UK: Transfer Of Undertakings (Protection Of Employment) Regulations 1981 ("TUPE")

TUPE protects the rights of employees when there is a change in ownership of a business. The key questions are:-

• When does TUPE apply?
• Who is protected by TUPE?
• What rights are protected by TUPE?
• What can an employer do to protect itself against the effects of TUPE?

TUPE applies to the transfer of any "undertaking" located in the UK at the time of its transfer - "a relevant transfer". The term "undertaking" includes any trade or business (even if the business is a non-profit making organisation). TUPE does not apply to changes in the control of a business as a result of share sales.

Various commercial transactions may give rise to a relevant transfer. The sale of a business is an obvious example. Other (less obvious) examples include: the contracting out of a business function, the grant of a licence, a transfer of funding and the grant of a lease of assets.

It may be necessary to weigh up a number of factors in determining whether or not a transaction will fall within TUPE. An affirmative answer to any of the following questions will suggest that a transaction may have TUPE implications:

• Will assets be transferred along with the business?
• Are the majority of the staff transferring?
• Will the customers of the undertaking transfer?
• Does the transaction provide for a transfer of the business’s goodwill?
• Will the business continue its activities without interruption?
• Will the same functions be performed both before and after the transfer (albeit by different organisations)?

Where the transfer in question relates to only a part of a business it may be particularly difficult to determine whether or not TUPE will apply. It is necessary to evaluate whether the section of the business being transferred could be regarded as a stable economic entity which will preserve its identity after the transfer.

As may be apparent from this brief explanation, determining whether or not a transfer has taken place frequently involve complex issues and may be difficult to determine.

TUPE protects:-

• anyone employed on or immediately before a relevant transfer;
• any employee dismissed in connection with a relevant transfer; and
• any employee who may be affected by a relevant transfer.

TUPE will not normally apply to self-employed contractors and agency workers. However, the definition of who is and who is not an employee in English Law is not straightforward and employers need to be careful because workers described as self-employed contractors or agency workers may, in fact, be treated as employees.

• Any dismissal in connection with a relevant transfer, either by the original owner or acquiring owner is automatically unfair. The only exception to this is if the dismissal is for an "economic, technical or organisational" reason entailing changes in the workforce. An economic, technical or organisational reason only arises if there is a reduction in the workforce or significant change in the skills required by the business.
• No change to terms and conditions can be made in connection with a relevant transfer - even if the employee consents. Changes can only be made if the reason for the changes is not connected with the transfer. Again, this gives rise to considerable difficulties in practice and careful consideration must be given to ensure changes in terms and conditions after a transfer are justified.
• A new owner inherits all the obligations to transferred employers. This includes, for example, all claims employees may have for unfair dismissal, discrimination and personal injury. The only exception is rights in connection with an occupational pension scheme and some associated insurances, such as life insurance for dependants and invalidity benefits.
• Employees’ continuity of service is preserved.
• Employee representatives must be informed about matters connected with a transfer. This includes the fact and timing of the transfer and any measures which may be taken in connection with the transfer which may affect the employee.
• Employees have the right to object to the transfer. If any employee objects to transferring, in circumstances where a substantial change is made in working conditions to the employee’s detriment or the change in the identity of the employer can be shown to be significantly to the employee’s detriment, then the employee may claim constructive dismissal. Otherwise, an employee who objects is treated as having resigned and will lose all his/her rights, although if immediately re-employed by the old owner, continuity of service will be preserved.

• If there is any risk of TUPE applying, any contractor or acquirer of a business must ensure by detailed enquiries that it fully understands all the obligations there may be to employees of the business.
• The old and new owners of a business should agree precisely where any liabilities will ultimately fall. This can usually be dealt with by contractual arrangements by way of giving and receiving indemnities.