The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) is a complex piece of legislation and any sale or purchase of a business or outsourcing activity is affected by its requirements. TUPE aims to safeguard the rights of employees on either: 1) sale of a business from the Seller to the Buyer or; 2) an outsourcing from the client to a contractor.
TUPE introduces 3 main concepts:
- The automatic transfer principle à employees transfer to the Buyer from the Seller at the point of sale. The Buyer inherits all rights, liabilities and obligations relating to those employees.
- Protection for employees from dismissal in connection with a TUPE transfer.
- An obligation on both the Buyer and the Seller to inform and consult representatives of those employees affected by the transfer. The timeframe for consultation will vary in accordance with the number of employees affected.
When will TUPE apply?
TUPE will apply to a “relevant transfer”, being one of the following:
- The sale of a business/part of a business where there is a transfer of an economic entity (the business), that retains its identity (the nature of the business is the same before and after the transfer).
- When a client appoints a contractor to do work on its behalf, or reassigns a contract, or brings a contract/work back ‘in house’ (referred to as a service provision change).
i. outsourcing
ii. subsequent outsourcing
iii. insourcing
TUPE will not apply to a share sale BUT can apply if an asset sale is carried out before a share sale takes place.
Automatic Transfer Principle
The contracts of employment of all those employees (full-time/part-time) employed by the Seller that are subject to the ‘relevant’ transfer (i.e. the sale of the business to the Buyer) are automatically transferred to the Buyer on their existing terms of employment.
(NB agency workers will not automatically transfer to the Buyer unless an implied contract has evolved between the agency worker and the Seller).
The Buyer effectively becomes the employer of the Seller’s employees that are transferring as a result of the business sale.
Therefore all the Seller’s rights, powers, duties and responsibilities under or in connection with the employment contracts of the transferring employees pass to the Buyer.
Any acts/omissions of the Seller before the transfer are treated as having been done by the Buyer. It is for this reason that effective employee due diligence on the part of the Buyer should be undertaken before sale contracts are exchanged.
Employees that object to the transfer do not automatically transfer to the Buyer and their contracts terminate by operation of law at the date of the transfer.
Changing Terms of Employment
The Buyer takes on the transferring employees on their existing terms of employment. Even if these terms are more favourable than those detailed in the contracts of employment of the Buyer’s existing staff.
Any changes made to these terms before or after the transfer will be void if the main reasons for the change are:
· The transfer itself
· A reason connected with the transfer.
The Buyer can only make changes to the employment contracts of the ‘incoming’ employees if they can demonstrate that the changes:
· Are unconnected with the transfer
· Are connected with the transfer but are made for an economic, technical or organisational reason (ETO).
What is an ETO reason?
Changes to incoming employee’s contracts can only be justified if the Buyer can demonstrate that the changes:
· Are required within the workforce
· Affect the day-to-day running of the workforce.
There is no statutory definition of an ETO reason and attempted changes or harmonisation of contractual terms are closely scrutinised by the courts.
The Buyer must exercise caution and follow a fair procedure when implementing contractual changes by way of either individual or collective consultation (depending on the number of employees affected). Any changes must be agreed by the employee in writing.
The Buyer has little room to manoeuvre in relation to harmonising the terms and conditions of employment of its current workforce with those of the incoming employees. It is therefore essential that the Buyer enquires as to the terms and conditions of employment relating to those employees it will be acquiring as a result of the transfer.
