TUPE Process UK
- December 13, 2021
- Posted by: Harry King
- Category: Human Resource
The Law in the UK protects against infringement of employees’ rights when a business they work for is sold or their employer relocates to another business. The Law also protects employees employed when the service they offer transfers from one business to another or the services are purchased internally. These kinds of changes are usually referred to as insourcing, outsourcing, or second-generation outsourcing.
These business transfers are referred to as ‘TUPE’, which comes from the statute governing it: The Transfer of Undertakings (Protection of Employment) Regulation 2006. The transfer of undertakings is a complex area of law that one should seek legal advice on when executing.
Below, we provide a quick and basic understanding of the TUPE process UK and what employee rights might be if subjected to a TUPE transfer.
What is the Process of TUPE?
A transfer of undertakings happens in either one of the two circumstances – a business transfer or a service provision change. A TUPE process kicks in when a relevant transfer of undertakings has occurred to protect UK employees’ rights of employment. Let’s look into details how the process of TUPE applies in the two situations;
In simple terms, a business transfer is when business A is sold to B as a going concern. Under this situation, there must be a transfer of an economic entity that retains its identity after the transfer, for instance, a merger or acquisition. The process applies to whether all or a part of the entity is being transferred.
However, there are several aspects that the courts will consider when determining if a business falls under the TUPE process or not. These aspects include, and are not limited to:
- The kind of undertaking being transferred
- Whether clients have been transferred
- Whether the new employer retains most of the employees
- The level of similarity between the undertakings that happen before or after the transfer
- Whether any properties, tangible or intangible have been moved
Service Provision Change
Service provision change occurs when a business:
- Subcontracts a service by hiring a contractor to do work on its behalf by either initial or first-generation outsourcing.
- Brings the service back internally from an external contractor – in-sourcing.
- Re-assigns a contract from one external contractor to another – subsequent or second-generation move.
The transferor or incumbent refers to the outgoing contractor on service provision change, and the transferee is the incoming contractor. Note: One-off buying-in of services are excluded from the TUPE regulations since it is a transaction for the supply of goods for the end-user – in a nutshell, it is services that are covered and not products.
Moreover, for you to be covered by the TUPE regulations, the activities moved on after the service provision change ought to be essentially similar to those carried out before the change.
However, there are those transactions that can qualify to be both a business transfer and a service provision change on the basis of applying TUPE. For this reason, seek professional legal advice to determine whether TUPE may apply to your deal.
Rules Governing the TUPE Process
The TUPE process is governed by strict rules, however, the entire process can be summarized in the following steps:
1. Identifying Employees Who Transfer
Regardless of whether the employees are part of the team that is transferring under TUPE, it is necessary that each employee is included in the transfer team. All employees on short-term leaves, holidays and parental leaves must be included in the transfer group.
However, employees on fixed-term employment contracts should be included but not as agency workers. Seconded employees, as well as those on sick leave, may also be transferred but it will depend on the circumstance such as the length of the secondment or absence.
However, service provision changes can bring challenges when determining which employee to transfer. Regardless, HR can address these challenges in the initial stages by being consulted on outsourcing, insourcing and retendering that takes place.
2. Information and Consultation
Once it is determined that TUPE applies and which employees are affected, particular information must be given to the new employer. More importantly, the transferring employees must also be given appropriate information. Since there are no set timescales for consultation, it is, important to provide adequate time for sufficient consultation to take place.
Who do you need to consult with?
The consultation can happen with either: The
- Union Representatives: This should happen if the employer recognizes an independent trade union in relation to all or some of the affected employees.
- Employee Representatives: Employee representatives can be consulted if there is no union representation.
- Employees Directly: Consultation with employees directly only happens for small businesses with less than 10 employees where there is no recognized independent trade union or appropriate employee representatives exist.
Note: Employee representatives must be elected and managers must be up to date with the need to invite the elected representatives and inform and consult with them while the transfer is being discussed.
