What is TUPE and how does it affect SMEs when changing owners? Marcus Difelice, a Partner from the JMW Solicitors Employment Team, explains what TUPE involves, when it tends to apply or not apply, and the TUPE consultation process.
What does TUPE mean?
When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE).
Although TUPE applies to employees of businesses in the UK, the head office of the business could be in another country. However, the part of the business that is transferring ownership must be in the UK. The size of the business does not matter.
If TUPE applies:
- The employees’ jobs usually transfer over to the new company (although exceptions could be if they’re made redundant or in some cases where the business is insolvent);
- Their employment terms and conditions transfer;
- Continuity of employment is maintained.
TUPE rules: when does TUPE apply?
TUPE applies to a "relevant transfer", which is defined to cover the following two types of event:
- A transfer of a business, undertaking or part of a business/ undertaking where there is a transfer of an economic entity that retains its identity (a business transfer). Such transfers are also known as "standard transfers".
- A client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work "in-house" (a service provision change). This is also known as the "extended transfer definition".
Some transfers will be both a business transfer and a service provision change.
When does TUPE not apply?
The question of when TUPE does or does not apply is not straightforward and will require analysis of the individual facts of the case. However, in general, TUPE does not apply to:
- Transfers of shares
- Transfers between public administrations
- Transfers of assets where there is no transfer of the business as a going concern
More specifically in relation to service provision changes, TUPE generally does not apply to:
- A supply of goods for the client's use (as opposed to the supply of services).
- A one-off buying in of services of short duration.
- A change of client.
- Situations where services are split up on a re-tendering exercise and are too fragmented to determine a service provision change.
- Situations where there is no organised grouping of employees situated in Great Britain immediately before the change whose principal purpose is carrying on the relevant activities on behalf of the client.
TUPE and redundancy
The new employer cannot make employees redundant just because they were transferred from another employer. The new employer can consult about redundancies before the transfer if the old employer agrees.
The TUPE consultation process
The transferor and transferee have a duty to inform and, if appropriate, consult appropriate representatives of affected employees. This is defined as "any employees of the transferor or the transferee (whether or not assigned to the organised grouping of resources or employees that is the subject of a relevant transfer) who may be affected by the transfer or may be affected by measures taken in connection with it".
Who counts as an affected employee?
It is important to note that "employees" are a wider group under TUPE than is normally used for employment protection purposes. For instance, the employment tribunal decision of Dewhurst v Revisecatch Ltd (t/a Ecourier) held that a worker (who was not an employee) fell within the scope of TUPE.
This means that workers may be included in the group of "affected employees". However, this is only a first instance decision and is a departure from the previously accepted position that TUPE does not apply to workers. It remains to be seen whether businesses will now treat TUPE as applying to workers, or whether there will be no change in practice until or unless there is confirmation of the decision at the appeal stage.
TUPE and recruitment
The EAT has held that affected employees means "those who will be or may be transferred or whose jobs are in jeopardy by reason of the proposed transfer, or who have job applications within the organisation pending at the time of transfer".
However, the definition does not include others in the workforce who might apply in the future for vacancies in the part of the business being transferred. Therefore, there is no obligation to consult in relation to the future recruitment prospects of employees who did not transfer to the transferee.
TUPE only requires the transferor and transferee to inform or consult with representatives of their own employees. Therefore, for example, trade unions recognised by the transferor and representing the transferor's affected employees have no right to be informed or consulted directly by the transferee before the transfer.
How long does TUPE last after transfer?
Under TUPE, the period of protection is indefinite. If the change to a transferring employee’s terms and conditions of employment is as a result of the transfer, it will be prohibited. This would still be the case if the change were to occur some years after the transfer took place.
Please visit the government website for further information on TUPE transfers.
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Written by Marcus Difelice
Marcus Difelice has been a Partner in the JMW Employment Team since 2020, having previously worked for Brabners LLP, Eversheds and Pinsents. He specialises in supporting employers who are defending against Employment Tribunal claims and managing employee change programmes, particularly within the hospitality sector.