There are a number of ways of transferring a business. The vast majority attract the application of the TUPE Regulations. The effect of those Regulations is to seek to protect the worker’s rights and previous employer’s liabilities, transferring them automatically to the new employer.
It is not possible for an employer (new or old) to try to contract out of TUPE nor does its application fail because neither of the parties understood at the time of the transaction that it constituted a TUPE transfer or even, in the case of Employees, where they had not been made aware of it.
What is a Transfer?
There are 2 main types of TUPE transfer:-
- A transfer of undertaking or business (most often but not always a sale of a business as a going concern); or
- A service provision change (where a service is outsources, where a contract comes up for renewal and is awarded to a new company or brought back in house)
Naturally the sorts of transactions which involve the transfer of business can be quite complicated and so the law in this area is also complex to meet the needs of Employees in a range of situations. Company restructures can attract TUPE but pure share sales do not. Pure Public Sector Transfers are outside of the scope of TUPE but are covered under the Cabinet Office’s Statement of Practice (Staff Transfers in the Public Sector) found here https://www.gov.uk/government/publications/staff-transfers-in-the-public-sector. What is covered by TUPE is the grant of concessions to a private organisation, the transfer of a state subsidy from one charity to another, taking a contract back from the private sector and outsourcing a public service to a private contractor.
Mostly the Regulations are concerned with staff working in the UK (in the case of Business Transfers) or Great Britain (in the case of Service Provision Change) but there are instances where it can apply to workers outside of those areas.
Transfers of only parts of businesses which are then fragmented can sometimes defeat the application of TUPE, it really depends on how much has been divided, where the resources are used and what, if anything, of the original entity is identifiable.
Who is transferred?
Once it has been established that there has been a Transfer, then, broadly speaking, virtually all rights the Employee has and liabilities the Employer has to the Employee, automatically transfer to the new business or organisation. Essentially, the only thing that should change for a transferring Employee is the identity of the company that pays them.
It is possible for an Employee to object to a transfer. In that event, the Employee’s employment comes to an end by operation of law. They do not transfer to the new Employer and they lose the right to claim unfair dismissal.
There are other instances when an Employee should not transfer and these include:-
- Employees who are on temporary assignment (a question of fact in each case) to the part of the business being transferred.
- Employees working in two or more parts of an undertaking and the part being transferred is not the part in which the Employee predominantly works (also a question of fact in each case)
Other than the above instances, all other staff employed immediately before the transfer are transferred to the new Employer. This includes staff on maternity leave, sick leave and working out their notice period. It also includes staff who were suspended at the time of the transfer and those dismissed prior to transfer but reinstated post transfer by reason of an appeal process or those who have been unfairly dismissed by reason of the transfer and would have been employed had it not been for that dismissal.
What is transferred?
Most of the existing contract terms between the old employer and the employee are transferred to the new employer. This is not generally true of most occupational pension schemes, share options or properly discretionary bonus schemes though. Often, following a transfer, the Employee must sue the New Employer for wrongs done by their previous Employer. Transferred terms should remain exactly as they were and should only be amended where there is an Economic, Technical or Organisational reason, which must be the sole or principal reason, to justify that amendment or where amendment was already permitted under the contract. Some New Employers consider dismissing and then re-engaging on new terms though this is often a risky strategy and where it has been perceived necessary, is often accompanied by a Settlement Agreement (click here for a more detailed discussion on such Agreements) resolving the potential for a claim.
Civil liabilities (as distinct from criminal liabilities) of the Old Employer which are not contractual in nature but which are governed by legislation or which are based in negligence (a breach of duty of care to the employee, liability for personal injury to the Employee for example) are also transferred to the new employer but, interestingly, the right of indemnity also transfers so that the New Employer can make a claim to the Old Employer’s insurer. This is not so for public sector Employees but TUPE has accounted for this by, in these narrow circumstances, making both Old and New Employer responsible for such a claim. There are some limited exceptions to the rule that liabilities generally transfer but those are too detailed for discussion here.
There are special rules about payments due from an insolvent Old Employer to an Employee. In those instances most payments due such as statutory redundancy pay, pay in lieu of notice, holiday pay and back pay become debts owed and the Employee can claim the same from the National Insurance fund rather than from a subsequent employer in a pre-pack administration. Equally, there are special rules about varying terms in insolvency situations, permitted variations are possible where the Old and New Employer agrees the amendments with Employee Representatives.
Dismissal by reason of the Transfer
Dismissals for reasons related to the transfer, before or after it, are automatically unfair unless the New Employer can justify the dismissal because of an Economic Technical or Organisational (ETO) reason and it has otherwise followed a fair procedure.
Whatever the New Employer suggests is their ETO reason, it must be the principal or sole reason for the dismissal and it must entail a substantial change in the workforce. There is no rule for when the transfer can stop being the reason for the dismissal – in one case a dismissal 2 years after transfer was deemed to still be by reason of the transfer. In practice this is fairly rare and of course the longer ago the transfer, the harder to prove the dismissal was not for another potentially fair reason (in which case the discussion on unfair dismissal applies).
It is possible for an Employee, separate to the right to resign without notice and claim constructive dismissal in relation to breach of contract by its Employer, to treat themselves as being dismissed where a transfer leads to a significant change in working conditions, in that instance an Employee is entitled to claim unfair dismissal and treated as dismissed on notice.
Information and Consultation
TUPE Regulations require both New and Old Employers to inform and consult with their Employees and, where appropriate, Employee Representatives about the transfer and what might happen to the staff. The Old Employer is also obliged to provide certain information to the New Employer about the Employees being transferred. Failure to inform or consult can lead to claims for damages in the Employment Tribunal, though the effect of such failure is not to prevent the transfer.
Broadly speaking the key elements of information and consultation include:-
- The fact of the transfer;
- The date of the proposed transfer;
- The reason for the transfer (but not justification for it);
- Any legal, social or economic implications; and
- Information on agency workers (how many, which areas of the business they are used in and what they do).
If more than 20 people are expected to be made redundant after the transfer, consultation in relation to that may also begin (though redundancy selection itself cannot begin until after the transfer).
Whether the New Employer intends to make any changes or not after the transfer, they must inform affected Employees (or Representatives where appropriate) of what those measures are or if none, state that fact.
There is no specific timetable for when information and consultation processes between Employers and the Employees or Employee Representatives must begin but it should be long enough before the transfer to enable the processes to be carried out fully and fairly.
There are special timing requirements for information to be provided by the Old Employer to the New. The information must be in writing, accurate and secure (for data protection reasons). It must contain certain information such as names and ages of transferring employees, details of terms of employment, disciplinary action taken in the last 2 years, details of any grievances or legal action taken within the same period and any collective agreements. If the Old Employer does not comply then the New Employer can complain to the Employment Tribunal and where damages arise for the New Employer’s failure to consult on measures to be taken which was hampered by the Old Employer’s failure to provide necessary information then the Old Employer can become jointly and severally liable with the New Employer for damages claimed in that respect.
The above is a brief overview of some rather complex legislation, if you are intending to transfer your business and are unsure of the process or are expecting to have a business transferred to you, please contact our dedicated team of expert solicitors who can guide you throughout the process.