When a business is preparing for sale, they must consider if the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) will apply, and therefore if employees of the business should have their employment TUPE transfer to the buyer in the transaction.
Employers cannot ‘contract out’ of the TUPE Regulations and the obligations this brings about. It is vital, therefore, that employers looking to sell their business understand when a TUPE transfer may occur, are familiar with their legal responsibilities in the event it does and take action to ensure they comply with the same. Otherwise, the employer looking to sell their business could be at risk of being liable to pay compensation to impacted employees, or even the potential buyer.
When does a TUPE transfer occur?
A TUPE transfer occurs in the following two situations, known as ‘relevant transfers’:
- A business transfer:g., an organisation, or even part of an organisation, is transferred (meaning its mains assets have transferred, but the activities being undertaken remain the same/similar, which would include where two businesses merge -; or
- A service provision change:g., a service, for example IT services, are transferred to a new provider, meaning they would take over the contract for such services. This would include situations where:
- A contract comes to an end and is taken on by a new contractor (‘retendering’);
- A contract ends and a business decides to not re-tender the work, but instead to bring the responsibility for the work back within their business (‘insourcing’) and
- Where a business decides to give the responsibility for work currently undertaken in-house to a contractor (‘outsourcing’).
When looking, therefore, at preparing to sell a business, it is important to consider whether the TUPE Regulations apply to the sale.
Transferor’s Obligations under the TUPE Regulations
(a) Determining the employees impacted by the business transfer
If a relevant transfer is identified (i.e., a business transfer in this situation), the business preparing for a sale (commonly known as the ‘transferor’) must first establish which of their employees will be impacted. Where a whole business is being transferred this task is relatively simple given, as you would assume, all employees employed by the business being transferred are impacted. Therefore, all employees would transfer under the TUPE Regulations.
However, if only part of the business is looking to be sold, it can be a bit more complex to identify the relevant employees (commonly referred to as an ‘organised grouping of employees’). In this situation, the transferor would need to consider the work undertaken by the part of the business transferring, and consider which employees are dedicated to this work. It can become tricky where employees undertake several activities, some of which are for the transferring part of the business, and some not.
In such cases, an assessment would need to be undertaken by the transferor to determine the proportion of the employee’s role linked to the part of the business which is transferring. If this is a large proportion, then it is likely they would fall into the organised group of employees that qualify for transfer under the TUPE regulations.
It is important to note, however, that the transferor making a decision about the organised grouping of employees is not necessarily determinative; the transferee (i.e., the entity which acquires the whole or part of transferor’s business in respect of a business transfer) may disagree with the transferor’s decision. Where agreement cannot be reached, it is advisable to seek legal advice to try and assist in an agreement being made so that the TUPE transfer can then proceed with both parties being agreeable to the scope of the transferring employees.
(b) Collating information in respect of the transferring employees
Once it has been established which employees form the organised grouping of employees for the whole/ partial business transfer, the transferor must provide the transferee with information relating to the employment of those individuals. This is referred to as Employee Liability Information.
The Employee Liability Information (ELI) must be provided to the transferee at least 28 days before any transfer under the TUPE Regulations takes place. Failure to provide this information, or provide accurate and complete information, could result in the transferor being liable to the transferee for compensation of at least £500 per transferring employee.
It is, therefore, crucial that the transferor has up to date records for all their employees, including, to name but a few:
- Their start date with the transferor and any continuous service;
- Details of their benefits, including holiday, sick pay, bonuses etc.;
- Details of any disciplinary and/or grievance procedures the employee has recently been involved in;
- Details of the employee’s current status, for example, if they are off on maternity leave or sickness absence;
- Details of any enhanced pay over and above statutory minimums; and
- Details of any tribunal claims outstanding against the transferor or its officers.
A large volume of this information should be contained within employee contracts of employment and business polices. Therefore, to save time with the knowledge this due diligence exercise is required, it is advisable that the transferor ensures these are all up to date at the outset of preparing for a sale. If this information is not readily available or easily identifiable by the transferee, this can cause unnecessary delays to the TUPE transfer, or even result in a transferee not wishing to purchase the business (or part of the business).
If any changes to this information occur after it is provided by the transferor to the transferee, the transferor has a duty to update the transferee without delay. However, this should be relatively minimal and not too time-consuming, provided all the employee information is clear originally.
(c) Inform and consult, if required, with transferring employees
The transferor will then be required to ensure the impacted employees in the organised grouping of employees are aware of the proposed TUPE transfer, and what this means for their employment. Importantly, this involves informing the employees, ideally in writing so it is clear and there is a record of this, about the TUPE transfer and specific details in respect of this, including, but not limited to, the rationale behind it, the proposed transfer date and the number of affected employees. In all TUPE transfers, this duty to inform transferring employees arises.
Where there are changes being proposed to the terms of employment of any transferring employees the transferor must also consult with transferring employees about such changes (or appropriate employee or trade union representatives depending on the number of individuals involved in the proposed TUPE transfer and size of the transferor). Any such changes made during a TUPE transfer are commonly referred to as measures. In order to comply with this duty, the transferor will need to be provided with confirmation from the transferee as to whether they intend to make any measures upon the TUPE transfer. Again, this confirmation should be provided in writing, so the transferor has a clear record of any such proposed measures.
When considering any proposed measures, it is important to remember that a key principle of the TUPE Regulations it to ensure that any employees impacted by the relevant transfer are able to continue their employment with a new employer on the same terms of employment (or at least no less favourable terms). The transferring employees should therefore not suffer a detriment as a result of the transfer, albeit it is appreciated that in limited circumstances some amendments may be required and can be justified, for example a practical need to change a benefit due to it not being possible to transfer across employers.
Therefore, the transferor should carefully consider any proposed measures being suggested by the transferee to ensure this aligns with the TUPE Regulations. In the event the transferor has any concerns with these, they should raise this with the transferee to understand the rationale behind these proposals. It is important for the transferor to remember that, even though they are not proposing these measures, employees can raise joint claims in tribunal against both the transferee and transferor if they believe the TUPE Regulations have not been correctly followed in the transfer and therefore, the transferor needs to be satisfied as to there being a genuine need for these measures, and be able to consult properly with their transferring employees on the same.To assist with consultation, the transferor may wish to invite a representative from the transferee to consultation meetings with the transferring employees – this can help ensure questions can be answered more easily and swiftly and hopefully assists with a smoother transfer.
(d) The transfer
Once the above duties of informing and consulting, if required, have been fully complied with (it is recommended that the transferring employees are invited to at least two consultation meetings to give them time to raise any questions and have these fully answered), provided 28 days have passed from the provision of the ELI information, the transfer can take place.
To avoid potential breach of contract/ unlawful deduction of wages claims (and often to comply with warranties provided to the transferee), the transferor needs to ensure that they correctly pay their employees all salary and benefits up to the transfer date.
This article was written by Tina Chander, Partner and Head of Employment Law and Gemma Clark, Solicitor.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
