TUPE remains one of the most complex areas of employment law and one that continues to evolve - not least as businesses are more frequently bought and sold out of, or on the verge of, administration. Barrister Paras Gorasia provides a reminder of the basics about TUPE and its effects.
Q What is TUPE?
The Transfer of Undertakings (Protection of Employment) Regulations 2006 - or TUPE as they have become known - were introduced to implement the European Acquired Rights Directive. TUPE protects the rights of employees when the business that they are employed by is transferred into new ownership.
In situations where TUPE applies, it effectively means that the new business becomes the employer thus displacing the position of the old employer.
TUPE ensures that the employees who find themselves transferred to a new business maintain continuous service and benefit from the exact contractual terms and conditions that they enjoyed under their old employer.
Q When does it apply?
There are two forms of transfer under TUPE. The first is known as a "business transfer" and the second form is a "service provision change". These two types of transfer are not necessarily mutually exclusive; there could be situations where both forms apply, for example when a company outsources specific services.
Q What constitutes a business transfer?
This is the transfer of an economic entity, eg an organised grouping of resources such as employees, office buildings and work equipment, which retains its identity - usually when a business is sold as a going concern. In simple terms, TUPE applies when a number of employees are transferred from one business to another with the aim of doing the same job for the same clients. Typically this is the case in most mergers and acquisitions.
Q What amounts to a service provision change?
According to TUPE, a service provision change encompasses a number of situations where a piece of work is reassigned. It can be when a specific activity such as cleaning or security is outsourced to a contractor and therefore no longer exists as a job role within the organisation, or through a change in contractors. Likewise, the same applies in situations where an activity that used to be carried out by a contractor is brought in-house. There are a few exceptions to this rule. The first one is in relation to the supply of goods, for example if a restaurant changes meat and vegetable supplies. The second is when a job has been undertaken only temporarily for a specific event or project, for example catering for an annual conference.
Q Can amendments be made to the terms and conditions of transferring staff?
This is a very common issue for businesses that acquire new employees under TUPE, for example as part of a merger or acquisition. Many wish to amend the terms and conditions of the new staff to bring them into line with those of existing employees - harmonising the workforce.
However, where TUPE applies, any attempt to impose new terms and conditions will be void if those changes are made due to no other reason than the transfer itself. Making a variation to the employment contracts of transferring staff may be allowed but only if it is unconnected with the transfer or where there is an economic, technical or organisational (ETO) reason for the variation that entails changes in the workforce.
Q What impact does TUPE have on the ability to dismiss staff?
The tribunals and courts will automatically deem it unfair to dismiss new or existing staff because of the transfer situation alone. If the dismissal is for a reason connected with the transfer, it will be automatically unfair except in the case of an ETO reason entailing changes to the workforce.
Although the TUPE Regulations do not specifically define what constitutes an ETO reason, the Department for Business, Innovation and Skills guide to the 2006 TUPE Regulations, published in June 2009, provides some guidance. It states that ETO reasons are likely to include:
- "a reason relating to the profitability or market performance of the new employer's business;
- a reason relating to the nature of the equipment or production processes which the new employer operates; or
- a reason relating to the management or organisational structure of the new employer's business".
For example, an economic reason could be that demand for output has fallen to such a level that it would be unsustainable to continue trading without dismissing staff. A technical reason could be that the new company wishes to operate new technology in its production processes and the transferring staff do not have the skills to do so. An organisational reason could be that it may be impractical for the employees to transfer to the new business because of its location.
In conclusion, anyone who finds themselves in a situation where TUPE might apply should seek specialist legal advice before making any, potentially costly, decisions that affect their employees.
Paras Gorasia, barrister at Kings Chambers