What information must be provided to the representatives
The employer must make available to the recognized union, or the employee representatives the following information:
- The fact that the transfer is happening
- The date or the planned date of the transfer
- The reasons as to why the transfer is to take place
- The legal, economic and social ramifications of the transfer for the affected employees
Any measures proposed in association with the transfer will impact the employee; if there are no measures to be taken, then that must be made clear as well. The previous employer must also spell out the measures it envisages the new employer will be taking that will impact the transferring employees.
Although TUPE does not expressly define the measures, the measures are, however, likely to include changes to existing work norms and practices like job description, amount of pay, hours of work, day of the month when salary is paid as well as mechanics of salary payment.
Failure to Comply
Failure to correctly inform employees and consult with them about the TUPE move can lay grounds for them to complain to the Employment Tribunal. Rewards can be made up to 13 weeks’ pay for every affected employee while liability can be apportioned between the transferor and transferee.
Moreover, depending on how serious the failure is, an employee can also resign and claim constructive unfair dismissal.
Also, it is worth noting that dismissing an employee based on a TUPE transfer is considered unfair. Should it be proved that the main reason for dismissal was not the TUPE move but an economic, technical or organizational reason, then a fair and proper redundancy process ought to be followed or it can still be considered unfair dismissal.
3. Employee Liability Information and Due Diligence
Apart from providing information to the union or employee representatives, the outgoing employer must also provide employee liability information to the incoming employer as well. Any organisation buying business, or bidding for a contract to offer services, ought to undertake due diligence concerning whether TUPE applies or not. Employee liability information is part of this undertaking.
Information to the new employer must be provided in writing and should detail the rights and obligations of the transferring employees. Ideally, the information must be made available at least 28 days before the actual date of transfer.
Even though in practice this timeframe is helpful, if not necessary, the incoming employer should be given the information at the initial stage. The information provided to the new employee may include:
- List of the transferring employee, their details and ages
- Information contained in the transferring employee’s written contracts of employment
- Information about any collective agreements should there be any
- Information about any disciplinary action taken against any transferring employees in the previous 2 years
- Information of any formal grievances raised by any of the transferring employees in the previous 2 years
- Information about any legal action brought against the outgoing employer by any of the transferring employees during the past 2 years
- Information of any potential legal action that the outgoing employer rationally believes may be availed.
Failure to Comply
Failure by the transferee to provide the Employee Liability Information can lead to an award being sought by the transferor of an amount that is just and equitable with a minimum amount of £500 for each employee for whom the information was not availed.
The consultations ought to be significant and done with a view to seeking the agreement of the union or employee representatives. For this reason, employers must respond to any representations made by the representatives, and whether the employer dismisses what they have to say while providing the reasons.
Consultation should start early enough the more meaningful it will be. Besides, the incoming employer should be invited by the current employer to speak exclusively with any moving employees concerning the transfer and their current terms and conditions.
Warranties and indemnities
Since employees cannot get out of TUPE by contracting out of the provisions, the incoming and outgoing employer can, however, agree to apportion risks and financial costs of TUPE between them. And here is where the use of warranties and indemnities come through.
Warranties refer to the contractual statements by the outgoing employer as per the condition of the business. If the warranty is broken, the incoming employer may claim damages
Indemnities refer to the promises to pay compensation should any type of liability arise. Whereas a warranty is a promise which one company has put together with its TUPE obligations, the indemnity deals with who bears the financial penalties of the failure to pay or non-compliance.
4. Terms and Conditions: Difficulty of Harmonization
Details about TUPE usually points out post-transfer harmonization. Regardless, terms and conditions slightly misrepresent the legal position, since employees are adequately protected against harmonization.
In the TUPE process, the rule is that the terms and conditions ought not to be varied by the outgoing or incoming employer if the only reason for the variation is the transfer. This is because the rights given by the statute are more significant than any contractual agreements and therefore employees may not sign away their statute rights.
Although any disparities can appear to be settled by the employee, the changes will still be legally ineffective. The HR department of the incoming employer taking up employees through TUPE transfer will be tasked to harmonize the terms and conditions of the new employees with the existing ones in the employee’s contract.
