Transfer of undertakings Business owner/ manager briefing
02 Transfer of undertakings: Business owner / manager briefing Transfer of undertakings: manager / business owner briefing on handling TUPE transfers This manager / business owner briefing sets out what you need to know about TUPE and how you can ensure you comply with your employer duties under TUPE and help manage the transfer. TUPE is a complex area, so it is essential to seek expert legal advice for individual circumstances. Where a business, or part of one, is being transferred, both parties (that is the transferor and the transferee) should seek such advice at the earliest possible stage. Make use of the access your DBA membership affords you to our legal partner Humphries Kirk and/ or the HR helpline provided by Croner Consulting. You can t avoid TUPE applying, as the law prevents employers and employees from 'contracting out of' the effects of TUPE. However, it is common practice for old and new employers to negotiate on how to divide any liabilities, which arise by including 'indemnities' in the agreement. The key to successful TUPE transfers lies in good planning. This will include identifying key risks at an early stage and holding a genuine dialogue with employees. 1. What is TUPE? TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. TUPE apply to a wide range of situations, known as relevant transfers. The two broad categories are: Business transfer the transfer of a business, or part of a business where there is a transfer of an economic entity that retains its identity; A service provisions change 1 - a client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work "in-house". TUPE safeguards employees rights when there is a transfer of a business or service from one organisation (the transferor) to another organisation (the transferee). The two key principles of TUPE are that: The transferee becomes the employer of the transferring employees, i.e. those employees who are assigned to the transferring business or service. On the whole, the terms and conditions of employment of the transferring employees transfer with them, including the rights and liabilities relating to the contract. Their continuity of service is also preserved. The transferee takes over the liability for all statutory rights, claims and liabilities arising from the existing contracts of employment, including liabilities for unfair dismissal, equal pay and discrimination claims, including pre-existing claims. For example, if an employee transfers with an existing unresolved grievance, the transferee will be required to deal with it following the transfer. The exception to this rule is certain parts of an occupational pension scheme 2 1 At the time of writing this guide April 2103 there is an ongoing Government consultation on the potential repeal of this part of the TUPE Regulations) 2 In essence, obligations relating to provisions about benefits for old age, invalidity or survivors in employees' occupational pension schemes do not transfer under TUPE. However, under the Pensions Act 2004 (sections 257 and 258) provisions equivalent to the TUPE regulations apply to pension rights. It means that if the previous employer provided a pension scheme then the new employer has to provide some form of pension arrangement for employees who were eligible for, or members of the old employer's scheme. It will not have to be the same as the arrangement provided by the previous employer but will have to be of a certain minimum standard
03 Transfer of undertakings: Business owner / manager briefing and criminal liabilities. It may be possible to legally negotiate warranties and indemnities, which will provide a partial, or total, cushion against the financial impact of any claims resulting from the application of TUPE. If you are the transferee, you will be operating two separate sets of terms and conditions: those of transferring employees and those of existing employees in your team / business, which can create practical difficulties. For example, you may need to manage employees with different holiday entitlement, hours of work and bonus arrangements. 2. When does TUPE apply? It is good practice to question whether there is a transfer of undertaking when an organisation is involved in a: merger acquisition sale purchase tendering process change of service or similar situation. Please note: It will be necessary to take specific legal advice to determine whether or not the situation involves a transfer of undertaking. For guidance, TUPE applies when there is a "relevant transfer": The sale of a business: TUPE will arise if the whole or part of an organisation's business is sold. Outsourcing (including first-generation, second-generation and subsequent-generation outsourcing): Outsourcing can be explained by way of an example. Where a national agency (the client) engages a specialist company (provider 1) to provide IT services to all of its offices, this is first-generation outsourcing. Second-generation outsourcing occurs where the agency terminates the contract with provider 1 and appoints a new IT company (provider 2) to provide the services instead. Insourcing: In the example above, insourcing occurs where the agency terminates the arrangement with the IT company (provider 1 or provider 2), and instead manages and operates the IT services itself. Example 1: Two agencies, ABC and XYZ, decide to merge their assets and combine their clients to create a bigger design agency. The partners from both agencies sign a new partnership deed to become ABYZ. TUPE is likely to apply to the transfers of ABC and XYZ to ABYZ and the employees of each agency will be protected. Example 2: A design agency has a department specialising in international brands consultancy service, comprising two partners, say a creative director and client services manager, and three employees. The two partners decide to leave the agency, set up their own business and take their clients with them. TUPE is likely to apply to the transfer of the international brands department to the newly created partnership. Accordingly, the