An employer s guide to TUPE

A&R Legal Briefing An employer s guide to TUPE 1. Overview What is TUPE about? TUPE means the Transfer of Undertakings (Protection of Employment) Regulations 2006. The original law dates back to 1981, and TUPE implements an EU Directive. This law applies to organisations of all sizes and gives employees special legal rights when the business they work for gets a new owner. On 31 January 2014, the 2006 Regulations were changed for changes of ownership after 31 January 2014. The old law still applies to changes of ownership before then and continues to protect those employees. This guidance explains TUPE as it stands after those changes for England, Scotland and Wales. The TUPE Regulations apply when an undertaking or business in the United Kingdom changes hands, and also when activities are outsourced, or brought back in-house. They apply within the private sector (including not-for-profit and charitable organisations) and to privatisations of state owned bodies and outsourcings of public sector activities to the private sector. But TUPE does not apply where:- the change of ownership of a business is by change of ownership of the shares in the limited company which owns the business; or a business is being sold by the liquidator of an insolvent company. What impact does TUPE have on my business? Employees of the newly-acquired business or activity will transfer automatically from the seller or outgoing contractor to the buyer or incoming contractor. The employees terms and conditions of employment and continuity of service transfer over and are preserved and they are also protected from dismissal because of the transfer. Business people should therefore take the impact of TUPE into account when deciding whether and if so how much to pay for a business or how much to bid to win a service contract. TUPE can also affect the timescale for a transfer because of the resulting need for employee due diligence and informing (and sometimes consulting) staff. 1

There are impacts for: the employer who is making the transfer (also known as the outgoing employer, the old employer or the transferor) the employer who is taking on the transfer (also known as the incoming employer, the new employer or the transferee) and employees, and not just from the legal change of employer for the transferring staff, as TUPE transfers can also have an impact on other staff and on staff morale, performance, health and wellbeing. The 2014 Changes at a glance Service Provision Changes Change 1: The activities carried out must be fundamentally the same for TUPE to apply. Changing Contracts of employment Change 2: Change 3: Change 4: Change 5: Altering contractual terms and conditions in connection with the transfer is no longer deemed void, AND variation is also allowed in 2 specific cases. Dismissals are no longer automatically unfair because of a change in the workplace location. Terms and conditions in employees contracts from collective agreements may be renegotiated after 1 year, provided that overall the employee s contract is no less favourable to him after the change than before. Changes from collective bargaining agreements agreed by the outgoing employer after a transfer do not (always) have to be applied to transferred staff. Dismissals and redundancies Dismissal Change 6: An employee will only be automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer. Redundancy Change 7: Collective redundancy consultation can begin before the transfer if both employers agree. Employee liability information (ELI) Change 8: Information about transferring employees must now be given 28 days before the transfer (instead of 14 days). Employees Information and Consultation rights Change 9: Businesses with fewer than 10 employees are not required to invite the election of representatives for consultation purposes if no existing arrangements are in place. 2

2. When Does TUPE apply? There are two situations when TUPE may apply. TUPE calls them relevant transfers. Situation 1: Business transfer TUPE applies if a business or part of a business is given away or sold. Technically, there has to be a change in the identity of the employer as a result of the transfer of an economic entity which retains its identity. And an economic entity means an organised grouping of resources which has the object of pursuing an economic activity, whether or not that activity is central or ancillary. But TUPE won t apply if just shares in the company which owns the business (because the same company still employs the staff so there is no change of employer), or mere assets or equipment (because they aren t an economic entity), are transferring to a different owner. Also, the business must continue to trade in the same way after the transfer as it did before the transfer and so retain its identity. These types of transfers are called business transfers. Transfers of not-for-profit undertakings and privatisations of state-owned undertakings can and often are caught as business transfers. Tip Businesses that have been shut down for some time, can still be caught under TUPE if they are bought and re-opened to trade in the same way as they did before they were closed. Examples from case law include an abattoir, but mostly seem to feature clubs, hotels and pubs. Situation 2: Outsourcing and contracting TUPE also applies