Harmonization by adapting the terms of transferring employees to those of the existing staff is not allowed by TUPE and thus illegal unless it is under the following exceptions:
- Where the reason for the variation is not related to the transfer
- Where the difference is favourable to the employee
- Where there is an ETO reason entailing changes in the workforce and both the employer and employee agree on the variation
- Where there are insolvency situations
- When the terms of the employment contract allow variation
- When there is a collective agreement that incorporates terms and conditions
The provision of pensions in TUPE is a multifaceted and costly aspect. This is because most occupational pension scheme rights are excluded for TUPE, therefore, pension rights don’t automatically transfer during the TUPE transfer of employees. However, the incoming employers are required to make minimum pension provisions under the pension legislation which is isolated from TUPE.
6. Objecting to the TUPE Transfer
Without a doubt, there is some employee who may not agree to the new employer and thus may try to refuse the transfer before it actually happens. If employees object to the TUPE transfer in this manner, therefore, such a contract is terminated because the employee has effectively resigned and thus can’t make a redundancy payment.
The outgoing employer may be persuaded to keep the objecting employees and negotiate a new contract, but is not obligated. However, if the objecting employees are doing so due to the changes to their terms and conditions that are not permissible under TUPE, then they cloud have an automatic unfair sacking claim.
7. Terminating Employment
Termination of employment refers to the unfair dismissal of employees due to a TUPE transfer. For instance, in a business sale, if employees are sacked because the incoming employer doesn’t want some of the existing employees, it is a direct unfair dismissal in breach of TUPE. However, the employees must have at least one or two years of service to bring an unfair dismissal claim.
The main defence for the employer is if they can show an ETO reason detailing the changes in the workforce roles. Regardless, for the ETO reason for dismissal to be effective, all proper redundancy and dismissal processes must be followed. The employer must also act reasonably with an attempt to create or find other roles within the business for all employees.
In the same way, the outgoing employer can’t dismiss employees after a TUPE transfer – without being compensated, the incoming employer can’t also make transferred employees redundant either. However, there must be a sincere redundancy condition and the ETO reasons involving changes to the workforce.
The incoming employer may start consultations about redundancies with the outgoing employer before the transfer – pre-transfer dismissal. However, this too is unfair dismissal unless there are clear ETO reasons involved. The best course of action is for the incoming employer to take on the transferring employees and handle redundancies itself and efficiently negotiate for the expenses of the redundancy payments.
How Long Does TUPE Process Take?
TUPE does not specify how long the process should take. However, it says that the employer must consult with employee representatives and all the relevant information is shared early enough before an actual transfer is done. This is to allow the employer of any affected employees to consult with the appropriate representatives of any affected employees and reach an agreement.
How Long Does TUPE Last UK?
The actual TUPE transfer may be attained relatively fast, but the employee rights under the TUPE regulation will last for an indefinite period. While the employees will get a notice of the transfer, the outgoing and incoming employers must consult with them before the transfer happens.
How Long Do You Have to be Employed for TUPE to Apply?
Employees who transfer are guaranteed continuity of employment. Ideally, this means that those employees who had, for instance, 18 months of service with the outgoing employer at the time of the transfer, moves with 18 months’ service to the new employer.
This is vital since it implies that employees with enough continuous employment preserve their rights to claim particular employment protection rights such as the right to claim unfair dismissal. For TUPE to apply, the qualifying period of employment is one year’s continuous employment.
Once a TUPE transfer is identified in a business, both the outgoing and incoming employers must work to ensure the right of the relevant employees are upheld. Unless an ETO reason exists, any changes to terms and conditions or dismissals occasioned by the transfer will lead to automatically unfair sacking with substantial compensation consequences.
Moreover, there are increased awards where consultations needs are not met or complied with. Therefore, on one hand, serious consequences await those employers who misinterpret TUPE while on the other, substantial benefits for those employers who comprehend and manage the transfer well.