Osprey HR Blog. Insights on people management topics most important to you and your organisation.
Author: Paul Middlemast, Chartered HR Practitioner
TUPE – What does it mean?
This is the first of a short series of blogs written by Paul Middlemast, Senior Partner of Osprey hrc; chartered HR Practice. The focus of this blog is what TUPE means and how it applies to both an organisation and their employees when a business or service transfers to another, the question arises as to what happens to the dedicated workforce. Do the employees concerned have the wright to work for the new employers? And, if so, do they retain the contractual and other employment rights that they enjoyed prior to the transfer?
TUPE is the widely-used acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006. It is the legal framework which safeguards employees’ rights when a business (or a part of it) is transferred from one owner to another, or where there is a change of service provider. It applies to companies of all sizes, in both the public and private sector.
The rights of the employees are protected when a company changes hands. In addition, Terms and Conditions are also maintained when part of or the entire business transfers to another owner.
The TUPE regulations passed first in the year 1981 and were amended in the year 2006 and the year 2014, with the aim of safeguarding and protecting the rights of employees when the business that employed them decides to change hands.
Under the initial common-law position, a relationship between an employee and employer is personal as well as defined or set-out in the employment contract. If this business changes ownership or hands, the initial common-law position meant the termination of an original employee-employer relationship. This meant that the contractual rights of an employee end when the ownership of the business changes.
Put simply, TUPE regulations provide a framework which is associated with the protection of employee rights.
When does TUPE Apply
1. When a business or part of a business is transferred to a new employer or;
2. When a service provision change (SPC) takes place e.g. outsourcing, insourcing or where a contractor takes on a contract to provide a service for a client from another contractor. The two categories are not mutually exclusive and some transfers will qualify both as a business transfer and a service provision change for example the outsourcing of a service.
To qualify as a business transfer the identity of the employer must change. Therefore the regulations do not apply to changes of share ownership as the same company continues to be the employer. In the case of business transfers (but not SPC) there must be the transfer of “an economic entity which retains its identity.” An economic entity means “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.” The reference to pursuing an economic activity does not mean that charities are not covered and charitable organisations are covered by the TUPE Regulations in precisely the same way as commercial organisations.
Service Provision Changes
The regulations apply if there is “an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned on behalf of the client.” TUPE will not apply to an SPC in the following circumstances:-
- While the contractor changes the client must remain the same. If the services are not being performed for the same client, TUPE will not apply. In a voluntary sector context this generally means that the commissioner or funder of the services remains the same.
- The activities being performed before and after the change must be fundamentally the same as the activities carried out before the change.
- There may be cases where services are so split up or “fragmented” that the activities are not fundamentally the same and TUPE will not apply.
- Immediately before the SPC there must be “an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client.” Therefore TUPE is excluded where there was no identifiable grouping of employees or where it just happens that in practice a group of employees worked mostly for a particular client rather than having being put together for that purpose. An organised grouping of employees can constitute just one member of staff
- TUPE will not apply if the client intends the activities to be carried out in connection with a single specific event or task of short term duration (the activities must be both for a specific event and of short-term duration) and TUPE does not apply to the supply of goods. The Department of Business and Innovation & Skills (BIS) Guidance gives the example of a client engaging a contractor to supply sandwiches and drinks to its canteen for the client to sell to its own staff. TUPE would not apply in those circumstances but might apply if the contract was for the contractor to run the client’s staff canteen.
The TUPE Regulations were amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 which came into force on 31 January 2014. The mains changes are as follows:-
1. A clarification that the test for service provision changes is that the activities carried out after the change in provider must be fundamentally the same as those previously carried out. This merely reflects established case law.
2. Amendments to the provisions which give protection against dismissal and changes to employment contracts. These protections will apply where the sole or principal reason for the dismissal or variation is the transfer (unless the sole or principal reason for the dismissal or variation is an economic, technical or organisational reason entailing changes in the workforce (ETO reason). Previously dismissals and contractual variations were also automatically unfair if they were “connected” to the transfer.
3. A change to the place where employees are employed post transfer can be an ETO reason.
4. Changes to employment contracts incorporated from collective agreements will be permitted when more than a year has passed since the transfer provided that overall the contract is no less favourable to the employee.