in the following situations: a client outsources activities to a contractor; or a new contractor takes over previously outsourced activities from another contractor; or a client takes previously outsourced activities back in-house from a contractor. Sometimes, these are caught under the ordinary business transfer definition, as there is case law that says this. But as belt and braces, TUPE make special provision for what it calls service provision changes. There is no equivalent provision in the EU Directive. For TUPE s special rule about service provision changes to apply, the following conditions have to be met immediately before the transfer: An organised grouping of employees must exist. The group has to be deliberately organised by the employer to provide the service. Employees randomly or coincidentally working together on the work transferring are unlikely to meet this requirement, as employees should be formally assigned to the group. The roles that transfer should also be linked to the delivery of services for that particular client. So, employees who carry out activities not related to the actual work or service for the client are unlikely to be part of the group. This could include a contractor s managers who work on maintaining relations with the client. The client must remain the same. So, if a contract is re-tendered, but the client under it is a different legal person from the original client, there will be no TUPE transfer. For example, where a contract to guard a derelict building is re-tendered after a local authority compulsorily purchases it from the former owner, TUPE would not apply because the local authority is now the client. 3

The activities must not become fragmented at the point of transfer. The more split up the activities become between different providers, the less likely it is that TUPE will apply, according to case law. So if, on retendering, what was a single contract is split up into separate mini-packages and these are won by different contractors, TUPE is unlikely to apply. The activities must not be mainly the supply of goods for the client s use. Supply of goods only does not fall within the definition. The activities should remain fundamentally the same see change 1 in the Table. The contract is not just for a single specific event or task of short-term duration. The example given by DBIS is a contract to provide security at a major sporting event, say an Olympic Games. Advice about planning and organising the security for the event over the years running up to the event would not be excluded by this, but the contract to actually provide the security staff for the athletes and officials for the several weeks of the games themselves would be within the exception. Example:- ABM Filters Ltd has a fixed term contract with Tasty Catering to cook and serve hot dinners in their factory canteen. TUPE is likely to apply if:- ABM Filters retenders the contract to provide the same service. If a new provider wins the re-tender, TUPE is likely to apply as the activities are fundamentally the same. This is unlikely to change even if they supply new utensils and the ingredients are sourced from a different supplier. The new provider will have to take on the Tasty staff who were allocated to the ABM Filters contract (e.g. the Tasty staff working in the canteen). TUPE is unlikely to apply if:- ABM Filters decided to change the terms of the service on the re-tender to provide and stock self-service fridges containing pre-prepared sandwiches, salads and drinks, instead of requiring hot food to be prepared on the premises and served in the canteen. If a new provider wins the re-tender, TUPE is unlikely to apply to the staff of Tasty Catering because the activities are not fundamentally the same and/or because it is mainly for the supply of goods. Or if ABM Filters is moving out of the factory when Tasty s contract expires, and handing it over to its sister company, ABM Fans Ltd. So ABM Fans is re-tendering for the same service. TUPE should not apply because there is a change of client from ABM Filters Ltd to ABM Fans Ltd. Tip If you are a client and want to avoid TUPE applying when you re-tender a service contract, you can achieve that by fragmenting the contract, fundamentally changing the specification of the contract or having a new company become the client for the purpose of the new contract. But we aren t clear yet just how far Employment Tribunals might enquire into new clients to see if the change is a genuine one. So for the time being at least, we would recommend they actually have to receive at least a significant benefit from the service themselves rather than just pass it on for the benefit of the original client. And if you are the incumbent contractor, these avoidance mechanisms mean you can t safely assume that TUPE is going to apply when you lose your contract and enable you to pass the staff over to your successor. So you had better have a contingency plan for coping. 4

