In this TUPE takeaways insight, we consider top tips for both transferors and transferees when restructuring a business.
With mounting economic pressure and businesses looking to stay agile, redundancies and restructures are becoming more commonplace. At the beginning of the year, a CIPD report found almost a third of employers were planning to reduce their headcount through redundancies or a recruitment freeze.
We consider how TUPE can crop up during a restructure and some top tips for both the outgoing and incoming employers.
When could TUPE apply during a restructure?
As businesses look to reshape or downsize, it's not always as simple as making redundancies. TUPE can arise in a number of different circumstances. Some practical examples are below:
- Internal reorganisation: A large retail group
with separate subsidiaries for different brands decides to
centralise all of its customer service functions. They plan to move
all the relevant teams so they are employed by Head Office,
followed by a redundancy process. Provided the relevant tests are
met, TUPE would apply to the initial internal reshuffle.
- Selling part of the business: A technology
company decides to focus on its cloud software business and sell
its hardware division. If the sale is structured as a sale of the
assets (rather than shares) and meets the 'going concern'
test, employees assigned to the hardware division would likely
transfer to the buyer under TUPE.
- Mergers: Two logistics companies merge to form
a new business entity, which could trigger TUPE for staff from both
organisations.
- Outsourcing: As part of a cost cutting exercise, an advertising agency proposes to streamline its HR function. It plans for senior management to absorb some responsibilities and to outsource its payroll to a specialist third party company. It is possible that TUPE could apply to this outsourcing.
Of course, whether TUPE will actually apply, depends on the circumstances and the relevant tests for a business transfer or service provision change being met. We discuss the tests in detail here. On the face of it, TUPE does not apply to a share sale but, internal restructures ahead of a sale or post integration steps can sometimes trigger TUPE. TUPE can also inadvertently apply if a buyer takes over the running of a new subsidiary company – we discuss this in further detail here.
Top tips for transferors
- Extra ELI: transferors are required to provide
certain employee liability information to transferees 28 days
before the transfer. This includes basic employment information,
such as the names and ages of the transferring staff and
information about their contractual terms. This obligation applies
even for internal reshuffles.
However, transferees will often be keen to gather as much information as they can to allow them to go into any purchase or outsourcing with their eyes open. It is therefore not uncommon for transferees to request information which goes above and beyond the statutory requirements. This could include information about ongoing grievances or disciplinary processes or potential claims to better understand the employment risks.
You do not need to provide any information over and above what TUPE stipulates, unless commercial documentation (such as an asset purchase agreement) requires it. Having said that, it can generally be helpful to co-operate with a transferee (if only to ensure a smooth transfer for staff) so many transferors will be willing to provide as full a picture as possible.
- Collaborative consultation: Early and open
consultation with the transferring employees is crucial to a smooth
process. It is your responsibility to consult with your staff. The
transferee will need to confirm to you any envisaged measures, but
they are not required to consult with your staff directly.
Nevertheless, in practice, joint consultation meetings can better
help address employees' concerns and alleviate any worries.
Encouraging transferee participation can ensure the consultation
process is as meaningful as possible. Even for purely internal
reorganisations where there are limited measures, having early and
open communication with affected staff can allow for a smooth
process.
- Assess assignment: Give careful thought to
which of your employees are assigned to the business or services
being transferred. Where you have star performers and you want to
prevent them from transferring, you may be able to move them into a
different part of the business so they are not in scope to transfer
anymore. This will be subject to any restrictions under any
commercial agreement; and your ability to exercise that power over
the employee's working arrangement.
- Redundancy rationale: If redundancies are made
before a transfer, you'll need to show there is a genuine need
to make the redundancies (irrespective of the deal). This could be
if the business is in financial distress or if there is
legitimately less of a need for certain roles. If considering the
economic, technical or organisational exception, any ETO reason
must be yours; you cannot rely on a transferee's ETO
reason.
Sometimes commercially it is agreed that the transferor will make the redundancies pre-transfer; but you should seek an indemnity from the transferee in that situation (if bargaining power permits); and consider tripartite settlement agreements between the employee and both the transferor and transferee.
