A Practitioner’s view of TUPE

Alistair Smith Partner

Background

Transfer of Undertakings (Protection of Employment) Regulations

2006 (“TUPE”)

• Protect employees’ rights on business transfers

• Apply to “relevant transfers”

• Business transfers

• Service provision changes

• Transaction may satisfy both definitions

Business transfers – Reg 3(1)(a)

“Transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”

Economic entity = “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”

Service provision changes – Reg 3(1)(b)

(i) outsourcing - activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client's behalf (“a contractor”);

(i) change of contractor - activities cease to be carried out by a contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person on the client's behalf, or

(i) insourcing - activities cease to be carried out by a contractor or a subsequent contractor on a client's behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf.

Service provision changes - conditions

• immediately before transfer:

- there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on the client’s behalf;

- the client intends that the activities will, following the SPC, be carried out by the transferee other than in connection with a single specific event or task of short-term duration.

• the activities concerned do not consist wholly or mainly of the supply of goods for the client's use.

Identify what transfers

• All the transferor's rights, powers, duties and liabilities under or in connection with employment contracts of transferring employees, which can include:-

- terms expressly contained in contracts of employment

- implied terms

- continuity of employment

- liability for past breaches of contract

- collective agreements• Includes liability for all pre-transfer acts and omissions of or in

relation to the transferor in respect of transferring employees or their contracts of employment

• Terms that cannot be replicated – equivalent terms

Identify who transfers – reg 4

• All employees employed by the transferor and assigned to the transferred undertaking immediately before the transfer whose employment would otherwise have been terminated by the transfer

• Definition of employee under TUPE is wider than under ERA 1996

• Any employee employed under a contract of service

• Independent contractors and self-employed do not transfer

• Right to object

Transferor’s Steps

• Elections?• Inform and where necessary consult (in good time, with a view to

reaching agreement)• Keep detailed notes of consultation meetings• Ask the transferee about “measures” (no definition – need not be

detrimental - any action, step or arrangement inc. administrative changes)

• Inform union/employee reps of own measures and transferee’s measures in writing

• Employee liability information - in writing or other ‘readily accessible’ form - at least 2 weeks prior to completion or as soon as reasonably practicable if special circumstances exist making that not possible

Transferee’s Steps• Inform & consult own affected employees where necessary• Write to transferor with information about measures it envisages

taking in connection with the transfer at such a time as will enable the transferor to comply with its information requirements

• Due diligence • Ask transferor for details of any assurances given• Notify each transferring employee in writing no later than one month

after transfer of the identity of the new employer, date of commencement of employment with new employer, date continuous employment began, any other changes (improvements)

Note: no requirement to return disclosure information if the transaction

does not go ahead

InformationTo be provided by transferor and transferee of any affected

employees:

• fact and proposed date of the transfer • reasons for the transfer • legal, economic and social implications of the transfer for the

affected employees • any measures which the relevant employer envisages taking in

relation to employees or, if there are none, that fact • the number of agency workers working temporarily for and under

the supervision and direction of the employer , the parts of the employer's undertaking in which those agency workers are working, the type of work those agency workers are carrying out

Information (continued)

Transferor only:

• any measures it envisages the transferee will take in relation to any such employees who will transfer to the transferee

• If the transferor envisages that no such measures will be taken by the transferee, it must inform the representatives of that fact

Consultation

• Duty to consult only applies if the transferor/transferee envisages taking measures in relation to its employees

• Transferor obliged to inform but not consult about measures envisaged by the transferee

Penalty for failure to inform and consult = just and equitable - up to 13 weeks’ pay per employee (actual pay, no cap) – joint and several liability

Duty to inform and consult applies to any employer with employees who may be affected by the transfer or measures connected with it (including any non-transferring employees who may be affected by the transfer)

Timescale

• No set timetable – depends on the circumstances

• No legal requirement to start the process immediately after a transfer is proposed

• Must be early enough for the process to be completed before the transfer

• Leave enough time for consultation – cut off point for consultation is date of transfer

DismissalAutomatically unfair if the sole or principal reason is:-

(a) the transfer itself; or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (“ETO” reason)

• Transferor cannot rely on transferee’s ETO reason to defend unfair dismissal claim

• No time limit after which dismissal is safe

• Dismissal still has to be fair – s.98(4)