3. Which Employees transfer under TUPE? TUPE only applies to employees, so mere workers (PAYE workers who don t meet the legal test for employees, like agency workers) or self-employed contractors don t transfer under it. And those employees have to be employed by the transferor and assigned by him (other than on a temporary basis) to the economic entity or contract being transferred. But the employees are given the right under TUPE to formally object to being transferred. If they do object in this way, this counts as a resignation and they leave as of the moment of transfer with no claim on the transferee or incoming contractor. The transferor or outgoing contractor just has to settle up with them for wages, holiday pay and the like up to the transfer. In particular, neither the transferor or the transferee gets to pick and choose who transfers. And if anyone is dismissed just before the transfer completes to try to avoid them transferring, TUPE has that covered too and makes the transferee liable for their unfair dismissal (if they are qualified) and the Employment Tribunal might order the transferee to re-hire them, rather than just order the transferee to pay compensation. But it is possible for a transferor to permanently transfer staff out of the business he is going to transfer, so a transferor can manage who will be the transferring workforce when the time comes. Tips For the most part TUPE is enforced by employees through the mechanism of unfair dismissal claims. And only employees with 2 or more years continuous service can claim unfair dismissal. So, broadly, TUPE won t protect employees with less than 2 years service at the time of the transfer, so they can be dismissed to avoid them transferring, even if TUPE will protect the other staff affected by the transfer. Where there are company officers who could transfer (that is executive directors and company secretary), their being company officers does not normally exclude them from the transfer. Similarly, employees or directors are not excluded just because they are majority or substantial shareholders of the company. But members of an LLP (at least those who aren t fixed share members) or genuine partners in a partnership or sole traders count as self-employed (or sometimes workers ) and won t transfer under TUPE. If you are selling or buying a people business (where as they say the most valuable assets go up and down in the lifts), be aware the key employees could walk away, as they are not bound to transfer as they could use the right of objection to get out of long notice clauses in their contracts. They would not be able to evade non-compete clauses in this way, if they have them in their contracts and they are anyway enforceable, as TUPE does not cancel them. But this could be a good reason for re-assuring them about the future and offering them loyalty bonuses if they stay on board for a specified period after the transfer. 4. What transfers with the employees who transfer? When the transfer completes, all rights, powers, duties and liabilities under or in connection with the contracts of the transferring employees are transferred from the transferor to the transferee. And anything done or not done before the transfer to any such employee by the transferor is deemed to have been done by the transferee. It is as if they had always been employed by the transferee. Those contracts of employment will continue to include any oral or customary terms that aren t written down as well as those that are written down, and the benefit or burden of any changes agreed through collective negotiation with a trade union before the transfer. So employees could transfer and take with them the right to, for example, a Christmas bonus or an enhanced redundancy payment if they are made redundant in the future, even if there is nothing in writing about it. 5

The transfer would also include benefits like share options, staff loans, company cars, private medical/dental cover, death-in-service and long term disability insurance, company laptops or smartphones and so on. And not only do the employees contracts of employment transfer with them, but any claims (for say unpaid wages or unlawful discrimination or personal injury) come across too, and TUPE does not give the transferee any right of recourse against the transferor for them, even though he caused them, so the transferee picks up the entire bill. But TUPE does not transfer any criminal liability related to those employees or any rights, powers, duties or liabilities related to pension at normal retirement age from an occupational pension scheme (see below for the special rules about future pension accrual). And where the transferor is a company in formal Administration, TUPE does not transfer any debts the old employer may owe the employees which are covered by the Government s guarantee under Part XII of the Employment Rights Act. TUPE does however also transfer any formal recognition of a trade union for bargaining and consultation rights provided the transferred entity/employees maintain a distinct identity within the transferee, but these recognition agreements are practically never legally binding anyway. Tip Thorough due diligence is vital in this area. Transferees can easily inherit expensive and unexpected liabilities for pending legal claims, enhanced redundancy payments, early retirement schemes and bonus or commission schemes and loss of share options. Or there might be custom and practice arrangements for staff to take their particular religious holidays off as part of their annual holiday or informal arrangements for religious observance at work. Not honouring these arrangements will at the very least cause great annoyance and disruption and might well result in legal claims for discrimination. 