There is nothing quite like TUPE to send lawyers and HR professionals alike scrambling for cover. Who knew a simple acronym could have even the most seasoned advisor shaking in their boots? It seems to appear randomly within service contracts, it always crops up when buying and selling a business… so what even is it? It is time to tackle the good, the bad and the ugly of TUPE.
What does TUPE mean?
- Full name: Transfer of Undertaking (Protection of Employment) Regulations 2006
- What is its purpose? TUPE – easy to say (except by those who refer to it as toupee, which is a completely different sort of protection) but difficult to understand. It helps to see the full name to remind ourselves that this about protecting employees. Broadly, TUPE provides protection for employees when the business they’re employed by changes ownership or there is a change in service provider in relation to activities that they have been carrying out.
- The TUPE regulations came in to implement European legislation. It was first introduced in 1981, with the more recent regulations of 2006 replacing the original regulations. There have been further updates since but let's not get bogged down in all of that for now.
When does TUPE apply?
TUPE applies in 2 cases:
- This is when the assets of a business are sold.
- TUPE does not apply in the case of a share sale. Where there is a share sale the company continues to exist, and the employees simply continue to be employed by the original company.
Unfortunately, the precise circumstances when TUPE will apply for an asset transfer are not entirely straightforward. They involve an “economic entity”, a transfer of that economic entity, and the entity retaining its identity after the transfer. So obviously, this then results in several follow up questions.
- What do you mean by an “economic entity”?
- What would qualify as a transfer?
- What exactly is an “identity” in this context?
- And how on earth do we decide if the entity has “retained that identity”?!
Well, to be honest, that’s where you need to get some advice because, surprise, surprise there’s no simple tick list answer and it will depend on the specific circumstances.
Service Provision Changes
There are 3 situations where there has been a service provision change and TUPE might apply:
- Changing contractor;
- Bringing service in-house.
Naturally, as with an asset transfer, it’s not entirely straightforward! TUPE won’t apply every time you decide to outsource a service. For TUPE to apply, you need:
- An organised group of employees.
- The services to be carried out afterwards to be "fundamentally or essentially the same" as those carried on before the transfer.
- The transferring contract should not be wholly or mainly for the supply of goods for the client's use.
- The activities should not be carried out "in connection with a single specific event or a task of short-term duration".
So, unfortunately, again we’d suggest you get advice to confirm whether or not TUPE might apply when you decide you’re going to change the company who is currently supplying your cleaners.
What does TUPE do?
- The employees “transfer” from being employed by the original company (the one selling its assets or who originally provided the service) (the transferor) to being employed by the new company (the transferee).
- It’s as if the transferred employees have always been employed by the new employer.
- The new employer gets the good, the bad and the ugly – in other words: They get all of the great staff that are a huge asset, but they also get “that” member of staff! You know, the one who is persistently late and is always whining about something. Equally, if you’ve decided to switch cleaning companies because you’re not happy with the current service, you could find yourself stuck with the same cleaners after you’ve changed service provider.
- They inherit all rights and liabilities relating to the transferred staff. For example, if the transferred employee had the contractual right to a bonus, that means the new employer has to pay that bonus. And if the transferred employee has complained they’ve encountered discrimination at work, it might be the new employer that has to deal with the claim.
- Their length of service – Some employment rights (such as notice period/pay) depends on length of service and this will be retained.
- Their employment contract terms – this means that the previously agreed working hours, location, notice period will transfer across with the employee. This can be a pest if you end up with new staff on better terms that your existing employees. And you can’t simply align the terms post-transfer as any change to employees’ terms connected to the transfer will be void – although see below.
Because TUPE applies automatically (ie the parties cannot decide they want it to apply or not, it’s a default protection the employees get – remember this is all about protecting them) – it is important for both the old and new employer to understand if TUPE applies to a situation, and if it does – which employees have been affected.
Who does TUPE apply to?
Employees – but the terms I applied broadly so would include apprentices and potentially workers too.
What kind of issues does TUPE cause?
- Parties disagreeing on whether or not TUPE actually applies. This might happen if the “transferor” wants to get rid of staff but the “transferee” doesn’t want them, or conversely if both parties want the staff.
- Inheriting staff you don’t want or losing key staff member as a result of a transfer. In terms of the latter, there are ways to help avoid this, such as shifting the employee to an area/team which will not be transferring. But do remember that if this is an asset transfer the transferee is likely to want key staff to be part of the deal.
- Inheriting more staff than you need which would result in a potential redundancy situation. Please be mindful that in circumstances like that, the new staff and your existing staff need to be pooled together. You should NOT automatically select the TUPE’d staff for redundancy.
- Inheriting liability. As mentioned above you could inherit a grievance and who wants to deal with a mess someone else has caused!
- Inheriting contractual terms that are not in line with terms of your existing staff. Please note that while you can’t simply amend the transferring employees’ terms because you aren’t happy with them, this does not mean they can never be changed. If you decide that terms are genuinely causing the business issues, you could undertake a full contractual review. Not because of the transfer but because you need to ensure that the terms are working for the business and the staff. For instance, following a transfer, you can’t reduce contractual sick pay just because you aren’t happy with the terms you have inherited. However, you could potentially undertake a full contractual review where you decide that sick pay needs to be reduced as a result of the cost to the business or because you’ve noticed a trend of excessive sickness absence. You would need evidence to show that this is a genuine review and not just a way of getting round the transferred terms. Time and a decent paper trail would help with this.
- As you can see TUPE can be like a gunslinger showdown between the old and new employer, so it’s important to understand it (as far as is possible) and make sure you put yourself in the best position possible when entering into a TUPE situation.
For a few dollars more, Stephenson Law can help you – this is tricky stuff. We make the world of work, work for you. Discover more about how we help businesses navigate employment issues.