TUPE, Mergers and Acquisitions | SA Law

Here are some key things to bear in mind when it comes to TUPE and Mergers and Acquisitions from Chris Cook, Head of Employment.
Tue 3rd Apr 2018

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)

What is TUPE?

The purpose of TUPE is to protect employees if a business changes hands through merger or acquisition. Its effect is to move employees and any liabilities associated with them from the outgoing employer to the incoming employer. When TUPE applies, it is important that both employers understand what employment liabilities can arise.

When does TUPE apply?

TUPE applies to all “relevant transfers”, which means either or both of the following:

• The selling or buying of part or all of an economic entity that retains its identity (a “business transfer”);

• The appointing of a contractor to do work on a client’s behalf, reallocating the contracted work or bringing the work in-house (a “service provision change”).

Virtually all service provision changes are covered so it is safe to assume that TUPE applies to most outsourcing without the need for protracted legal argument.

What does TUPE mean legally?

1. Employee’s rights and liabilities

All rights, powers, duties and liabilities relating to the outgoing employer’s employees will automatically transfer to the incoming employer in any transfer where TUPE applies. This all-inclusive concept consists of rights relating to statute, the employment contract, and continuity of employment and captures an employee’s right to bring a variety of claims in an Employment Tribunal, for example, unfair dismissal, discrimination, or unpaid wages, bonuses or holidays.

Effectively, the incoming employer steps into the shoes of the outgoing employer and it is essential that incoming employers know all about the employees they will inherit. It is a duty of the outgoing employer to provide the incoming employer with written details of all employee rights and liabilities relating to the transferring employees. If there is a failure to comply with this duty by the outgoing employer, the incoming employer can apply to the Tribunal for compensation with a minimum award of £500 per employee.

2. Dismissals

If the outgoing employer dismisses employees where the sole reason is the transfer, this will be deemed automatically unfair and (as long as the employees have two year’s continuous service) claims can be brought to the tribunal. Dismissals for economical, technical or organisational (ETO) reasons, i.e. unrelated to the transfer, will not be considered unfair. The ETO defence is quite narrow in scope and can be quite difficult to establish; they must entail changes in the workforce relating to numbers of employees, job functions and workplace location.

3. Changing terms and conditions of employment

As the incoming employer is required to take on the employees on their existing terms and conditions of employment, changes to the terms and conditions of transferring employees will be void if the sole purpose for the change is the transfer. However, there are exceptions to this where:

• Employee’s contracts allow for a change (e.g. mobility clauses);

• The change is for an ETO reason;

• The change is advantageous to the employee; or

• The change is incorporated from collective agreements.

4. Obligation to inform and consult

The outgoing employer must inform and consult with appropriate representatives of the transferring employees about how the transfer will proceed with particular emphasis on any measures that are being proposed. It is important to note that agreement to such measures isn’t always possible, and isn’t necessary for the transfer to move ahead. Failing to inform and consult, a Tribunal can award the transferring employees up to 13 weeks’ pay each as compensation. There is no set timetable for consultation, but the larger the transaction and the more staff affected, the longer the timetable will need to be. It is therefore encouraged to start consultation meetings at the earliest opportunity.

The question of exactly when TUPE does and does not apply is a very complex one. If you think a transaction you are involved in might be covered by TUPE you should always take specialist legal advice.