5. Changes to terms and conditions following a TUPE transfer Under TUPE, existing terms and conditions of employment transfer with staff to the incoming employer and they remain the same as they were with the outgoing employer. TUPE puts protection in place against changes. Following a transfer, employers often want to change terms and conditions, but working out if, how and when changes can be made without falling foul of TUPE is difficult. And employers seeking to change terms and conditions by agreement may still face a claim of constructive unfair dismissal from transferred staff with 2 or more years service. Normally, any change to terms and conditions of employment needs to be negotiated and formally agreed. (Where there is a recognized trade union, the negotiation would be with the union for the groups of employees it represents in that workplace, rather than direct with the employees.) So any change without agreement is normally meaningless anyway. But sometimes written terms and conditions have a special clause which gives employers the right to make certain changes unilaterally, say to transfer an employee to a different production line, so negotiation and agreement isn t needed for changes within the clause s scope. 6

Altering contractual terms and conditions TUPE says that changes to employees terms and conditions will be void if the sole or principal reason is the transfer, even where they are agreed by the employees or a trade union on their behalf. Before the January 2014 changes to TUPE, changes to terms and conditions for a reason which was somehow connected to the transfer were also invalid, but this has now been dropped from TUPE see change 2 in the Table. There is no time limit on this protection, so there is never a 100% safe period after which this protection will have lapsed. However, with the passage of time, it is likely that the link between the transfer and any change will weaken. So the scope of the protection is narrower now, but changing the pay or terms and conditions of transferred staff to harmonise them with those of existing staff remains off-limits under TUPE, as this will always be considered to be by reason of the transfer itself. But changes may be validly made where: The sole or principal reason is an Economic, Technical or Organisational reason entailing changes in the workforce but only if the employer and employee/trade union actually agree the change (see below). If the terms of the contract would have allowed the employer to make the change unilaterally anyway (because there is a power written into the contract that enables the employer to make this particular change, e.g. a job or place of work mobility clause), or A new event that has nothing to do with transfer is the reason for the change. For example, the employer wins a big order from a new client and has to bring in change to increase output to meet the needs of the new client. This has always been the case under old TUPE in theory, but in practice it was often difficult to prove it was not connected to the transfer. Economic, technical or organisational (ETO) reasons for changes There is no definition in TUPE of ETO Reasons, but there is case law on it. Case law gives the following guidance on the meaning:- Economic reason - this would be something like a change in costs/profitability or market conditions Technical reason - this would be something like a change in plant/machinery or production processes Organisational reason - this would be something to do with the organisational structure of the new employer s business But in any event to be valid for this purpose, the ETO reason must entail changes in the workforce. This means that changes to workforce numbers or job functions must be the objective of the plan, not just a possible consequence of it. Under the 2014 changes, a change of workplace has been deemed to meet this requirement see change 3 in the Table. So a need to cut pay or a wish to harmonise terms and conditions with other groups of employees can never be an ETO reason. Change in workplace location A common change in transfer situations is a change to the workplace location say the transferee buys a factory-based business in one part of the country and then moves production lock, stock and barrel to another part of the country. Note that this will count as a measure for the purposes of information and consultation considered below. Previously, if a transferee moved the business to a new location, TUPE meant the employees could claim their constructive or actual dismissals were automatically unfair (and potentially get much more compensation than on redundancy). This made this common situation tricky for employers. 7