5. A provision allowing micro-businesses (those employing fewer than 10 staff) to inform and consult employees directly where there are no existing staff representatives. .
6. The deadline for provision of Employee Liability Information is extended from 14 to 28 days before transfer.
7. An amendment to the collective redundancy regulations so that a transferee may elect to consult representatives of transferring staff about proposed collective redundancies (20 or more within 90 days) prior to the transfer so long as the transferor agrees to such a consultation.
What Employee Rights Does TUPE Protect?
A TUPE transfer will mean that a new employer steps effectively into the role of an old employer, which means original contracts associated with employment stay the same before the actual transfer. This includes pension arrangements, annual salaries, and place and hours of work, holiday entitlements etc., stay the same.
This does not necessarily mean that conditions of the employee’s employment will not be changed after or before the transfer. Employment dismissals or conditions can only be changed for what is known as ETO (Economic, Technical or Organisational) reasons, which require that changes need to make to a workforce, but not due to the actual transfer.
If an employee decides that they would prefer not to continue working for the new owner of the business, employees have a right to terminate the contract. In these cases, the employment contract would come to an end on the transfer of the business. In these cases, employees are usually not entitled to notice or redundancy payments.
In practical terms, TUPE is designed to protect the rights of those employees who find themselves being transferred to work for the new employer, or are dismissed as a result of the transfer.
It is a very complex area of law and it is not unusual for employment specialists, such as us at Osprey hrc to be drafted in to assess whether the TUPE regulations apply to a particular set of circumstances.
The most common triggers of TUPE are
- mergers, or sales or businesses or parts of businesses to new owners, or
- Outsourcing (to external contractors), insourcing (bringing service provision back in-house) or re-tendering between contractors.
The employees of the old employer automatically become employees of the new employer at the point of the transfer. The new owner essentially steps into the shoes of the old owner. Temporary staff, workers, independent contractors and the self-employed does not transfer, however.
Existing contracts and terms of employment, such as salary, job title, bonus and holiday entitlement and sick pay provisions should remain unchanged. Trade union recognition and collective agreements are transferred with the affected employees. Any existing period of service will also count towards an employee’s continuous employment with the new employer.
Certain duties and liabilities are also transferred to the new employer, including any outstanding disciplinary and grievance affairs, ongoing employment tribunal claims, the obligation to meet any agreed pay increases and any collective agreements that are in force at the time of the transfer.
There is a notable exception to these obligations, however; occupational pension schemes need not continue on the same terms, although a minimum level of pension provision must still be offered. These requirements vary for the acquisition of privatised companies and for outsourcing by government organisations.
Dismissal as a result of the transfer is deemed ‘automatically unfair’ except for a limited number of qualifying reasons; put simply, where the dismissal is for either an ‘economic, technical or operational’ (‘ETO’) reason requiring changes to the workforce, and which is unconnected to the transfer. Similarly, any changes to the employees’ contracts or terms of employment must be for an ETO reason and agreed by both the old and new employers, unless the employees’ contracts already provide for such changes to be made. As an aside, these provisions are indefinite; there is no set period of time after which it will be ‘safe’ to implement changes to new employees’ contracts so as to harmonise them with those of the existing employees, without the risk of a connection to the transfer being established.
All things considered, TUPE is not a cast-iron guarantee of job security, and any employee who objects to the transfer will be deemed to have resigned as from the date of the transfer. However, there would be no entitlement to statutory redundancy, notice pay, or to claim for unfair dismissal.
Employers should inform affected employees about a TUPE situation and in some cases; early consultation with any affected employees of both companies is also carried out.
TUPE regulations are in place to protect the employee’s contractual employment rights, when a business is transferred or sold. This now means employees cannot be let go or dismissed or their contracts varied or terminated, just because the business is sold or transferred. If you have questions regarding TUPE, then you can reach out to one of our qualified practitioners for advice by calling Paul Middlemast, Senior Partner on 07831 427234 or email . Please visit Osprey Human Resources Consultancy website: www.opsreyhrc.com
This blog does not give a full statement of the law. It is intended for guidance only, and is not a substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by the authors or Osprey hrc. © January 2020