TUPE Regulations In Ireland - A Practical Guide For Employers

TUPE Regulations protect employees when a business or service is transferred to a new employer in Ireland. They key question is whether the transferring operation remains an economic entity that retains its identity after the transfer. Early legal analysis helps employers identify, liabilities, plan consultations steps, and assess transaction risk.

Article highlights:

1. Employees transfer to the new employer with their existing rights and continuity of employment.
2. The Spikers test helps assess whether TUPE applies to a particular transfer.
3. Transferers and transferees have information and potentially consultation obligations before completion.
4. Dismissals connected to the transfer require careful analysis and may only be lawful in limited circumstances.
5. RDJ's Employment Team advises on TUPE issues arising in mergers and acquisitions and outsourcing arrangements. 

What are the TUPE Regulations in Ireland?

The application of European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003, (the “TUPE Regulations”) is a complex area of law. The TUPE Regulations have not been amended since their introduction in 2003 and are not detailed or prescriptive in content. The legal position in Ireland is still primarily derived from case law from the courts and tribunals both at European and national level.

When do the TUPE Regulations Apply?

That question often arises in the context of an M&A transaction where a business or business unit is being sold or transferred. For the TUPE Regulations in Ireland to apply, the business or part of the business being transferred must constitute an economic entity (i.e., an identifiable, organised grouping of resources or people that performs a particular function). There must be a legal transfer of the business to another party and the business must retain its identity after the transfer. 

The acquiring party must therefore continue or resume the same or similar economic activities post transfer.

Core Conditions for TUPE to Apply

Before proceeding with any transaction where any business, or part of a business, is sold or transferred, or, as discussed further below, where a business or part of a business is transferred out of a business back into another business, or where a contract is being insourced or outsourced – legal advice should be taken on the specific circumstances of the transaction as the question of whether the TUPE Regulations apply or not will depend on the specific circumstances of each case. 

However, in this Insight we will aim to give practical advice and guidance on situations in which the TUPE Regulations were held to apply by the Labour Court.

The Spijkers Test

The Labour Court has followed what is considered the cornerstone of the jurisprudence of the European Court of Justice ("ECJ"): Spijkers v Gebroeders Benedik Abattoir CV et Alfred Benedik en Zonen BV Case 24/85**:**

Below are the questions the Labour Court will likely ask when considering the application of the TUPE Regulations. Questions of this kind frequently arise when a business transfer or outsourced service change affects staff. These derive from the Spijkers case and have been applied recently by the Labour Court in the following cases:

1. Department of Social Protection v Mary Dunne TUD174,
2. Overpass Limited v Susan Clancy TUD1713
3. Euro Car Parks (Ireland) Limited v O'Hanlon TUD1810
4. Bidvest Noonan v Lynch TUD203

Will the entity retain its identity post transfer?

1. Is the entity a stable economic entity?
2. If yes, will the essential characteristics of the economic entity be maintained?

Will the operation be continued or resumed with the same or similar activities? Factors to be considered in overall assessment (not to be considered in isolation):

1. The type of undertaking or business;
2. Whether or not the business's tangible assets such as buildings and movable property are transferring;
3. The value of the business's intangible assets;
4. Whether or not employees are transferring;
5. Whether or not customers are transferring;
6. Degree of similarity between the activities carried out before and after the transfer;
7. The period if any for which those activities were suspended.

Will the entity retain its identity post transfer?

There are two parts to this question below.

Stable Economic Entity - What Qualifies?

'Economic entity' is defined in the regulations as "an organised grouping of resources which has the objective of pursuing an economic activity whether or not that activity is for profit or whether it is central or ancillary to another economic or administrative entity".

In the decision of Suzen v Zehnacker Gebaudereinigung Krankenhausservice (C-13/95), the ECJ held the term 'economic entity' as interchangeable with the term 'undertaking'. The ECJ said that to be stable the activity must not be limited to performing one specific works contract. 

This appears to be a reference to a once off piece of work rather than one user or customer. It went on to say that "the term entity thus refers to an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective."

In some labour intensive businesses, a group of workers engaged in a joint activity on permanent basis can constitute an economic entity.

In Francisca Sanchez Hidalgo and others C-173/96, the ECJ referencing 'entity' as set out in the Suzen case noted that an organised grouping of wage earners could in some circumstances amount to an economic entity, provide it was a "sufficiently structured, and autonomous entity". 

It said its identity emerges from "its management staff, the way in which the work is organised, its operating methods or indeed, where appropriate, the operational resources available to it."

Consider whether the group is an economic entity. Does it have its own structure? A high level of autonomy?

In relation to whether it is a stable economic entity, is it loss-making or does it stand on its own two feet?

Another consideration is whether the individual roles in the grouping could be considered individual economic entities themselves and be capable of transferring in their own right. This will depend on the internal structure of the group and the division of tasks and duties.

Essential Characteristics After Transfer

When looking at the essential characteristics of the economic entity, the ECJ in Hidalgo said to look at "its management staff, the way in which the work is organised, its operating methods or indeed, where appropriate, the operational resources available to it."

The essential characteristics of an entity are how the work is done, who is responsible for the day-to-day operation of the group and who the team members report to.

Seven Factors in the Overall Assessment

To answer this question, we must examine the individual factors set out below:

1.The type of undertaking or business;

The fact the group is not a legal entity in its own right would be a factor which has to be considered, perhaps not a determining factor.