But, under the changes to TUPE in January 2014, dismissals resulting from the change of workplace won t be automatically unfair as they are now deemed to be for an ETO reason. Instead, they will normally be ordinary redundancies and the normal law and practice on redundancies will apply. Omni Bus Company won the contract to provide a bus service on a certain route when it was put out to retender by the County Council. This was a TUPE transfer and Omni took over the outgoing contractor s drivers on this route. But following the transfer, the drivers had to work from Omni s depot which was 16 miles away from the old contractor s. Under old TUPE, the drivers might have been able to refuse to move and resign, claiming automatic constructive unfair dismissal because this was a substantial detrimental change to their working conditions, though there s no guarantee they would have won the case. Under the changed TUPE, if Omni offered them the choice between redundancy and a range of help to reduce the effects of the location change as part of consultation on measures prior to the start of Omni s contract, none of the drivers would have a claim for constructive unfair dismissal as a result. Changes to collective agreements with trade unions Collective agreements which are in place at the time of the transfer will also transfer to the incoming employer. A collective agreement negotiated between an employer (or employers association (like say the EEF) for all its members) and a trade union may include matters such as pay rates, hours and other terms. Some parts of a collective agreement will be part of the employees own terms and conditions. But other parts won t be, particularly those parts that relate to the union s own rights within the workplace e.g. to appoint shop stewards or have office facilities in the workplace. Many collective agreements continue indefinitely whilst some cover fixed periods. Two of the 2014 changes to TUPE deal with collective agreements in transfer situations see changes 4 and 5 in the Table. Terms and conditions in employees own contracts from collective agreements may now be renegotiated one year after the transfer, provided that overall the contract is no less favourable to the employee Incoming employers will now be able to renegotiate terms and conditions agreed in a collective agreement from one year after the transfer, as long as the overall resulting change is no less favourable to the employees involved. The changes to collectively agreed terms may all be adverse as long as positive changes to individually negotiated terms balance them out. This exception only covers the part of an employee s terms and conditions that are covered by a collective agreement. Other terms and conditions outside a collective agreement are subject to standard TUPE protection. Example:- Example:- Sparkle bought the polish factory and business of Universal. There is a collective agreement in place at Universal under which a trade union is recognised and has bargaining rights for pay and hours for the hourly paid production staff. A year after the transfer, Sparkle can negotiate changes to pay and hours with the union, provided that overall the changed terms and conditions are no less favourable. Sparkle negotiates and agrees new start and finish times (0800 to 1630 instead of 0830 to 1700) for the basic working week with the union on behalf of the production staff. 8

In some circumstances contractual changes arising from new collective agreements agreed by the outgoing employer are not required to be incorporated after a transfer The new TUPE regulations reflect the recent European Court decision in the Alemo-Herron case about the effect of post-transfer changes to collective agreements which pass to the incoming employer. The European Court chose the static rather than dynamic approach, which means the incoming employer is: still bound by the collective agreement as in effect at the time of transfer, but not bound by any changes negotiated and agreed after the date of transfer, provided the incoming employer is not itself a party to the collective bargaining process. Example:- Suction bought the electric pumps business of Eveready, leaving Eveready with its diesel compressors businesses. There is a collective agreement in place at Eveready under which a trade union is recognised and has bargaining rights for pay across all the businesses. Suction doesn t recognise or negotiate with any trade unions. Four months after the transfer, Eveready reach agreement with the trade union under their negotiating process for a 3% pay increase. Under the old TUPE Depending on the terms of the employees contracts, Suction might well have been obliged to increase the pay of the ex-eveready employees by the same 3%. Under the new TUPE Suction was not a party to the collective bargaining process, so it will not be obliged to give the ex-eveready employees the same 3% pay rise. These changes apply to TUPE transfers which take place on or after 31 January 2014. 6. Dismissals and redundancies If the sole or principal reason for the dismissals is the transfer itself, they will be treated as automatically unfair under TUPE (provided the dismissed employees have the 2 years service needed to bring unfair dismissal claims), unless they are for an ETO reason. Note the maximum compensation for unfair dismissal is now over 90,000. Previously, TUPE specifically stated that dismissing for a reason connected with the transfer would trigger automatic unfair dismissal too. This wording has been removed see change 6 in the Table narrowing the scope of the protection for employees, but a careful approach is still advisable. Of course, if redundancies were going ahead regardless of the transfer (for example because a big contract had been lost) or they are necessary because something new happens (e.g. a key customer goes out of business around the time of the transfer), then TUPE is unlikely to make the redundancies automatically unfair dismissals, whether they are made by the transferor in the run up to the transfer or by the transferee not long afterwards. An employee will [only] be automatically unfairly dismissed if the sole or principal reason for the dismissal is the transfer 9

