There are many reasons why an employer may want to sell their business. Maybe they're retiring early, can't afford to keep it open or change who provides their services.
During these changes, it's important to follow the TUPE law (Transfer of Undertakings Protection of Employment). Employers have a legal duty to protect staff during transfers. If you ignore these legal rights, you could end up paying compensation through a tribunal and business damages.
In this guide, we'll look at what TUPE means, what the laws are, and how to stay compliant when you transfer employees.
If you need immediate advice, get in touch with one of our HR advisors today at 0800 470 2755.
What is TUPE?
TUPE stands for 'Transfer of Undertakings (Protection of Employment). This law protects employees when a company is sold or changes hands. It also protects them where a service provided to the business is either, brought back in-house, outsourced, or an outsourced provider is changed. Redundancy is when the work has reduced or gone entirely.
When employees transfer, their existing legal rights still stand. That includes during the move and after. The new employer has a legal duty to follow the same terms laid out in the employee’s documentation.
These terms can include:
- Employment contracts.
- Statutory rights.
- Salary and bonuses.
During a TUPE transfer, there are usually two entities or businesses involved. These are referred to as:
- Transferor: This is the previous or outgoing employer. They used to own the business or plan to discontinue the service they offer. Transferee: This is the new or incoming employer. They wish to buy the business or service being offered.
Why is TUPE law important?
TUPE laws are important because they protect employment rights.
The principal reason for TUPE is to protect all parties during the transaction.
People often make the mistake of thinking TUPE applies only to the old employer. But this isn’t the case; it applies to incoming employers, too. Both new and old employers must protect their staff's existing employment rights. This includes consulting with any relevant trade unions, representatives, or employees if the business has under ten employees, during a transfer.
Every affected employee has a legal right to know about the transfer. That includes knowing what's happening and who's affected by the move.
When does TUPE apply?
TUPE applies during a variety of business transfers.
Maybe an employer wants to gift their business to another person, like a family member. Perhaps they want to sell it so they can retire early, or transfer their business through a service provision change.
In short, TUPE comes into play when a business changes hands. The new owner has strict responsibilities including any pay arrears, contract breaches, and other employment rights.
TUPE also covers salary protection. This means employees must be paid the same as before. This includes wages, bonuses, and commissions.
The new employer may receive 'tangible assets' through the transfer. For example, a building or moveable property. They may also gain 'intangible assets', like copyrights or brand names.
When does TUPE not apply?
There are some business changes where TUPE doesn’t apply. Let's take a look at a couple of them:
When a business changes its name
In some cases, an employer may decide that their brand image needs refreshing. For example, they may want to change the name of the business.
The business, and its practices, are generally still the same. So, TUPE laws won't apply in this case.
How are employees transferred through TUPE?
Any employees affected by the business move will automatically transfer.
Some people think employees are transferred through TUPE based on their service years or work hours. But that’s not true. You also can’t pick your ‘favourite’ employees or those who are performing well. It all depends on who was wholly or substantially assigned when the transfer takes place.
Affected employees can cover a range of staff members. During your TUPE move, you need to include the on:
- On parental or statutory leave.
- On fixed-term contracts (except agency workers).
- On sick leave or secondment (but this will depend on the absence policy rules).
You'll also need to inform all relevant people about your business transfer. That includes employee representatives, like union officials.
Does TUPE apply to workers?
Sometimes, TUPE applies to workers as well as employees. But it all depends on individual situations.
Under employment law, a worker is not the same as an employee. But this legal view may change depending on their job conditions.
A worker’s duties, wages, and service years could be the same as someone with ‘employee’ status. Workers need to be part of an organised grouping of employees to have TUPE transfer rights.
If a worker was entitled to transfer, but didn’t it could class as a breach of the TUPE regulations.
Make sure you hold TUPE meetings for both employees and workers. Remember, they may have their own employment rights to consider.
What is the UK law on TUPE?
TUPE legal terms come under the Transfer of Undertakings (Protection of Employment) Regulations 2006.
When it comes to a business transfer, the biggest legal risk is unfair dismissal. It often happens when employers aren’t clear about who’s entitled to the TUPE transfer.
