Q My company has recently acquired a new business and 50 of its employees transferred to us under the Transfer of Undertakings (Protection of Employment) Regulations. We want to put these employees on our standard employment contracts. What are the issues we should consider?
A A crucial aspect of the protection afforded by TUPE is that employees transfer on their existing employment terms. TUPE places strict limits on post-transfer contract change and specifically addresses when such variations can and cannot occur:
- Where the reason for changed terms is the transfer itself, TUPE makes such changes void.
- Where the reason is connected with the transfer but is also an economic, technical or organisational (ETO) reason entailing changes to the workforce, TUPE provides that such changes are effective if agreed.
- Agreed variations that are unconnected with the transfer are also effective.
An employer aiming to harmonise terms after a TUPE transfer faces an uphill struggle. The consequent contractual changes will be connected with the transfer and are unlikely to fall into the ETO reason category. As such, strictly, straightforward post-transfer harmonisation is not possible. In particular, note that employees cannot contract out of the protection of TUPE and so even an employee who agrees to post-transfer contractual change can subsequently change their mind and seek to rely on their previous employment terms such as, for example, entitlement to an enhanced redundancy payment.
Some practical solutions for an employer determined to implement a post-transfer harmonisation exercise are:
- To avoid unfavourable changes and, if possible, equalise terms upwards
- To implement new terms for all employees (and not just those who have transferred) and/or to delay implementation with a view to breaking the link with the transfer
- To ensure employees have a genuine choice whether or not to accept changes so that, arguably, the reason for the variation is employee choice rather than the transfer
- To terminate employment for an ETO reason and offer immediate re-employment on new terms. Potential claims arising from the termination should be waived via a compromise agreement. There is doubt as to whether such a compromise agreement would be effective, on the basis that it attempts to contract out of TUPE. Employees, however, who have signed an agreement and accepted new terms are perhaps unlikely to challenge this position later.
Guy Lamb, employment partner, DLA Piper