However, there is an exception, as dismissals where the sole or principal reason for dismissal is the transfer itself will not now be unfair at all if: the reason for the dismissal is an Economic, Technical or Organisational reason entailing changes in the workforce and the dismissal can be shown to be for genuine redundancy reasons and the employer followed a fair redundancy procedure. These changes apply to TUPE transfers which take place on or after 31 January 2014 and where the notice of dismissal was given after 31 January 2014, or where no notice is given where termination takes place after 31 January 2014. The meaning of ETO reasons has been explained above in section E and now change of workplace as a result of a transfer has been specifically deemed to be an ETO reason. But, where a genuine redundancy situation arises as a result of a transfer, there is a need under redundancy law both collectively and individually to consult with affected employees when the new employer is making (or intending to make) 20 or more redundancies within a 90-day period for 30 (or 45) days. Where there are fewer than 20 employees being made redundant within a 90-day period, employers may be held to have dismissed unfairly for redundancy if they have not consulted the individuals about their potential redundancy, but there is no prescribed time limit or process for this. If this requirement for collective redundancy consultation is not satisfied, the employees can get a protective award of up to 90 days pay. Consultation about post-transfer redundancy dismissals can begin before the transfer, if both employers agree The 2014 changes (see change 7 in the Table) allow for valid collective redundancy consultation in respect of post-transfer redundancies to begin before the transfer and continue after the transfer. So, where the incoming employer intends making 20 or more redundancies after the transfer, collective redundancy consultation by the incoming employer may begin before the transfer, provided the outgoing employer agrees. But employers should not make selection for redundancy before the transfer takes place. Example:- ABC Cleaning wants to buy Acme Cleaning and knows that there will not be sufficient work for both sets of employees, so some redundancies are inevitable because of the transfer. Under old TUPE Before the transfer, each employer consults with their own employees and elected representatives about the transfer only. After the transfer, ABC continues to consult about the transfer and also begins redundancy consultation with both sets of staff. Under new TUPE Before the transfer, both employers agree to pre-transfer redundancy consultation and begin consultation at an early stage with elected representatives and employees about the transfer and redundancies at the same time. Acme gives ABC access to the transferring employees and their union representatives before the transfer so this can happen. This change applies to TUPE transfers which take place on or after 31 January 2014. 10

7. Employee Liability Information The outgoing employer has a duty to provide information about the transferring employees to the incoming employer before the transfer. This is called Employee Liability Information and includes: identity of the transferring employees age of the transferring employees the basic employment particulars of the transferring employees (as defined in section 1 of the Employment Rights Act 1996) disciplinary and grievance records of the transferring employees details of any relevant collective agreements details of any outstanding claims the transferring employees have against the outgoing employer Under the old TUPE, the deadline for providing this was 14 days before the transfer. New TUPE requires it even earlier the deadline is now 28 days before the transfer for transfers on or after 1 May 2014 see change 8 in the Table. There is specific guidance from the Information Commissioner s Office on how to meet this requirement and still comply with the Data Protection Principles. Mainly it revolves around providing anonymised information. Where this doesn t happen, the incoming employer has 3 months in which to file a claim for compensation for the resulting losses against the outgoing employer in the Employment Tribunal. There have been cases where the incoming employer has won substantial compensation over this. Tips Always provide ELI in full and in good time if you are the transferor. If there is a re-tender going on and there are other bidders, provide the information to the client and tell them to pass it on to all the bidders. Of course, you may not want to do this until the last minute to preserve your commercial advantage, but be ready and do it in time! In some circumstances, this could be a legal claim which is well worth a transferee making. For example, where the incoming employer does not receive the information at all and so does not know that they will be inheriting employees who are owed unpaid wages or that an outstanding claim on behalf of all the hourly paid staff is pending for