Nevertheless you should always seek specific advice on any change of contractor. Tendering NHS contracts In England and Wales, Primary Care Organisations (PCOs), the collective term for Primary Care Trusts and Local Health Boards, issue contacts to practice owners or dentists to provide NHS dental care. TUPE is likely to apply if the PCO contract with a practice owner in a particular area ends and the PCO gives the UDAs (or a majority of the UDAs) to another dentist to work in the same area. Therefore, if you are tendering for or are offered a new contract, you are strongly advised to speak to the PCO to find out if you are, in effect, taking over the contract from a previous contract holder. If you are, TUPE may well apply. If TUPE applies, the staff from the previous practice transfer automatically to you. Before you agree to provide new or extra services under a new contract with the PCO, you will need to speak to them and find out where the money for the contract came from and whether you are effectively taking over from another dentist s contract. If you find that you are effectively taking over a contract from another provider, you should seek advice from BDA Practice Support. This may also apply in Northern Ireland and Scotland if PDS contracts are introduced. Dentists may have contracts with companies, PCOs, councils or other bodies to provide dental services to a specific group of patients, for example, a dentist who holds a contract with a prison to provide dental services or a dentist who has a contract to provide dental services to a company s employees. In such situations if the dentist gives up the contract or it is awarded to another dentist then TUPE may apply to the dental nurse and other staff and members should seek further advice from the BDA. Which staff are covered by TUPE? TUPE applies to employees such as dental nurses, receptionists, cleaners and employed dentists (assistants in Scotland and Northern Ireland). Generally, TUPE does not apply to self-employed people working under a contract for services such as self-employed dental hygienists, associate and locum dentists, and agency workers. The contracts of self-employed people will usually terminate when a practice changes hands. When a practice owner sells their practice, they will need to give the required notice of termination to those who are selfemployed. If a self-employed person wishes to continue working at the practice, they will need to negotiate new terms with the buyer. In some circumstances selfemployed staff might actually be employed and therefore protected by TUPE. Members should contact BDA Practice Support for further advice in this respect. Staff with less than one year s service will have less protection; including against dismissal. In any event members should be cautious before dismissing such employees or changing their terms of employment in a TUPE situation since there may be other claims they could make. For example, a pregnant employee with less than one year s service may not have any rights under TUPE, but could claim sex discrimination if she is dismissed following the sale of a practice. How does TUPE affect dentists? First and foremost, employed staff will transfer with the practice and become employees of the new owner. (In the case of a service provision change, they will transfer to the new service provider.) It will be as if the new owner has employed the staff since they first started working at the practice. They are entitled to continue working to the same contractual terms. This includes not only written terms (such as those contained in their contract or offer letter), but any implied terms that have been created by custom and practice. If the old employer breached those terms, liability for the breach will transfer to the 2

3 new employer. For this reason, the new employer should include an indemnity in the sale agreement to protect themselves against this eventuality. As employees continuity of service is protected, if a claim should arise against their new employer, the employee will be treated as having been employed since their original start date, as opposed to the date that the new employer took over. An employee s continuity of service can be relevant for a number of purposes. Determining the correct legal notice to give an employee when dismissing them or making a change to their contract. Calculating how much redundancy pay an employee is entitled to when making them redundant. Determining if an employee has the right to claim unfair dismissal and, if so, to how much compensation they may be entitled. Point of transfer It is important to note that if a buyer comes into practice and assumes control earlier, the date that the employees transfer to the new employer may in fact be earlier than the date of completion of the sale. This can often occur when an existing associate is buying the practice form the practice owner. Dismissals and contractual changes for staff covered by TUPE Changes connected to the transfer As employees have protection under TUPE when a practice changes hands, the new owner is advised not to make any changes to staffs contracts of employment. Any changes are likely to be null and void if they are connected to the transfer. Even if the new owner gives staff a new benefit on the one hand, but takes something away with the other, the new benefit will stand whilst the old benefit taken away remains a term of their employment. There is therefore a question: when is a change connected to a transfer? This is a difficult question to answer and there are many legal cases that have discussed this question. A new owner taking over a practice, and who wants to makes a change to suit the way they work, will be making a change in connection with the transfer. This is because, had the new owner not bought the practice, the change would not have happened. If, after a new owner has taken over a practice, something unconnected to the sale has happened that requires a change to employees terms of employment, then it is likely the changes will not be in connection with the transfer. For example, a buyer could change employees terms and conditions of employment to reflect changes in legislation. These changes would be unconnected with the transfer. Changes required due to new commercial pressures; such as a new practice opening up close by, could be another example. TUPE does not cease to apply after a certain period of time, for example, two years. The longer after the transfer a change takes place then the easier it is to argue that proposed changes are not connected with the transfer, however, TUPE protection will apply indefinitely. Changes allowed by TUPE There will, occasionally, be exceptional cases where the new employer may need to dismiss employees or change their contracts when they take over a practice. TUPE says that you can dismiss staff or change their terms and conditions, provided that you have economic, technical or organisational reasons entailing changes in the workforce. This is more difficult than it sounds. You must meet two district criteria to use this provision to change terms of employment or dismiss staff if you take over practice. First, you must have an economic, technical or organisational reason for the dismissal or change. This could be: A reason relating to falling demand for the employer s service so that the business would become unprofitable (an economic reason). A reason relating to the nature of the equipment or production processes at the practice, for example, the buyer decides to computerise the practice thus meaning fewer employees are 3