two partners must take the three members of staff with them too. Example 3: A design agency works on briefs from several clients but without dedicating any of its staff to particular accounts. One of the agency s main clients, XYZ, decides to switch to a different design agency. This is unlikely to be a service provision change because there was no organised grouping of employees whose purpose was to carry out the activity for XYZ. Example 4: A digital agency loses an account to another agency. TUPE is likely to apply if there are employees dedicated to the account. But the agency losing the account may not want to lose its staff, the agency winning the account may not want to take on staff and the staff themselves may want to stay with their existing employer or take a redundancy package. Also, the client has probably changed agencies for a reason and is unlikely to want specified under the Pensions Act. CIPD TUPE Factsheet at http://www.cipd.co.uk/hr-resources/factsheets/transfer-of-undertakingstupe.aspx
04 Transfer of undertakings: Business owner / manager briefing all (or perhaps any) of the same staff working for it at the new agency. However, in such cases it may be possible to work within TUPE to avoid most of its implications. TUPE does not apply to transfers: by share take-over of assets only (for example, the sale of equipment alone would!not be covered), but the sale of a going concern including equipment!would be covered of a contract to provide goods or services where this does not!involve the transfer of a business or part of a business. of the supply of goods for the client s use, for example, supplying food to a!client to sell in its staff canteen, rather than a situation where the contractor runs the canteen for the client. 3. Who transfers? TUPE applies only to employees, including those on maternity or sick leave. It does not cover self-employed persons such as, for example, freelancers and subcontractors. Parttime and temporary staff will be covered, so long as they satisfy the test of being an employee. Temps supplied by an employment agency are unlikely to be protected by TUPE, although in rare situations tribunals might be prepared to imply a direct employment relationship between an agency worker and the end-user company, in which case TUPE would apply to them. (For guidance on identifying affected employees, please read sections 4 and 5 of the Further detailed guidance for handling TUPE situations available for download from the DBA Guides area). 4. Duties if there is a transfer of undertaking If there is a transfer of undertaking there is a requirement to consult with all employees affected by the situation. Both the transferor and the transferee must carry out the consultation with their respective affected employees. Top tip: This consultation should take place in good time before the proposed transfer, and with the aim of reaching an agreement. 5. The consultation process key considerations Consultation should be carried out with trade union representatives, or if there are no trade union representatives, with elected employee representatives. The employer should facilitate the election of such representatives. The employer should undertake consultation prior to the transfer with a view to seeking representatives' agreement to the measures to be taken. This duty is less onerous than negotiation, and it is not necessary for the employer to obtain representatives' agreement to the proposed changes. However, the employer needs to undertake consultation in good faith and with a view to reaching agreement. A carefully coordinated consultation exercise, in which employees and their representatives feel engaged from an early stage, with their views and proposals considered and responded to, will assist with the transfer of the workforce from one employer to another. It enables the employer to address any issues and concerns sooner rather than later and prevent disruption to the transfer and business continuity. Top Tip: It is important to remember that employees will often be concerned about the proposed changes, hence it is good practice to allow plenty of time for consultation. It is also good practice to meet with employees individually or in small groups to address any specific concerns that they might have. You, as the employer, should: enter into discussions with an open mind;
05 Transfer of undertakings: Business owner / manager briefing apply its mind to the ideas, representations and proposals put forward by representatives; reply to those representations fully; explain whether the representations have been accepted or rejected and, if they have been rejected, give a reasonable explanation for the rejection. Please note: If consultation is not carried out, or is judged to be inadequate in some way, the liability for this lack of consultation is joint and several between the existing company and the company to which employees are to be transferred. The penalty for failing to consult is up to 13 weeks' pay for each employee affected by the transfer, which equates to approximately 25% of the employee's annual salary. 6. Protection for those who are transferred Employees who are transferred to a new employer transfer on all of their current terms and conditions of employment, as well as their continuity of service. You should not, after or in connection with a transfer, make changes to employees' terms and conditions, for example by changing their duties or working hours, or otherwise restructure the service their team is providing in a way that has an impact on employees. Changes to the terms and conditions of employment can only be made if there is a strong Economic, Technical or Organisational reason (ETO) reason for this: Economic - the transferring business is in financial difficulty and the only way for it to survive is to make some changes (such as redundancies) Technical - the only way that the new owner can make the business viable is to introduce new technology that will require changes in the way of working. Organisational - the new owner already has a