It’s vital to be transparent throughout the process. That way, you'll be able to minimise facing automatic unfair dismissal claims. There is also the risk of a protective award of up to thirteen weeks' pay per employee where an employer has failed in their TUPE obligations of information and consultation.
Employers' legal duties during TUPE transfers
Don't underestimate the importance of legal duties during TUPE transfers. You can't just tell your staff about a TUPE transfer through email.
Employers have a legal duty to inform and consult all affected employees and representatives. Under TUPE regulations, employers must follow these legal duties:
- Inform and consult: Contact all employees (or representatives) affected by the business transfer. You need to present your reasons for the move and when it's taking place.
- Potential impacts: Let them know about any impacts they could face. For example, highlight changes to their work location, hours, pay dates, etc.
- Proposed measures: Show them what you plan on changing during this time. This goes for any plans the new employer wants to put in place, too.
TUPE law change of contract,
One of the main questions that gets asked is, “Can I change an employee’s contract after TUPE?”
Generally, the answer is no. You can’t change employees’ terms and conditions. But there are exceptions.
If you have an economic, technical, or organisational (ETO) reason, you may be able to make changes. This includes company performance, company equipment and processes, or organisational reasons concerning the company structure. This is only when it involves a change in the workforce, such as reducing headcount or changing job roles.
Other potentially lawful reasons include:
- The change is completely unrelated to the transfer.
- Limited insolvency situations.
What are the consequences of breaching TUPE laws?
When an employer fails to follow TUPE regulations, they could face huge consequences. Remember, this legal duty goes for both sides - not just one employer.
Key risks can come from the timing. There is no fixed timeframe for informing employees about business transfers. But the outgoing employer should tell staff (or employee representatives) within a reasonable time.
If you delay information or meetings, you could breach TUPE regulations. This won't legally cancel the transfer. But affected employees may raise this issue to an employment tribunal (ET).
Employers could be ordered to pay compensation to every affected employee. This can reach a maximum of 13 weeks of wages per person (there is no cap on the amount). Either employer may be asked to pay the compensation, or it could be divided between them.
It's not just employees who can raise claims. If an outgoing employer doesn't give the correct information, the new owner can raise this to an employment tribunal.
They could get a minimum award of £500 for every employee whose information was missing or wrong. There is no maximum cap on this; so, compensation amounts can easily grow.
Is a TUPE transfer the same as redundancy?
No, a TUPE transfer is not the same as a redundancy. Both of them are separate terms and have their own legal needs.
TUPE is when a business (or part of it) is sold, or where a service provided to the business is either, brought back in-house, outsourced, or an outsourced provider is changed. Redundancy is when the work has reduced or gone entirely. To make an employee redundant, you’ll need a robust business reason for doing so. Like, if the company stops running for good.
If an employee refuses to move, this is treated as a resignation - not redundancy. Here, you'll need to follow the legal rules for concessions.
It's widely believed that TUPE applies to pension rights. But that's not always the case. It all depends on the employee's pension terms. This information must be passed on to the incoming employer.
What is TUPE redundancy?
This is any redundancy made in relation to the transfer. The main thing you need to be aware of when it comes to the TUPE process and redundancy is this:
If the main or principal reason for an employee’s dismissal is the transfer then it’s automatically an unfair dismissal, unless there is an ETO reason. This means that a fair procedure won’t rectify an auto-unfair dismissal.
Issues can occur at any stage during the process. They aren’t limited to the transfer itself and need to be carried out by the transferrer. The key elements to any transfer are the following:
- Identifying which employees it affects.
- Informing and consulting affected employees.
- Informing transferee of employee liability information.
- Inform and consult on any planned measures towards the employees after the transfer.
- After the transfer happens, liability for redundancies and redundancy payments will lie with the new employer dismissing the employees.
How to manage a TUPE Transfer in the workplace
There are so many reasons why an employer may want to sell their business.
Whatever it is, you need to make sure employees are protected during business transfers. This goes for both the new and old employers.
Let's take a look at how to manage transfers in your workplace:
Identify all affected employees
This involves identifying the staff members to transfer to the incoming employer.
If you’re selling the whole business, then all employees will transfer. If you’re transferring a service provision, you’ll need to consider the employees working within that part of the business.
Other considerations at this stage include:
- Informing and consulting with employees about the transfer.
- Engaging with union officials or elected representatives.
