Failure to comply with TUPE obligations can leave both parties to the transfer vulnerable to tribunal claims.
If an employer fails to comply with the obligations to inform and consult with the employees, they employee can pursue a tribunal claim against one or both of the transferor and the transferee for compensation up to 13 weeks’ pay. It is therefore crucial that an employer gets advice on TUPE at the early stages of the transfer.
First Step – Establish is TUPE relevant?
A relevant transfer for the purposes of TUPE is a business transfer and/or a service provision change. A transfer can fall into one, or sometimes both, of these categories.
A business transfer- the transfer of a business, undertaking or part of a business or undertaking where there is a transfer of an economic entity that retains its identity.
Whether TUPE applies to a situation is not a straightforward question and will require analysis of the individual facts. However, it will usually apply on the asset sale of a business i.e. one business (the ‘transferee’) buying the business and assets of another business (the “transferor”). TUPE will not generally apply on a share sale of a business as the identity of the employer does not change.
A service provision change- the reassignment or bringing ‘in-house’ of a sub-contract where a client has engaged with a contractor to do work on its behalf.
This applies where one person stops performing a service and another person takes over the performing of that service, and prior to this change there was a group of employees whose principal purpose it was to perform that service. TUPE will not generally apply where there is a one-off provision of services for a short duration or a supply of goods for a client’s use.
Second Step – Look at the effects of TUPE
Where a relevant transfer has occurred, the contracts of employment of the existing employees of the transferring business automatically transfer to the transferee on their existing terms. Any rights, powers and obligations that the transferor has towards the employees under the contracts of employment are transferred to the transferee.
This rule applies to all employees who were employed by the business immediately prior to the transfer. It also applies to any employees who may have been dismissed by the business prior to the transfer, providing that the reason for dismissal was the transfer itself and not an economic, technical or organisational reason.
An employee can object to the transfer if they do not wish to be employed by the transferee in which case their contract of employment will terminate without transferring.
The existing terms of the contracts of employment apply, and the transferee can only make changes to these terms in very limited circumstances. Changes to the contract are likely to be void unless they are justified by an economic, technical or organisational reason, or the terms of the contract allow for the variation to be made.
TUPE also provides protection to employees against dismissal. Dismissals will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself. If the reason is an economic, technical or organisational reason, the dismissal will be potentially unfair. This provides additional protection to the employees that is beyond the general unfair dismissal law.
The transferee and the transferor are both under an obligation under TUPE to inform the recognised trade union or elected employee representative in respect of any employees who will be affected by the transfer, prior to the transfer taking place.
The duty to inform applies to any TUPE transfer. In addition to this, if an employer envisages making changes or taking ‘measures’ in respect of the transferring employees, and the changes or measures are a direct result of the transfer, the employer is required to consult with the recognised trade union or employee representative. Businesses with 10 or less employees can inform and consult with the employees directly.
Failure to comply with TUPE obligations can leave both parties to the transfer vulnerable to tribunal claims. If an employer fails to comply with the obligations to inform and consult with the employees, the employee can pursue a tribunal claim against one or both of the transferor and the transferee for compensation up to 13 weeks’ pay. It is therefore crucial that an employer gets advice on TUPE at the early stages of the transfer.
If you need advice on TUPE or want to understand how it might apply to your business plans, please do not hesitate to get in touch with Sarah Tahamtani. Our next article to cover TUPE will look at the implications of TUPE when tending for contracts and will be published later this month.
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