ETO reason

• Economic - the profitability or market performance of the new employer’s business;

• Technical - the nature of the equipment or production processes which the new employer operates; and

• Organisational - the management or organisational structure of the new employer’s business

Changing Terms & Conditions

Only effective if the sole or principal reason for the variation is:-

(a) unconnected with the transfer; or

(b) connected with the transfer but is an ETO reason entailing changes in the workforce

• Resign and treat themselves as constructively dismissed• No provision in TUPE for a post-transfer period after which agreed

contractual changes can be made – always look at the reason for the change

• Restrictions in harmonising terms and conditions• More flexibility where transferring business is insolvent

Note: check for flexibility in contract – may not amount to a contractual

variation

When else might it be possible to implement consensual changes to t+c?

• Likely to be no issue where beneficial changes

Note: can’t defend detrimental changes by arguing better overall package – beware of cherry picking

• Post-transfer re-organisation of the whole business

• Offer of new t+c’s where beneficial terms are clearly expressed to be subject to detrimental changes

• Dismissal & re-engagement (compromise agreement)

• Employees agree to object to transfer & then re-engaged

Service provision change – potential issues

No contractual link between the outgoing/incoming contractors

• Reluctance of outgoing contractor to cooperate• Outgoing contractor may try to increase benefits pre-transfer• Potential for outgoing contractor to replace good staff with poor staff

before the transfer• Clients may want control over who can access their premises • Contractors may want some flexibility as to who works on the

contract to deal with fluctuating business demands• Problems with mirror indemnities - no contract between outgoing

and incoming contractor

Practical considerations for clients in service provision changes

• Include entry/exit provisions in contract between client and contractor to help regulate the handover process

• Agree with contractor for employee liability information to be provided at the end of the contract

• Warranties• Include provision in contract preventing the contractor from sub-

contracting or assigning - must do the work itself• Include provision in contract allowing the client to control the t+c of

the contractor’s employees employed on the client’s contract and to control the number/quality of the employees carrying out the work on the contract

Practical considerations for clients in service provision changes (continued)

• Contractor’s staff to comply with policies/procedures while working on the client’s premises

• Right to require contractor to remove staff who breach policies

• Standstill provisions – prevent outgoing contractor from changing t+c between notice and expiry of contract

• Indemnities – each contractor indemnifies the client and any predecessor or successor to the contract against all employment liabilities relating to the period where they operated the contract

Other considerations

• Restrictive covenants

• Bonus schemes

• Pensions – general rule is that occupational pension schemes do not transfer

• Level of transferee’s access to transferring employees pre-transfer – transferor needs measures in place to protect itself from pre-transfer dismissals – vet communications etc – negotiate indemnities

Warranties

• Contractual assurances• If false/inaccurate representations are made –can sue for damages• No right to rescind the contract for breach of warranty• Transferees want extensive warranties, transferors want limited

warranties• Minimum liability floor? Only sums in excess of minimum will trigger

indemnity payment• Time period within which period the party must be notified of any

intended claims for breach of warranty?• Clause waiving any claims which do not reach or exceed a specified

sum?

Examples of common warranties• Only the employees listed will transfer and no other employees

• The appropriate representatives have been informed and consulted

• No outstanding tribunal/civil claims or facts that could give rise to such claims

• All PAYE etc. are paid up to the transfer date

• Transferee has informed transferor of all measures the transferee will take in relation to the transferred employees

• No threatened or impending industrial dispute

Indemnities

• A promise to reimburse the other party if a particular type of liability arises

Examples of common indemnities

• Generally an indemnity for the transferor to indemnify the transferee for all acts/omissions prior to the transfer and vice versa – “mirror indemnities”

• General indemnity against acts or omissions

• Specific indemnity for redundancy and unfair dismissal claims

• Specific indemnity for protected awards

• Indemnity for specific employment claims

Compromise Agreements

• Can a transferee rely on a compromise agreement made between a transferor and employee when faced with an unfair dismissal claim by an employee dismissed by the transferor?

Yes (as long as the compromise agreement is concluded before the date of transfer)

• If not entered into before the transfer - transferee must be a party • Tripartite compromise agreements• If the benefit does pass to transferee - transferor potentially without

protection so could seek to negotiate indemnities against the transferee

Note: cannot compromise TUPE claims relating to employee liability information or the duty to inform and consult

Any Questions?