similar business, and the only way that it can ensure that the new business (the result of the existing and transferred business) can survive is to be merged within the existing organisation structure, which will result in some job losses. This is usually done in the context of a wholesale reorganisation. It is good practice to ensure that this is confirmed in writing. The new employer should write to the employees who are transferred, confirming their terms and conditions of employment. In certain circumstances, it will not be possible for the transferee to operate the terms enjoyed by transferring employees. For example, a transferee is unlikely to be able to replicate a previous employee share scheme. In this situation, the transferee will have to assess the value of the benefit and offer a replacement benefit that is of substantial equivalence. In other circumstances, it may not be desirable for the transferee to operate the terms enjoyed by transferring employees. However, the transferee's ability to change terms and conditions of employment in the context of a transfer is limited. Please note: If you wish to amend transferring employees' (or existing employees') terms and conditions of employment for a reason connected to the transfer, for example, because you no longer wish to manage two sets of terms and conditions, this may be unenforceable, even if it is agreed by the employees. It is essential to seek further expert HR or legal advice, given the restriction relating to changing terms and conditions of employment. The transferee will need to undertake a thorough due diligence process, prior to entering into the transfer agreement. 7. Dismissal as a result of a transfer of undertaking Dismissing an employee as a result of a transfer of undertaking will be an automatically unfair dismissal unless there is a strong ETO for the dismissal (see above for acceptable legitimate ETO reasons).
06 Transfer of undertakings: Business owner / manager briefing Dismissal may be possible where the employer can show that it was linked to some form of organisation restructuring or change programme that also results in a change in the number of employees or their job functions. For example, a dismissal in the context of a redundancy exercise is likely to come within this exception. If it is likely that there will be some dismissals, it is good practice to ensure that the employees are made aware of this (having taken legal advice that the dismissals would be covered by an ETO reason). If it is certain that there will be no dismissals on the transfer of undertaking, this should also be communicated to employees to reassure them. 8. Objections from employees A transfer of undertaking can be unsettling for employees. It is important that they receive clear communication at all stages. If there are any individual concerns it is important to meet with the employee to address these concerns. It is strongly advisable to keep notes of such meetings. If an employee objects to the transfer, you should listen to and addressed their concerns as part of the consultation process. If the transfer is to go ahead despite the objections, then the employee can refuse to transfer to the new employer. Please note: In such a situation this would be a resignation and not a redundancy situation. It is good practice to ensure that the employee fully understands the implications of refusing to transfer. 9. Working with the new employer The new employer will receive a lot of information through the due diligence process and as part of agreeing the commercial contract. The existing employer is required to supply the new employer with: the identity of the employees who will transfer the age of those employees information contained in those employees' statements of employment particulars information relating to any collective agreements applying to those employees instances of any disciplinary action within the preceding two years taken by the employer against those employees instances of any grievances raised by those employees within the preceding two years instances of any legal actions taken by those employees against the employer in the previous two years, and instances of any potential legal actions that may be brought by those employees. If the employer uses agency workers, the number of agency workers working for it temporarily and under its supervision and direction, the parts of the business in which they work and the type of work that they do. Line managers will often have the most upto-date information on the organisation's use of agency workers. Please note: If this information is not provided, or is inaccurate, the new employer can complain to the Employment Tribunal and an award of up to 500 per employee can be made. It is good practice to work closely with the new employer to ensure that the disruption to employees who are transferring is minimal. 10. Employees remaining with the transferor Where the transferor retains some employees after the transfer, for example where an agency sells its digital division and retains its branding division, employees who do not transfer may still be affected by the transfer. For example, they may need to deal with a different management structure, changed job duties or the departure of colleagues and friends. You and your managers who are staying behind with the transferor have an important role to play in supporting these employees after the transfer to maintain business continuity.
07 Transfer of undertakings: Business owner / manager briefing It is good practice to: communicate regularly with employees, including listening to their concerns and taking steps to address them; and participate in a team-building event or strategy day, which will encourage employees to air their concerns and to regroup and focus on the future. Information in this document is provided for guidance only and should not be regarded as an authoritative statement of the law, which can only be made by reference to the particular circumstances which apply. It may, therefore, be wise to seek further employment or legal advice.