- International implications: sometimes business
sales and outsourcings are a cross-border affair. Some
jurisdictions may have similar TUPE provisions. However, given our
service provision change is a gold-plating of the European Acquired
Rights Directive (which itself deals only with undertaking
transfers), a service provision change may not trigger a local
country's form of TUPE. Ultimately, employees tend to be
reluctant to move abroad so it often boils down to making
redundancies and who will pick up the costs.
- Survivor syndrome: any workplace change can be a source of workplace stress and anxiety, not just for those who are transferring to another employer or made redundant, but also for those who remain behind. Changes can lead to greater workloads, increased pressure and heightened worries about job security. You should consider how to support the wellbeing of your employees to avoid low morale or burnout. This could include ensuring there are clear communications and reassurances with the remaining team, providing any required training if they've absorbed new responsibilities and general wellbeing support (such as EAP helplines, mental health apps, mental health training for managers etc).
Top tips for transferees
- Due diligence deep dive: consider what
additional information you'll want beyond the statutory ELI. If
you can, specify any additional information you want in an asset
purchase agreement or services agreement (as well as any
requirement for delivery earlier than the statutory 28-day period
prior to the transfer). Of course, if any risks are uncovered,
consider including corresponding indemnities in the
contracts.
- Consultation co-operation: Aim to get the
transferor's buy-in to you joining some (if not all) of the
consultation meetings with the transferring employees. Introduce
yourself to the transferring employees and explain what the
transfer means for them. Address concerns about changes to working
practices, locations, or culture. Early engagement can help smooth
the transition and address any collective concerns.
- Redundancies ready: Any proposed redundancies
will be a measure about which you will need to notify the
transferor. You can also carry out pre-transfer collective
consultation for redundancies, which can help to speed up the
remaining steps for you post-transfer.
- Secure staff: You'll want to ensure any
critical staff remain with the business or service. This can mean
trying to deter a transferor from any pre-transfer shuffling.
Consider naming specific individuals in any agreement or terms
prohibiting the removal of staff. Building rapport during
consultation can then help excite and retain these employees. Give
some thought to retention bonus arrangements too.
- Intentional integration: Even with a thorough
consultation process in the lead up to a transfer, the change can
be unsettling for the transferring employees. You should consider
how the incoming employees will blend into your organisation. This
can include similar steps to how you'd welcome new joiners,
such as providing induction meetings and training to share your
business' values and approach. You could also consider
assigning buddies with legacy staff.
- Harmonisation headaches: it is sensible for
buyers or new service-providers to do a full analysis of
transferring employees' terms and conditions and benefits prior
to a transfer so that you can understand the differences. Harmonising terms can be a source of
headaches. Any changes to terms and conditions will be void (even
beneficial changes), unless there is an ETO reason and the employee
has consented. However, changes which are beneficial to the
employee are far less likely to be challenged so you could consider
"upping" the benefits of transferring staff if that will
achieve parity. Note that case law suggests employees can
'cherry-pick' the positive changes and reject the negative
changes down the line. To avoid this uncertainty, consider whether
you can link changes of terms to receipt of a bonus or a promotion
– i.e. something not linked to the transfer.
- Pooling predicaments: Where you have inherited
employees under TUPE, a fair redundancy procedure would likely
require you to pool your existing employees with the inherited
ones. This can be practically difficult. You are unlikely to know
the transferring employees as well which can make it hard to fairly
carry out selection scoring. To avoid this, assess whether any
roles can genuinely be considered unique, avoiding the need for
pooling and selection criteria. If a selection process is needed,
query whether an interview would be appropriate.
- Employee engagement: don't forget your own staff! It is tempting for everybody to focus on the transferring staff but remember that you are technically also supposed to inform and consult with your own staff about any measures. This could be, for example, a change in reporting lines or working practices. Ensuring clear communications with your existing staff will also help ease any merging of teams and help maintain a positive working culture.
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.
