Legal opinion: Top tips for avoiding TUPE

According to the HR Professionals Survey 2012, more than 25% of employers would select TUPE as the employment law of choice to abolish. Employment law barrister Daniel Barnett, who carried out the survey with RTS Media, looks at the reasons for this and discusses how employers can avoid TUPE applying.

Warning!

This article was originally published on 21 March 2012 and is not updated.

XpertHR provides up-to-date guidance on TUPE transfers, including maternity and paternity leave.

There are several reasons for employers wanting to abolish TUPE, not the least of which is uncertainty. Companies don’t know where they stand until a tribunal tells them, by which stage it’s too late. Since 2006, almost all outsourcing falls within TUPE; this was designed to remove some of the uncertainty that the previous version of TUPE lacked. Just six years later, the Government is now consulting on removing this gold-plating of the Acquired Rights Directive.

Many employers would avoid TUPE if they possibly could. It’s there to protect employees, and it does so very effectively. But it inhibits business purchases and the rescuing of insolvent companies. It also forces an employer to accept the same staff when retendering for an existing contract (seen often with cleaners, caterers and security staff). The retendering is often motivated by a poor quality of service, yet TUPE means that the employer will usually end up with the same people working on the contract.

Are there any ways to get around TUPE? It’s not easy, but here are some tips.

1. Changing the service

If you are retendering for a company to provide (for example) your cleaning or security services, and the service provision changeover rules therefore apply, it is worth considering whether or not you can change the nature of the service you require so that the activities which are ceasing are not being resumed by another contractor. This, if successful, would have effect of avoiding TUPE.

So, in OCS Group v Jones, the Employment Appeal Tribunal held there was no service provision change where the outgoing contractor provided a full hot meal canteen, whereas the incoming contractor provided a “sandwiches and salad” canteen. This change to the nature of the service meant that the activities being resumed were not the same as those which were ceased, so TUPE was avoided.

2. Fragmentation

Similarly, if a company tendering out services fragments the way that it was previously operating, that may avoid TUPE engaging. For example, imagine that a large company decides to split its in-house telephone helpline among six regional providers, and its previous workforce has not been assigned to regional teams. In that situation, it becomes impossible to identify an organised grouping of employees that has as its principal purpose the provision of telephone helpline services in each of those regions. The service has been fragmented and TUPE will not apply.

This also happens when a business is being run down, perhaps by the employer itself or perhaps by administrators. If different parts of the business are sold off, contracts are lost and assets are transferred to the remaining parts of the business, it is often arguable that there is no “economic entity” (or part of an economic entity) that transfers to another employer. Another argument is that even if a part of an economic entity has been sold off, it is impossible to show that any particular employee(s) are assigned to that part of the business.

3. Strike a deal

If an employee “opts-out” of TUPE, his or her employment is treated as immediately terminated and he or she loses the right to claim unfair dismissal. An opt-out does not need to be in writing (it is sufficient if the employee says, “I’m not going to transfer”), but any prudent employer will make sure that there is something from the employee in writing.

This leads to the situation where the incoming contractor, outgoing contractor and employees can strike a deal, involving the employee opting out of the transfer. In return, they can receive a lump sum or, sometimes, a fresh offer of employment from the old employer (possibly with a contribution to the cost from the new employer). This buys commercial certainty. It does not entirely remove the risk of litigation, as there are some unresolved technical arguments as to why this approach may not be possible, but for practical purposes the employee is unlikely to bring a tribunal claim.

4. Share sales

This is the easiest way of avoiding TUPE: if you acquire a business by purchasing the shares of the company, rather than buying assets and goodwill, then TUPE will never apply. The downside, of course, is that you take on the liabilities of the company at the same time, so you won’t want to do this with a business that is struggling and owes money.

Daniel Barnett is a leading employment law barrister at Outer Temple Chambers.

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