4 needed or changes to their job role (a technical reason). A reason relating to the management or organisational structure of the practice, for example, the buyer needs to create a new role of sterilisation assistant or their wish to employ a practice manager, which could affect their job roles (an organisational reason). Second, TUPE says that reason must entail a change in the workforce. There is no statutory definition of this term, but interpretation by the courts has restricted it to changes in the numbers employed or to changes in the functions performed by employees. A change in functions could involve a new requirement on an employee who held a managerial position to enter into a non-managerial role, or to move from a clinical to a non-clinical position. New owners may often want to alter or extend practice opening hours. Even though this may involve additional pay for working additional hours it is unlikely that the business case would count as an economic reason under TUPE. Also unless you were going to reduce the number of staff, it would not count as a reason that entails a change in the workforce. Therefore in most cases it will not be possible from a legal point of view to change the practice hours. You should bear this in mind when deciding on whether to invest in purchasing an existing practice as you may need to consider employing additional staff. Consulting staff on changes Some new practice owners may decide to take a risk and change terms of employment anyway. Whilst there is a legal risk, there is also a pragmatic view that most staff will be open to change if, overall, they are not disadvantaged. If you take the risk and implement change, you should always seek an employee s consent to that change. If you cannot reach agreement about changes, you should seek advice. It is always best to consult with employees, listen to what they have to say and try to get them to agree to the change. This might involve considering what else you can offer them to agree to these changes such as: extra holiday pay sick pay child care vouchers pension contributions a bonus or cash payment, for example, 300 now and then 200 in six months time BDA Advice sheet D2 Rewarding Staff provides advice on pay and benefits packages that may provide an incentive to agree to a change. If an employee agrees to a change, you should get it in writing. Unfortunately, however, it should be noted that even if an employee agrees to a change in a TUPE situation, they can later request to revert to their original terms. Members should refer to BDA Advice note Contract Variation for full advice on the consultation process for changing contracts. Also contact BDA Practice Support if they are planning to make any changes to employee contracts. Consulting staff on the transfer When a dentist is selling their practice, they must consult with employees. The practice owner should inform staff when the practice is likely to be sold and the reason for the sale. The practice owner should also explain how the transfer is expected to affect their employment, continuity of service and terms and conditions. The employees must be told about the transfer within a sufficient time beforehand, though the precise length of time is not defined. Although it is the seller who must consult staff, the buyer must co-operate by providing them with any relevant information necessary to allow a proper consultation. This may include any planned changes after the buyer takes over the practice, for example, converting one of the surgeries into a decontamination room and the implications for staff. It should be noted if the seller fails to consult staff, both the buyer and seller are jointly and severally liable to a maximum of 13 weeks pay for each employee. It would be good practice and helpful to staff relations if the buyer also met with staff before the transfer to reassure them about changes. The new buyer might even want to consider a social event to start their relationship on a good footing. 4

5 Employees absent from the practice (for instance, due to maternity, paternity or adoption leave or sickness) have the same rights as employees who are physically working on the date of the transfer. They too must be consulted and this is especially important as a failure to do so could be seen as discrimination, as well a breach of TUPE. Employees rights to object to the transfer Employees have a right to object to the transfer. When an employee exercises their right to object, their employment will terminate on the transfer date. The objection is similar in effect to a resignation. The seller will need to pay the employee for all accrued holidays and for all hours worked up to the date of transfer. The employee is not considered as having been dismissed by the employer and therefore has no right to compensation. However, where the transfer will involve a substantial change in working conditions to the material detriment of the employee, it may give rise to a claim for constructive dismissal. In order to protect themselves against this risk, the seller of a practice should get an indemnity from the buyer. The seller s solicitor will be able to advise on appropriate wording to reflect this in the sale agreement. Employee liability information When selling a practice or changing the provision of a service, the current employer is under a duty to provide the prospective employer with Employee Liability Information (ELI) in writing. The ELI must include the following information: The name and age of employees. Their terms and conditions of employment, (i.e. their contracts). Details of any formal disciplinary or grievance procedures followed in respect of the employees in the last two years. Any court or employment tribunal claims either brought by an employee against the seller in the last two years or any claim that it is believed may be brought. Details of any collective agreements with staff or trade unions (small employer s such as dental practices are unlikely to have collective agreements). If the seller fails to provide the Employee Liability Information, they are liable for a minimum of 500 per employee. Sellers may have concerns about disclosing such information to prospective employers due to the Data Protection Act 1998; however, the Act allows this disclosure because it is a legal requirement under TUPE. The Information Commissioner s Office advises that ELI should be provided at least two weeks before completion of the transfer. In practice, the prospective employer will require this information much earlier since the information contained will be relevant to their consideration of whether to take over the business. Likewise employment records can also be given to prospective employers to the extent that they are needed to manage the workforce and run the business. Pensions Generally speaking, an employee s occupational pension rights will not transfer under TUPE. They are however protected by social security legislation and pension trust arrangements. The new employer is not duty bound to offer an identical occupational pension arrangements for transferred employees. However where transferred employees are entitled to participate in an occupational pension scheme prior to the transfer, the buyer must establish a minimum level of pension provision for the transferred employees. Therefore there is a requirement for the buyer to match employee contributions, up to six per cent of salary in to a stake holder pension, or offer an equivalent alternative. In some circumstances contractual obligations in relation to personal pensions, such as the employer agreeing to make contributions will transfer under TUPE, for example, where an employee has sacrificed part of their salary for additional pension contributions. Employment contracts All employees must be issued with an employment contract within eight weeks of commencing employment. Failure to do so 5