- If no appropriate representative is in place, arrange for the election of an employee representative.
- Offer employee representatives training on how to carry out their roles and provide facilities to the representative.
- Using your existing communication channels, provide information directly to employees (or through their representatives).
- Provide feedback channels to answer questions and address any employee concerns.
Gathering information and consultation
After establishing the employees affected, you’ll need to pass on certain information to the incoming employers and the moved employees.
You’ll provide employees (or their representatives) with information relating to:
- The fact that the transfer is taking place.
- The proposed (or actual) date of the transfer.
- The reason for the transfer.
- The implications (legal, economic and social) of the transfer to impacted employees.
- Any proposed measures connected with the transfer that’ll affect the employees. If no measures are in place, you must also make that clear.
You’ll consult with union representatives or employee representatives where there’s no union representation. For establishments with less than ten employees, you can consult with employees directly where there’s no recognised independent trade unions.
While there’s no time limit for providing this information, you should endeavour to complete it in ‘sufficient’ time for a consultation to take place.
Failure to comply with this obligation can result in compensation for each employee of up to a maximum of 13 weeks’ pay.
Employee liability and due diligence
As well as the information you’ll provide to your employees, you’re also obligated to provide the incoming employers with certain information.
Regardless of if TUPE applies, any organisation buying a business or bidding for a contract to provide a service must undertake due diligence. It allows for accurate budget planning and determining the terms and conditions of the transferring staff.
You must provide the buyer with information relating to the rights and obligations of the transferring employees in writing and 28 days before the date of the transfer.
Details to include at this stage for transferring employees are:
- The transferring employees’ identity and age.
- The particulars of their employment contract (the terms and conditions of their employment including pay, working hours, holiday entitlements, length of service etc.)
- Any relevant collective agreements.
- Information relating to any formal disciplinary action taken against any of the employees in the last two years.
- Information relating to any formal grievance action taken against any of the employees in the last two years.
- Information relating to any legal action brought against you by any of the employees in the last two years.
- Information relating to any potential legal action you believe a transferring employee might bring forward.
Failure to supply this information or for providing incorrect information can result in compensation by a tribunal. The tribunal will calculate payment based on an award of £500 for each employee whose information was incorrect or not provided at all.
Terms and conditions
As part of the employee liability information, you should also send out a comprehensive list of the employment terms and conditions of all transferring employees to the incoming employer.
It should include information relating to the terms and conditions that can be transferred during the process.
To avoid overlooking any terms, consider the following questions:
- Have you sent copies of relevant company policies including those in your employee handbook?
- Have you included any recently agreed-upon changes to the terms and conditions that you haven’t added to the employment contract?
- Are there any orally agreed-upon terms and conditions that the incoming employer will need to know about?
- Do you have any terms and conditions that aren’t in writing but established over time by customs and practices?
- Do the transferring staff have any trade unions recognised for bargaining purposes? They can provide details on any collective agreements, recognition agreements, consultation agreements, etc.
- Has any of the transferring employees agreed to a variation of the standard terms and conditions? This includes flexible working options, reasonable adjustments, etc.
Manage the transfer time frame
People often underestimate how much time a transfer can take.
Whether you’re transferring staff, or service provided in-house, they’ll have their own timeframe.
Remember, there's no legal timeframe set out under UK law. But the old employer needs to give the new employer information about which employees are transferring. This must be done at least 28 days before the transfer date.
This will also help employees who are affected by the move. For example, the new company is now at a different location. Some employees may suffer from a longer or more expensive commute.
Inform and consult representatives
There are many versions of appropriate representatives, like a trade union official. But independent trade union reps must be recognised by the employer. Other elected representatives can include colleagues or senior managers.
Employers need to inform appropriate representatives in the same way as their staff. That means updating them about the relevant transfer through writing.
Get expert advice from Croner
You may have hundreds of reasons for selling your business or changing service provisions. Make sure you protect all staff affected by your decision.
If you ignore them, you could face heavy consequences. Like expensive awards, tribunal hearings, and business damage.
But you don’t need to deal with this alone. From listing affected employees to providing the right information, our HR advisors are here to help.
Have questions about TUPE transfers? Speak to a Croner expert in regard to any HR or employment law issue on 0800 470 2755.
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