underpaid holiday pay. The incoming employer may well be able to get a judgment from the Tribunal for the outgoing employer to pay compensation for this unexpected liability which the incoming employer has inherited. If you are a client, make sure each contract contains (if you have power to negotiate it), a clause requiring the contractor to give you ELI well in advance of the end of the contract so you can provide it as part of the re-tender process and seek an indemnity that you and the new contractor can enforce for any claims that will transfer with any of the employees under TUPE. 8. Information and consultation requirements under TUPE TUPE requires incoming and outgoing employers to: inform elected representatives of their respective affected workforces about the transfer in good time before it happens, but employers only have to consult if they also propose any measures affecting the employees arrange for the election of employee representatives if there is no recognised trade union or group of appropriate representatives. 11

Previously, the second part of this rule applied no matter how small the workforce, but under new TUPE there is now an exception for micro businesses, that is those with fewer than 10 employees, for transfers on or after 31 January 2014 see change 9 in the Table. The information which an employer has to provide to his own affected employees about the transfer is:- 1. the fact that it is going to take place, when it will happen and the reasons for it; 2. the legal, economic and social implications of the transfer for the affected employees; 3. any measures he envisages taking in connection with the transfer (and if they aren t any he must say so); 4. this must include suitable information about the use of agency workers. The requirement to inform affected employees can mean a transferee or transferor has to inform the rest of their workforce and not just the staff going to be transferred. For example, where the business being transferred supplied components to a business being retained by the transferor or shared common facilities on the same site. Or for example if the transferee was buying a more efficient production facility than one it already owned, so that the purchase could put the future of the other facility into doubt. The job security of those other employee could be affected. There is no definition of legal, economic and social implications of the transfer in TUPE or domestic case law. However, it s pretty easy to say the legal implication is that the employees will have a new employer and there will be a novation by TUPE of their contracts and all rights, duties, powers and liabilities etc. to the transferee. The economic implications are more amorphous and perhaps this envisages a short description of the strength, business and strategy of the transferee. Social implications is even more uncertain, but would probably cover any changes to social facilities like a canteen, sports or social club. The transferee must give information to the transferor about any measures he envisages taking in regard to the transferring employees and the transferor must then pass this on to his employees and consult with them if there are any such measures. So if nothing apart from the identity of the employer is going to change as result of the TUPE transfer, there is no requirement under TUPE for either the transferor or the transferee to consult their own workforces or the transferring staff about the transfer. But they must still inform them. But if there are any measures, for example any relocation, redundancies, change of pension schemes etc., then there does have to be formal consultation about that. And note that unless you have less than 10 employees, the consultation has to be with trade union representatives where there is a recognised union and/or elected representatives for the employees who aren t in the union. If there aren t standing elected representatives (e.g. a works council with appropriate scope of authority), the employer s first duty is to invite the employees to elect representatives. If they don t elect representatives, the employer only has to provide the specified information directly to the employees and he does not have to consult them about it. Failure to inform and/or consult as required can result in a Tribunal awarding up to 90 days pay as compensation for the employees concerned, and sometimes the transferee can be jointly and severally liable for the transferor s default. Tip Don t forget to provide the required information to affected employees, especially if you are the transferor, and consult if you are required by TUPE to do it. If you are a transferee, always send an information letter to the transferor as far in advance of the transfer as is practicable; you can always update it later if you need to. And at least say something in response to the requirement about legal, economic and social implications of the change of employer and give information about your pension arrangements for transferring staff as well, even if there is nothing specific otherwise to say. 12

