What is TUPE and How Does it Work?

In the United Kingdom, Transfer of Undertakings Protection of Employment regulations (TUPE) provide legal protection for employees and their benefits when a business changes owner. It is used to protect employees whose jobs transfer over to the new business, to ensure their employment terms and conditions also transfer, and to guarantee continuity of employment once the transfer is complete.

Here, we will explore what TUPE means, how it works, and how it affects UK businesses.

What is TUPE?

TUPE exists to protect the rights of employees when they transfer to a new employer in the UK. It ensures that employees have the legal right to transfer their existing terms and conditions of employment and with their employment rights and liabilities still in place, although there are some special provisions around certain occupational pension schemes.

When a business changes hands, TUPE also requires the old employer to provide the new employer with written details of all employee rights, liabilities, and benefits that will transfer over. This protects the new business from any employment liabilities such as unpaid wages which may have arisen before they became employer.

TUPE also protects employees from being dismissed or having their terms and conditions of employment changed as a result of the business transfer. Therefore, the primary aim of TUPE is to safeguard employees’ rights and job security during the exchange of ownership or control of a business.

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When does TUPE apply?

TUPE applies to businesses of all sizes, large or small, and to both the public and private sectors. The part of the business that’s transferring ownership must be in the UK for TUPE to apply, although its head office could be in another country.

The transfer of employees from one business to another, in part or in full, is governed by TUPE regulations. They apply to 2 types of transfer:

1. Business transfers

Employees’ rights are protected by TUPE when a business or part of a business is transferred from one employer to another. This also includes mergers where two companies close to create a new business. In the event of a business transfer, the employer’s identity must also change to remain protected under TUPE.

2. Service provision changes

TUPE is applied when changes to service provisions occur. This typically happens when:

• An in-house service such as office cleaning or catering is awarded to a contractor.
• A contract ends and is awarded to a new contractor.
• A contract ends and the work is transferred to in-house staff by the outgoing customer.

However, employees are not protected under TUPE in the following circumstances:

• The contract is for the supply of goods for business use such as a restaurant changing food suppliers.
• The contract is short-term, for a single event, or agreed on a one-off basis rather than an ongoing relationship. For example, when a catering company is hired for a large corporate conference.

It is important to note that only those employees who can be clearly identified as providing the service being transferred from one business to another are protected by TUPE regulations.

For example, a courier delivers parcels for a business, but several more couriers also provide this service on an ad hoc basis. Here, the courier will not be protected under TUPE. However, a cleaner employed by a business that decides to contract the service out to a different cleaning company is likely to be protected under TUPE.

Some businesses decide to manage TUPE for their employees in-house, perhaps during a Mergers & Acquisitions process. However, TUPE regulations can be complex so other businesses may outsource to an experienced international HR provider to deliver TUPE for them. Failure to comply with TUPE legislation can result in financial penalties for a business up to 13 weeks’ pay for every affected employee.

TUPE and the importance of consultation

Employers are legally required to consult with trade unions or employee representatives before the transfer of business ownership takes place. If they do not, employers can be penalised up to 13 weeks’ pay for every employee affected by the absence of consultation.

As any transfer of business ownership can raise concerns over job security, relocation, and other factors, employers must engage in clear and open dialogue with every employee throughout the process. This should explain:

• That a business transfer is planned, and when and why it’s happening.
• How the transfer will affect employees.
• If the takeover involves company reorganisation.
• The number of agency workers used and their specific roles.

Trade union consultation

Many businesses and industries have a trade union in the workplace. In the public sector such as the education industry, workers can be represented by multiple trade unions. Employees who work in the public sector and are transferred to the private sector also have their employment rights protected by TUPE. Therefore, it is the legal duty of employers to consult with trade union representatives throughout any business transfer process.

Employee representative consultation

In the absence of a trade union, the employer must inform and consult with other employee representatives in the business. Employee representatives benefit from the same rights as trade union representatives in this respect.

Employee representatives can be current representatives, or new ones can be elected specifically for this task. When an election happens, the employers should take the following steps:

• Ensure the election is fair.
• Decide how many people are required to represent the interests of all workers affected by the transfer.
•  Determine whether affected employees should be split into categories or represented as one workforce.
• Determine the length of time that representatives should be in place.

There are several additional factors for employers to consider in the event of an election; 1) employee representatives must be affected by the transfer; 2) no affected employee should be ‘unreasonably excluded’ from standing for election; 3) all affected employees are entitled to vote; 4) employees can vote for as many candidates as there are vacant positions; 5) voting is conducted in secret and votes are accurately counted to avoid mistakes.

Businesses with 10 employees or fewer can consult directly with their staff in the absence of employee representatives.

TUPE and the transfer of employment contracts

When a business changes owner, employees’ employment contracts are transferred to the new employer under TUPE. The new employer would be in breach of contract if they do not meet the terms of the employment contract.

The transfer of employment contracts includes:

• All terms and conditions of employment.
• A previous employer’s failure to observe or uphold employees’ rights that could result in a discrimination claim against the new employers, even if this occurred before the business transfer.
• All holiday entitlement.
• Length of continuous employment so an employee’s start date is the same as before the transfer.
• All pre-transfer collective agreements.

