A guide to TUPE regulations

The underlying purpose of the regulations is to protect the employment of the employees when all or part of the business they work for changes hands or where the employees are engaged in providing a service, and there is a change of service provider. 

The regulations are complex, and every process will differ depending on your business and the specific transaction. This note provides general advice only. You must take professional legal advice from a qualified employment lawyer to ensure you can comply with TUPE if it applies to your transaction.

What you need to know about TUPE

• Does TUPE apply to your transaction?
• What are the implications of TUPE applying?
• What do you need to do to comply?
• What are the penalties for non-compliance?

When does TUPE apply? 

In the first instance, it is important to understand to what transactions TUPE could apply. TUPE applies when a “relevant transfer” takes place. A “relevant transfer” can take either of two forms:  

A business transfer: In basic terms, A Ltd is sold to B Ltd as a going concern. In this scenario, there must be a transfer of an economic entity that retains its identity following the transfer (for example, a merger or acquisition). This applies whether all or only part of the entity is being transferred. 

There are several factors that the courts will take into account when determining whether a business transfer falls under the TUPE regulations, including, but not limited to: 

• the type of undertaking being transferred; 
• whether customers have been transferred;
• whether the new employer takes on the majority of employees; 
• the degree of similarity between the activities that take place before/after the transfer;
• whether any assets, tangible or intangible, have been transferred. 

For this guide: A Ltd will be known as the transferor. B Ltd will be known as the transferee.

A service provision change:

This occurs where a business:

• outsources a service by engaging a contractor to do work on its behalf (initial/first-generation outsourcing);
• re-assigns a contract from one external contractor to another (a subsequent/second-generation transfer); or 
• brings the service back in-house from an external contractor (in-sourcing).

The transferor or incumbent is the outgoing contractor on a service provision change, and the transferee is the incoming contractor. 

It is worth noting that a one-off buying-in of services are excluded from the TUPE regulations, as it is a transaction for the supply of goods for the end-user; it is services that are covered and not goods.

Further, to be covered by the TUPE regulations, the activities carried on after the service provision change must be “fundamentally or essentially the same” as those carried out before the change.

Some transactions can amount to both a business transfer and a service provision change when applying TUPE. 

Seek professional advice to determine if TUPE may apply to your transaction.

There is no right to make any changes to terms and conditions and harmonise the terms and conditions to streamline contracts (this may be an area for change as part of the relaxation of TUPE rules following Brexit, but at the current time, employment contract transfer as they are). 

In essence, the employment contracts of the employees employed by the transferor will automatically transfer to the transferee on their existing terms. The transferee essentially “steps into the shoes” of the transferor as the new employer. There are some exemptions to this relating to old age under occupational pensions schemes.

It is essential to be aware that any of the transferor’s acts or omissions before the transfer will be regarded as having been done by the transferee. For example, liability for any ongoing unfair dismissal or discrimination claims will pass to the transferee (the new employer). It is, therefore, vital that an appropriate process is followed in carrying out the transfer and that the transferee is aware of any incoming liabilities. There is a legal obligation on the transferor to provide this information to the transferee, which we have explained below. 

Duty to inform and consult

There is an obligation on the transferor and transferee to inform employees about the transaction and consult with them on any changes, known as “measures”. The obligation only applies in relation to each parties own affected employees. Therefore, the obligation transfers as the transaction takes effect, as the employer changes over the course of the transaction. 

The information cannot be given to the employees directly where ten or more employees are affected and must instead be given to appropriate representatives. An election process would be required if there are no representatives. It is recommended advice is taken on the election of representatives.

There is no statutory time frame for informing and consulting; it is simply “long enough before the transfer”; this will be different for each case. Therefore, it should be discussed with professional advisers who can best guide on reasonable timeframes for the transaction. 

It is important to note that one of the employees’ rights is the right to object to being transferred. This is set out below.

Transferee to provide Employee Liability information

There is certain and specific information under Regulation 11 that the transferor must provide to the transferee at least 28 days before the transfer takes effect in connection with the employees’ contracts and liabilities.

Process overview 

The exact process to follow will depend on whether it is a business transfer, a service provision changes or both. It will also differ depending on whether you are the transferee or transferor. There are strict rules governing the process; however, the main elements can be very broadly summarised as follows: 

• Identify which employees will be affected by the transfer;
• With enough time before the transfer date, the transferor should inform and consult with all affected employees. Recognised trade unions or elected employee representatives should be involved in this stage, and direct consultation with employees should only take place in limited circumstances. Information about the transfer should be given, including means by which they can object; 
• Because the transferee inherits the transferor’s employees with all their liabilities, the transferee must be fully informed of these liabilities before committing to the transfer. Therefore, all employee liability information must be given to the transferee at least 28 days before the relevant transfer takes place. This is a legal requirement, and the information that must be provided is set out in Regulation 11 of the 2006 Regulations. 
• The transferee must also inform and consult with transferring employees on any planned measures which may implicate their employment contracts. The agreement should be sought to any changes. 

What are the consequences of not following the correct process? 

• Failure to properly inform and consult with an employee about the TUPE transfer could give them the right to complain to the Employment Tribunal. Awards can be made up to 13 weeks’ pay per affected employee, and liability can be apportioned between the transferor and transferee. Depending on the seriousness of the failure, an employee could also resign and claim constructive unfair dismissal.
• Failure by the transferee to provide the Employee Liability Information could result in an award being sought by the transferor of an amount which is just and equitable with a minimum amount of £500 per employee in respect of employees for whom the information was not provided.
• It is important to note that dismissing an employee because of a TUPE transfer is deemed to be automatically unfair. If it can be shown that the reason for the dismissal was not the transfer itself but an ETO reason (economic, technical or organisational reason), a fair and proper redundancy process must still be followed, or it could still be deemed unfair. 
• Whilst liability for claims ordinary follows the transferee, there may be contractual terms between the parties that provide for the liability to be apportioned. Therefore, it is important to comply with the TUPE regulations and seek appropriate advice.

Frequently asked questions

What if I need to make changes to an incoming employee’s contract? 

There are minimal circumstances in which changes to an employee’s contract are permitted, which are: 

• An economic, technical or Organisational (ETO) reason entailing changes in the workforce. Both the employer and employee must agree to the change; 

• If the reason for the variation is either favourable to the employee (for example, increased holiday entitlement) or the change is completely unrelated to the transfer;
• The employee’s contract permits the change (for example, a mobility or compulsory overtime clause);

Changes could also be made if the transfer involves an insolvent business or where the terms being varied have been incorporated by collective agreement. Please take specific advice if you think this may apply. 

We would always recommend that you take legal advice when seeking to vary an employee’s contract upon a TUPE transfer. This will avoid you inadvertently incurring liability for the employee resigning in response to detrimental changes to their contract and potentially claiming constructive unfair dismissal. 

What if an employee objects to the transfer? 

In this circumstance, the individual(s) who objects will not become employees of the transferee, and their employment contracts will automatically terminate on the transfer date. This will not be regarded as dismissal or redundancy. 

What should I do to discuss TUPE further?

We would highly recommend that you seek expert legal advice to help guide you through the process.