2. Whether or not the business's tangible assets such as buildings and movable property are transferring:

In the Suzan decision, the ECJ drew a distinction between businesses that are asset-reliant on the one hand, and those that are labour-intensive, on the other. It found that in certain sectors in which the business is based essentially on the workforce, there can be a transfer within the meaning of the Regulations where the group continues to exist after the taking over of an essential part of the workforce.

In the O'Hanlon decision, the transfer of a carpark triggered the application of the TUPE Regulations.

Where there are limited tangible assets, this would be persuasive evidence that the TUPE regulations do not apply.

3. The value of the business's intangible assets;

The two main categories of intangible assets are usually; the employees, intellectual property, as well as goodwill and the existing customer base. Employees are considered below in the next point.

As regards intellectual property, where staff are creating IP rights in the course of their work, the position is that this usually belongs to the employer. A grey area could arise where the work is undertaken on behalf of another entity.

The impact of the value of any intangible assets on the application of the TUPE Regulations is likely to be minimal unless the value of the intangible assets is particularly high. This is something that the Workplace Relations Commission / the Labour Court would have to investigate if a case is ever brought.

4. Whether or not employees are transferring;

This would only be relevant where it is agreed that some employees, such as those with expert knowledge, would be transferring with the assets. The TUPE Regulations may not be triggered in a second generation outsoucing scenario, where the service transferring is labour intensive and where the acquiring entity refuses to take any employees engaged in the business - a chicken and egg scenario. The Labour Court in Dunne Case commented that this proposition is 'illogic', quoting the Irish Employment Appeals Tribunal case of Cannon v Noonan Cleaning Services Ltd [1998] E.L.R. 153 which held:

"There is no doubt that it in a service undertaking the workforce and its expertise constitute a major part of the undertaking, but it is difficult to understand how, where an employer refuses to take on the workers of the previous contractor, he can escape the rigours of the Directive, while a contractor who takes on a major part of the workforce, perhaps out of magnanimity, will be caught by it. It would seem that the Directive, in the former instance, has not addressed the mischief in the law that it was intended to do."

However, it can be the position at law and specific advice should be taken in a second-generation outsourcing situation as the law in this area is quite nuanced.

5. Whether or not customers are transferring; 

Another situation to consider is where customers, their files and data are changing hands. This was an influential factor in the Dunne case where a Social Welfare Office was being converted into an Intreo office. the Labour Court said the following: 

"The key to the continuation of the provision of social welfare services in question was in fact the availability of the service users' files (or more precisely, the data therein) to the staff in the Intreo Office. That data was the key operation asset and access to it transferred from the Branch Office to the Intreo Office."

Where customer files and service-user data are moving between entities, data protection legal advice should also form part of the overall transfer analysis.

6. Degree of similarity between the activities carried out before and after the transfer; 

This will be the key question to consider and will involve a degree of predictions from both parties to the transaction. In terms of how far to look, there is no guidance in this regard.

7. The period if any for which those activities were suspended 

Obviously, the longer the period of suspension the less likely the Regulations are to apply.

What Are the Legal Consequences When TUPE Is Triggered?

There are serious consequences for, and legal obligations on, both transferors and transferees where the TUPE Regulations are triggered, such as:

Automatic Transfer of Employment

Employees transfer automatically to the transferee and are entitled to retain the same terms and conditions as applied before the transfer. The employees retain their continuity of employment. The transferee becomes liable for obligations which accrued to employees before the transfer but were not discharged.

Limits on Changing Transferred Contracts

The transferee takes on the employees' contractual rights and obligations on the transfer. In practice, that means changes to transferred terms and conditions require careful legal analysis, particularly where the proposed change is connected to the transfer itself. 

Employees also retain the protection that dismissals linked solely to the transfer are prohibited, unless an economic, technical or organisational reason involving changes in the workforce applies.

Inform and Consult Obligations

Both the transferor and transferee have joint obligations to inform impacted employees of specific information set out in the TUPE Regulations and, where measures are envisaged, to also consult employees' representatives, or the employees directly where no representatives are in place no later than 30 days in advance of the transfer.

Dismissal and ETO Reasons

Dismissal may take place for economic, technical, or organisational (ETO) reasons involving changes in the workforce (e.g. a genuine redundancy). The transferee may lawfully dismiss for economic, technical, or organisational reasons (e.g. redundancies).

Automatically Unfair Dismissal Risk

Where a dismissal is connected to the transfer itself, the TUPE Regulations prohibit that dismissal unless an economic, technical or organisational reason involving changes in the workforce applies. 

An employee may bring a complaint to the Workplace Relations Commission, with a further appeal to the Labour Court. Where the ETO threshold is not met, the dismissal will not be protected.

Pension Arrangements

Occupational pension arrangements do not have to be continued by the transferee although it is expected that legislation may be introduced in the future to amend this exclusion.

How Should Employers Approach TUPE Due Diligence?

Before proceeding with a transaction where a business or part of a business is being transferred, businesses should assess at an early stage which employees are assigned to the transferring entity, what contractual rights and obligations may pass to the transferee, and what information and consultation steps may be required before completion. 

In transaction terms, that analysis also helps the parties identify realistic timelines for completion and employment risks which can in turn be addressed in the deal documentation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.