TUPE or not TUPE? A tricky question

There is nothing more likely to strike fear into the heart of any HR Manager than the mention of TUPE – the Transfer of Undertakings (Protection of Employment) Regulations 2006. Many may have been hoping that with Brexit, we might lose some of the complex rules under TUPE, but as the UK Government actually went further than was required when implementing the Acquired Rights Directive from which TUPE derives, most commentators think that this is unlikely to be the case, at least in the short term.

On this page we aim to give you a brief – and hopefully simple – overview of what TUPE means, when it applies and what you need to be aware of when dealing with a transfer to which TUPE applies. However, as every case is different, it is always sensible to take advice on any particular circumstances to which you think TUPE may apply to ensure that you don’t fall foul of the rules.

What does TUPE do?

Basically, the purpose of TUPE is to protect employees when the business they are working for changes hands. If TUPE applies, any employee to whom it applies will automatically transfer from the ‘old’ employer to the ‘new’ employer by operation of law on the transfer date. Employees will transfer on their existing terms and conditions of employment and will retain full continuity of service.

All the rights and liabilities owed by the old employer to any employee will also transfer, including any pre-existing claims which employees may have; for example to do with unpaid wages or discrimination claims.

Note that slightly different rules apply where the ‘old’ employer is subject to insolvency proceedings.

When does TUPE apply?

TUPE will apply in two main circumstances:

1. When there is a transfer of a business which “retains its identity” from one party to another; and
2. When there is a “service provision change” – which, in short, means outsourcing, insourcing or re-tendering of services from one party to another.

It will not apply, however, when the service which transfers is for the supply of goods only, or where it is in connection with a one-off event or task of short-term duration.

The question of when exactly TUPE does and does not apply can be very complex. Difficulties can arise, for example, when determining whether the business which transfers in 1. above does in fact “retain its identity”; and in 2. above when determining whether the client to whom the services are being provided has changed – in which case TUPE won’t apply. These will need to be determined on the facts of the individual case.

Who transfers?

Having established that there is a potential transfer, the next question is: who should transfer as a result? In a business transfer, this will be any employee who is ‘assigned’ to the relevant part of the business which has transferred. If this is a whole company, this will be relatively easy to determine. However, if only part of the business transfers, then it may be necessary to look further into things such as the structure of the business; the work carried out; and the way in which the business is organised, in order to determine who will transfer.

In a service provision change, the question is whether there is an “organised grouping” of employees which has as its “principle purpose” the carrying out of the activities which are to be transferred. There is much case law on this test, and each case will inevitably need to be decided on its own facts. However, it is clear that:

1. One employee can still be an ‘organised grouping’;
2. For the employees to be an organised grouping, this will (have involved) necessitate a deliberate decision on the part of the employer to organise the employees and the work in a particular way. It will not be enough that they ‘just so happen’ to predominantly carry out the work which is to transfer;
3. Whether or not the employees’ principle purpose is the carrying out of the work which is to transfer, it will be more than a simple question of the percentage of time spent carrying out that work; and it will need to be judged in light of all the facts of the case.

Note that TUPE will only apply to transfer any employee who was employed in the part of the business which is to transfer immediately prior to the transfer date; or would have been employed had they not been unfairly dismissed for a reason related to the transfer.

The question of who transfers is one of the most often fought points in claims relating to TUPE. We would always recommend taking advice on this if there is any doubt.

What do you need to do when TUPE applies?

Whenever there is a TUPE transfer, there are three main obligations with which employers must comply:

1. The ‘old’ employer must send certain information regarding the staff who are to transfer to the ‘new’ employer. This information is known as “employee liability information” and must be provided at least 28 days prior to the transfer. If any of this information is missing or inaccurate, then the ‘new’ employer will have a claim against the old employer for any losses it suffers as a result; and at a minimum level of £500 for each employee about whom the information has not been provided.
2. The new employer will need to inform the old employer of any ‘measures’ it proposes taking in connection with the transfer. ‘Measures’ will include any changes which will impact on the employee including: proposed redundancies, changes to the workplace, changes to pay dates and more. It is likely that the new employer will only be able to provide this information once it has sight of the employee liability information.
3. Both old and new employers have an obligation to inform any affected employees of:
   1. the fact of the transfer;
   2. the date on which it will take place;
   3. the reasons for it;
   4. the social, economic and legal implications of the transfer; and
   5. any ‘measures’ which are proposed.

If any measures are proposed, then there is, additionally, an obligation to consult regarding these measures.

Information and consultation should take place through representatives authorised to carry out this function – this may be existing trade unions or other staff bodies; or it may be necessary to carry out an election purely for this purpose. The information should be provided and consultation commenced “long enough in advance of the transfer to enable meaningful consultation to take place”. What this means in practice will depend on the precise details of the particular case, including: the measures which are proposed, if any; the nature of the transfer; and the size and location of the workforce.

A failure to comply with the obligation to inform and consult may lead to an award of up to 13 weeks’ gross pay per employee. Whilst the obligation to inform and consult lies primarily with the current employer, liability is joint and several – meaning that either party may be required to pay this award to the employees.

Risk factors

As indicated above, it can sometimes be difficult to establish whether there is a transfer at all, and if so, to which employees TUPE will apply. There is no easy answer to this question as each case will turn on its facts. We would always recommend seeking advice at an early stage so that there is sufficient time to comply with your obligations under TUPE if, indeed, it will apply to the circumstances in question.

If TUPE does apply then - depending on the nature of the transfer - it can be difficult to obtain the employee liability information; particularly in situations where there is a retendering of services and the outgoing employer is disgruntled at having lost the contract. If this occurs, it can be useful to remind the old employer of their obligations and the potential penalty for non-compliance. It may also be useful to seek the assistance of the client as they may have terms in their contract with the outgoing provider requiring them to comply with their TUPE obligations on termination.

It is equally difficult sometimes for an outgoing employer to obtain details of the measures, if any, which the new employer proposes to take on the transfer. Again, in such a case, it may be helpful to remind the new employer of their obligations and make it clear to them that if they fail to provide the relevant information, then you will raise this with any Tribunal to say that you were unable to properly consult due to their lack of information provision, resulting in claims.

It is very important to remember that if you are the ‘new’ employer, then you will inherit any pre-existing liability towards the employees who transfer. It is therefore prudent to ensure that you examine the employee liability information carefully to ensure that you understand whether there are any risks of which you should be aware. In a corporate transaction it may be possible to obtain further information as well as warranties and indemnities to protect against such risks. This will not always be the case, however, and it is important to understand what it is you are taking on.

How can we help?

The Employment team at LCF Law is very experienced in advising on all aspects of TUPE, including: the provision of employee liability information; obligations to inform and consult; and any warranties and indemnities which may be advised to cover any risks arising from the transfer, if applicable. We also have considerable experience of advising and acting on any claims arising from TUPE, regardless of by whom such a claim may be brought.

Legal Directory LEGAL 500 (2023 Edition) has this to say about our Employment Law Team

LCF Law predominantly advises employers at SMEs and senior executive employees. The group has particular expertise in advising on restrictive covenants and team moves as well as employment related GDPR documentation. Senior associate James Austin is ‘fantastic’ and conducts his own advocacy in the employment tribunal. Former practice head Liz Henry has moved into a consultant role.

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