9. Pensions, Employee Share Ownership Plans and TUPE Pension TUPE basically has an exclusion for pension rights in occupational pension schemes, but it only operates about pension at normal pension age. The Transfer of Employment (Pension Protection) Regulations 2005 (as amended from 6 April 2014) set out what future pension the transferee has to provide to transferred staff. The 2005 Regulations do not transfer the employees accrued benefits in the transferor s pension scheme to the transferee s, though sometimes that does happen by agreement. In the result, what happens breaks down into the following over-simplified propositions:- 1. If the employee has an individual deal under which the employer makes a fixed contribution to the employee s personal pension or a group personal pension scheme, the obligation to contribute the fixed amount to pension will transfer across because it is a term of the employment contract and the pension plan is not an occupational pension scheme. 2. If the transferor has an occupational pension scheme and there are transferring employees who are already in membership of it, or who are not members but who are eligible to join it or would be eligible to join it after completing the qualifying period of service, the transferee will have to offer them membership of an occupational pension scheme in its employment. The transferee can choose between providing a final salary/defined benefit scheme or a money purchase/defined contribution scheme, regardless of what the employees were in before. But there are minimum requirements about the quality of the pension, which will require an employer contribution which matches the employee s own contribution up to 6% of pay. This would also apply to membership of a workplace pension. 3. If the transferor had not passed its auto-enrolment deadline, but the transferee has or would if the transferring employees are taken into account, then the employees must be offered membership of a workplace pension. 4. Rights to early retirement pensions are not within TUPE s exclusion for pension. While they are uncommon, these are potentially very expensive liabilities for a transferee to inherit Employee Share Ownership Plans If there are any transferring employees in a share ownership plan or EMI scheme in the transferor s employment, then (unless the transferor and transferee are in the same group of companies), they are going to be treated as leavers when they transfer. That could mean they get to exercise rights earlier than the transferor might have expected and it might face an unexpected cost, or the employees may lose out on their share options altogether or at least not realise as much gain as they had expected. It will be impossible for the transferee to replicate the options lost, because it can t backdate any new rights it is able to grant over its own shares, and anyway it could not operate a tax-approved share plan over the shares of the transferor, as a third party company. Tip Even if it does offer new rights under its own plans, the employees may try to bring claims against the transferee for breach of contract for the real or even paper loss they have suffered. So it can be vitally important to check the rules of the transferor s plans they are in to make sure they contain suitable clauses (so-called Micklefield clauses) which prevent the employees bringing any claim for loss of the value of their options if they leave employment. The transferee should be able to rely on them to defend any claim. If they claim against the transferor, it can rely on a Micklefield clause and also say that any liability there might be is passed by TUPE to the transferee. 13

10. Allocating costs & risk and getting protection via the commercial contract Where there is a sale and purchase agreement for a business, or a formal service contract, there is scope for due diligence and for the commercial parties to allocate TUPE costs and risks among themselves through the formal contract. Agreements typically contain:- 1. an apportionment clause for periodical payments like pay, holiday pay and expenses, allowing these costs to be shared fairly on a time basis. 2. warranties, that certain things are factually correct like that the list of transferring employees is everyone who has the right to transfer, or that no-one who is transferring has any pending legal claims against the transferor, or a right to an early retirement pension. 3. indemnities which require one party to compensate the other in full if something that has been warranted turns out not to be true. 4. agreed arrangements for informing/consulting the staff who are transferring. Contact Jennifer Mansoor Solicitor Tel +44(0)20 7024 4803 Email jennifer.mansoor@ adamsandremers.com SIMON JEFFREYS While care has been taken in preparing this guidance note, it is not a full treatment of the subject and specific advice should be taken on any matter rather than relying on this note. Further Help & Advice Lewes Trinity House, School Hill, Lewes, Sussex, BN7 2NN Tel +44 (0)1273 480616 Fax +44 (0)1273 480618 DX 3100 Lewes1 Email lewes@adamsandremers.com London Dukes Court, 32 Duke Street, St James s, London, SW1Y 6DF Tel +44 (0)20 7024 3600 Fax +44 (0)20 7839 5244 DX 140545 Piccadilly 5 Email london@adamsandremers.com 19/9/2014 Adams & Remers Adams & Remers LLP is a limited liability partnership registered in England & Wales No. OC351800 and is authorised and regulated by the Solicitors Regulation Authority. Registered Office Trinity House, School Hill, Lewes, Sussex, BN7 2NN. A list of members is open to inspection at the registered office. 14