Transfer of undertakings

Q What constitutes a transfer of an undertaking under the TUPE Regulations 1981?

A When the whole or part of an employer’s business or undertaking is sold or transferred to another employer, a TUPE transfer is said to have taken place. The transfer may take effect through a series of transactions, and may or may not include the transfer of property.

Q Under a TUPE transfer, does the transferee inherit the contracts of employment from the transferor?

A When a TUPE transfer takes place, the transferee (new employer) inherits the contracts of employment of the individuals employed by the transferor (old employer) immediately before the transfer took place. The transferee also inherits the transferor’s rights, powers, duties and liabilities (other than any criminal liabilities) in connection with those contracts.

Q With regard to occupational pensions, have transferred employees’ rights recently changed?

A Yes. Sections 257 and 258 of the Pensions Act 2004 came into force on 6 April, and mean that an employer that inherits employees under a transfer will, in certain circumstances, be required to offer them a prescribed level of pension provision.

The transferee will have to ensure that the employee has access to, or is eligible to join, a comparable pension scheme if:

– the employee was an active member of an occupational pension scheme provided by the transferor at the time of the transfer

– the employee was not an active member, but was, or would have been, eligible to join the scheme, either immediately or on completion of a period of continuous employment with the transferor.

Alternatively, if the employee was a member of a stakeholder pension scheme at the time of the transfer, the transferee will have to make contributions.

Q Can the transferee change the contracts of the incoming employees?

A The transferee may not vary the contracts of employment of the transferred employees for a reason that is connected with the transfer, even if the employees are happy to accept variations and are no worse off as a result. A subsequent restructuring of the entire business may lead to the imposition of new terms and conditions. So long as the restructuring exercise is not connected with the purchase or acquisition of the other employer’s undertaking, the variation in an employee’s contract is unlikely to be found unlawful by a tribunal or court.

Q What happens to collective agreements when a business is transferred?

A The transferee inherits collective agreements in respect of employees as if they had been made between itself and the trade union in question. However, voluntary collective agreements in the UK are generally not legally enforceable, and consequently, the provisions that preserve collective agreements in respect of transferring employees have little effect in practice. However, terms from a collective agreement that are either expressly incorporated or implied in transferring employees’ contracts will be preserved.

Q What happens to trade union recognition when a business is transferred?

A If the transferred undertaking is incorporated into the new company’s business, but retains its distinct identity, then the old trade union will be deemed to be recognised by the transferee. If the transferred undertaking does not maintain its distinct identity, the recognition agreement no longer applies.

Q Can an employee refuse to transfer?

A An employee can inform the transferor or the transferee that they object to becoming employed by the transferee – in which case, the employee’s contract with the transferor comes to an end.

The employee may pursue a complaint of unfair constructive dismissal if there has been, or is about to be, a change in their working conditions that is so substantial, it leaves them with little choice other than to resign. In tribunal proceedings, it will be the employee’s responsibility to show that the change that prompted their resignation was not only significant, but also to their detriment.

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