TUPE Regulations

TUPE is an extremely technical area of law involving the transfer of employees when a business or service changes hands.

Despite the TUPE Regulations attempting to make outsourcing and second generation contracting more straightforward, real challenges remain in its application, particularly in relation to service provision changes.

Note that TUPE doesn’t apply to share sales.

Problem areas

The more common problem areas include:

• dealing with transferees who refuse to accept that TUPE applies and therefore will not accept the transfer of any employees.
• attempting to assess whether TUPE applies and, if so, which employees should transfer following the loss of a service contract which is fragmenting to more than one transferee; and
• on a contract win, identifying which employees should legitimately be transferring in from the outgoing contractor who, in turn, might use the loss of the contract to off-load surplus staff.

As a result, some service contracts are being drafted in such a way that can leave a business on a loss of a contract with substantial exposure to both the client and the incoming contractor for unfair dismissal and failure to consult claims through open ended indemnities. 

Automatic Transfer and Protection Against Dismissal

• Employees transfer automatically to the new employer on their existing terms and conditions, and protection applies whether the transfer arises from a business sale or a service provision change.

• Dismissals connected to the transfer are automatically unfair unless for an ETO (economic, technical or organisational) reason.
• Changes to terms are generally void if the sole or principal reason is the transfer.

Changing Terms of Employment

• Permissible only if unrelated to the transfer, or if for an ETO reason and agreed.
• Attempted harmonisation of terms post-transfer is often unenforceable.

Information, Consultation and LEI

• Both transferor and transferee must inform and, where appropriate, consult affected employees or their representatives.
• Failure to do so can result in protective awards of up to 13 weeks’ pay per employee.
• The transferor must provide prescribed information to the transferee at least 28 days before the transfer which must include details of employment terms, disciplinary and grievance records, and claims history.

Insolvent Businesses

• Special TUPE rules may apply to transfers involving insolvent employers.
• Liabilities may be limited or transferred to the National Insurance Fund depending on the nature of the insolvency.

Cross-Border Issues

• Transfers involving overseas elements may raise jurisdictional and conflict of law issues.
• Interpretation of TUPE rights in cross-border transactions requires specialist advice.