What if an employee refuses to work for the new employer?

Under TUPE, employees can refuse to work for the new employer following a business transfer. It is the equivalent of resigning, meaning claims for unfair dismissal or redundancy pay do not apply. Notice is not required, and employment will end when the transfer is complete.

However, in the event that an employee’s working conditions are negatively impacted by a business transfer, they can object to the transfer, or resign from the company and claim for unfair dismissal.

Can you change an employment contract?

No, TUPE rules state employees should not lose their existing employment rights. This includes both before and after the transfer. It also prevents new employers changing an employee’s terms and conditions if the reason for doing so is the transfer itself.

In what circumstances can you change an employee’s contract?

A new employer can change the terms and conditions of an employee’s contract for the following economic, technical, or organisational (ETO) reasons:

• Economic: Relating to company performance.
• Technical: Incorporating equipment or processes used by the company.
• Organisational: Referring to company structure.

Changes to employment contracts may occur after significant workplace or staffing changes, redundancies, or a change from a managerial to non-managerial role. Whatever the reason, an employee must agree to the change of terms and conditions. Sometimes, an employee’s contract will allow for changes to be made, but the business transfer itself cannot be the main reason for this.

Meanwhile, employers can improve employees’ contracts if they agree to the change. For instance, it might be that a company wants to increase a worker’s holiday allowance to align with other colleagues. However, any change cannot be imposed and must be agreed by employees or their representatives.

Employees can also be dismissed for ETO reasons relating to workforce changes such as redundancies. Here, normal employment rules around unfair dismissals apply.

Additionally, collective agreements established before the business transfer also apply. However, collective agreements that take place after the transfer will not apply where the new employer is not involved in the process. It is possible to renegotiate collective agreements after 1 year, as long as the change does not disadvantage the employee.

TUPE and pension rights

Under TUPE, employees’ company pension rights are protected right up to the time the business transfer is made complete. However, the new employer does not have to provide identical pension terms for the employee that the previous employer offered.

Following the completion of a transfer, employees should secure a current written statement of employment. It should include the name of the new employer and confirmation that the terms and conditions of their contract are unchanged.

Pension rights are affected differently in the private sector than they are in the public sector.

How are pension rights affected in the private sector?

New employers do not have to offer the same terms and conditions for their new pension scheme as the old employer did. However, what they offer must depend on the old employer’s pension arrangement, as set out in the table below:

In the case of all business transfers, the new employers must ensure that any pension they offer must meet the minimum standards for automatic enrolment.

How are pension rights affected in the public sector?

The pension that a new employer must offer depends on whether the employee works for central government, under government ministers, for a local authority, or a localised public service. What the new employer must offer is set out in the table below:

TUPE and rules around redundancy

When a business transfer is complete, a new owner is prevented from making employees redundant because they transferred over from the previous employer. It is, though, feasible for the new employer to explore redundancies before the transfer takes place and if the old employer agrees to it.

Where an employee is made redundant for economic, organisational, or technical reasons leading to workplace changes, they may be entitled to a redundancy payment. For instance, a new employer may close down an underperforming department and let workers go following a transfer. Here, the workers could be entitled to redundancy payment.

Business transfers and employee information

When a business changes owner, an employer is legally required to provide the new owners with information about employees. The information must be given 4 weeks before the transfer is due to take place in order to help the new employer understand an employee’s position, rights, and duties. The information generally includes an employee’s name, age, and details of employment.

The information could also include any disciplinary action taken against the employee in the previous 2 years, grievances raised by the employee in the previous 2 years, legal action taken by the employee against the employer in the previous 2 years, and any potential for future legal action the employee may explore.

Any employer should not store employee data longer than necessary as set out in the UK Government’s rules on data protection.

TUPE and insolvent businesses

TUPE regulations change when an employer is insolvent and the business is being transferred or taken over by a new company. If the business is closing down, employees are unlikely to receive any protection under TUPE. However, TUPE will normally apply when a business is being rescued from insolvency and taken over by another company or transferred.

Employees can still claim for money they are owed by an insolvent employer, whether they’re protected under TUPE or not. TUPE-protected transfers require new employers to pay any outstanding balance after employees have been paid from the National Insurance Fund.

Post-transfer changes to employees’ contracts

A new employer can reduce an employee’s salary or change their terms and conditions after a transfer has taken place. Any changes of this nature must be agreed between the employer and the employee or trade union representative. By law, an agreement of this nature cannot break statutory employment rights such as the National Minimum Wage.

TUPE and employees working abroad

TUPE still offers protection for employees of UK businesses who are based in other countries. For example, an employee may conduct the majority of their work outside the UK but they’re still likely to be protected by TUPE if their employer has an undertaking in the UK such as office, assets, and other employees.

When service provision changes occur, there must be an organised group of employees in England, Scotland, or Wales for TUPE protection to be applied.

Confidential advice regarding employment rights is available for both employers and employees from ACAS (the Advisory, Conciliation and Arbitration Service). Employees may also choose to contact Citizens Advice or their trade union representative.

Is your business buying or merging with another company and needs TUPE advice?

As a trusted partner in international HR and payroll, IRIS FMP has the knowledge and experience to guide you through your business transfer and comply with TUPE regulations. Contact us today.