Transfer of Undertaking (Protection of Employment) Regulations 2006

What is it?

TUPE aims to protect employees’ terms and conditions when a business is transferred to a new employer. The revised regulations came into force on 6 April 2006, replacing the 1981 TUPE regulations to take account of the amended Acquired Rights Directive (No 2001/23) and decided cases.

Key aims

The objectives of the revised regulations are to:

  • balance flexibility for business with fairness for employees
  • assist the smooth management of necessary change
  • eliminate uncertainty
  • simplify previous regulations
  • reduce potential for litigation and disputes.

What is covered by the term ‘transfer’?

Under the new regulations a transfer now occurs when there is either:

  • A business transfer: the transfer of an economic entity in the UK, meaning an organised group of resources that retains its identity (eg, the sale of part of a business). 
  • A service provision change: contracting-out exercises, changes of service provider and contracting-in exercises where there is an organised grouping of employees, which has as its principal purpose the carrying out of the activities in question.

Transfers from the public sector are covered by the Cabinet Office’s Statement of Practice based on the principle that TUPE should be applied even where not applicable in strict legal terms.

The new regulations apply even when the incoming contractor envisages providing the services in a new or innovative manner.

There are two exemptions under the service provision changes:

  • Where the client services are on a ‘one-off’ basis
  • Where the arrangement is wholly or mainly for the supply of goods.

Grey areas?

However, there remains certain transfer situations where it is unclear how the amended regulations will apply, such as:

  • When the transfer is of assets only. If premises are included, the ‘goodwill’ may pass to the transferee (eg, for retailers). This is particularly likely if a trading name, work in progress or stock is transferred.
  • Where there is no clear date for completion
  • When offshoring

Key points for employers

Can changes to terms and conditions be changed?

The regulations make changes to terms and conditions void, even if agreed, if the principal reason is:

  • the transfer; or
  • a reason connected with the transfer that is not “an economic, technical or organisational reason” (eg,  a reason relating to profitability, production processes or structure) entailing a change in the numbers, function or place of work of the employees.

An employer’s wish to standardise terms between the acquired and existing workforce will not amount to such a reason and any such change will, therefore, be void.

The extent to which employers will be able to argue that changes are not connected with a transfer remains to be seen.

Can employees be dismissed?

A dismissal is automatically unfair if the reason for it is the transfer itself, or a reason connected with the transfer which is not an economic, technical or organisational (ETO) reason entailing a change to the workforce (as above).

All the normal unfair dismissal rules continue to apply.

What do the new regulations require of the transferor?

TUPE 2006 requires that before a transfer takes place information regarding those employees involved must be provided to the transferee.

This employee liability information must include:

  • The identity of the employees who will transfer
  • Their age
  • Information required to be contained in their ‘statements of employment particulars’
  • Information relating to any applicable collective agreements
  • Instances of any disciplinary action or grievances or legal action within the preceding two years in respect of or brought by those employees
  • Instances of potential legal actions which may be brought by those employees where the transferor has reasonable grounds to believe such actions might occur. How this will be decided, remains to be seen.

The transferor must also inform the transferee of any changes. The information must be provided in writing at least two weeks before the transfer.

Employers cannot contract out of the duty to supply employee liability information. Any breach of this requirement could result in a complaint to the High Court and compensation to be paid by the transferor to the transferee of a minimum of £500 per employee in respect of whom information was not provided.

Do employees need to be informed and consulted with?

With any transfer the duty to inform arises.

The following information must be made readily available:

  • The fact of and date of the transfer
  • The legal economic and social implications of the transfer
  • The measures proposed to be taken in relation to employees (eg, redundancies, re-organisations, changes to terms and conditions etc), or if there are no measures proposed, that fact should be stated.

This is to be provided to appropriate representatives (union representatives where a union is recognised or elected employee representatives where there is no union recognition). If employees do not elect representatives despite being invited to do so, the information is to be provided to all affected employees directly.

Where employers propose measures in relation to their employees, they must consult representatives with a view to seeking agreement.

Any failure to sufficiently inform or (if required) consult with representatives will render the transferor and transferee jointly and severally liable for the compensation due.

The maximum compensation of 13 weeks pay per affected employee will apply unless there are mitigating circumstances, or the breach was minor.

What provisions apply to insolvency proceedings?

New provisions apply where the transfer is subject to ‘insolvency proceedings’. In insolvency proceedings without a view to liquidation of the assets, certain debts to the employees will not transfer.

These debts include:

  • statutory redundancy pay
  • arrears of pay
  • payment in lieu of notice 
  • holiday pay
  • basic award of compensation for unfair dismissal.

There is greater scope to vary terms and conditions when dealing with insolvency proceedings. The transferor or transferee (or an insolvency practitioner) and appropriate representatives of transferring employees may agree changes to terms and conditions (even where there are no ETO reasons) if the purpose of the change is to ensure the survival of the undertaking and the preservation of jobs.

In insolvency proceedings with a view to liquidation of the assets, then no liabilities at all transfer, and the special rules on dismissal do not apply.

More information

The TUPE regulations can be found at www.opsi.gov.uk/si/si2006/20060246.htm, and the Deaprtment of Trade and Industry’s guide can be found at www.dti.gov.uk/er/individual/tupeguide2006regs.pdf

By Robin Broughton, partner and head of employment law, Browne Jacobson