6 may lead to liability for four weeks pay. If the current employer has not provided their employees with contracts, the buyer should do so as soon as possible since liability for that failure will transfer to them. The new contracts will need to reflect their existing terms and continuity of employment. In any event, it is good practice for the new owner to re-issue contracts of employment with the new owner stipulated as the employer. The contract can have a start date of the transfer, but must make it clear that employees continuous periods of employment started on the date they started working at the practice. Immigration Further assistance For further help or to discuss your plans you can contact the BDA Practice Support team. You can contact BDA Practice Support in the following ways England and Wales: Tel: Fax: Scotland and Northern Ireland Tel: Fax: Within 28 days of the transfer, the seller is required to check the immigration status of the practice employees. A copy of relevant documentation should be made and attached to the employee s personnel file. BDA advice note New immigration arrangements 2008 and advice note Changes to the law preventing illegal workers and United Kingdom employers obligations gives further guidance. 6

7 Model letter 1 - From a practice owner (seller) notifying employees of the sale of a practice *customise as appropriate PRIVATE & CONFIDENTIAL Name Address Date Dear [Employee s name] Re: Sale of practice I am writing to inform you that I am considering selling the practice on [date] because [explain reasons]. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees from dismissal or changes to their employment contract when a business changes hands. I am pleased to reassure you that your employment will simply transfer along with the practice to the new owner who will be your new employer. Your continuity of service is also protected for the purposes of your employment rights under the new employer. I intend to hold individual meetings with all staff covered by TUPE in order to consult them on the proposed sale. You have the right to object to your transfer to the new practice owner, in which case your employment will end on the date of the sale. Unfortunately, you do not have a right to any compensation in these circumstances. I know that changes of this nature can difficult. Both I and the new practice owner will do all we reasonably can to make this process as easy as possible for you. I look forward to discussing the matter further with you at our meeting. However in the meantime if you have any questions then please do not hesitate to talk to me at the practice or contact me by telephone on [contact number] Best wishes. Yours sincerely [Seller s name] 7

8 Model letter 2 - From the new practice owner (buyer) advising employees of an impending practice purchase *customise as appropriate PRIVATE & CONFIDENTIAL Name Address Date Dear [Employee s name] Re: Purchase of [name] dental practice I am writing to advise that from [date] I will be your new employer. As you will know from your discussions with [name of seller] the practice [is being] OR [has been] been sold. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees from dismissal or changes to their employment contract when a business changes hands. All your terms and conditions of employment will become my responsibility. As from the transfer date you should continue to report to work at your normal working time. [Optional: As you do not have an employment contract I will be meeting with you over the coming days to discuss this, I will be providing you with a written contract in due course. The terms within the contract will of course mirror the conditions that you were working under prior to the sale.] I look forward to spending time over the forthcoming weeks getting to know you and I hope that you continue to have a long and rewarding career at this practice. If you have any questions then please do not hesitate to contact me on [contact number] Yours sincerely [Buyer s name] 8

9 Model letter 3 - From the new practice owner (buyer) consulting employees on updated employment contracts *customise as appropriate PRIVATE & CONFIDENTIAL Name Address Date Dear [Employee s name] Re: Purchase of [name] dental practice Further to my letter of [date] and following on from our discussions, I am writing to advise you that I have now finalised your employment contract. I have used a BDA model employment contract and the terms within the contract mirrors the terms and conditions that you had prior to the sale. Your start date of [original start date] will still count towards your continuous employment with the practice. I have enclosed two contracts of employment and would ask you to read through them over the next few days. Once you have satisfied yourself with their content please could you sign and date both before returning one copy to me by [date 2 weeks from date of issue]. If you have any comments or questions then please do not hesitate to speak to me or contact me on [contract number]. Best wishes. Yours sincerely [Buyer s name] 9

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