TUPE & Business Sales

Business sales can involve complex issues when it comes to employees, particularly where a sale involves what is commonly known as “TUPE” (the Transfer of Undertakings (Protection of Employment) Regulations 2006).

There are occasions where TUPE will not come into play such as where there is a pure share sale (the rationale being that TUPE cannot apply where the business remains the same and it is simply the shareholders who are changing).  However, even in situations like that you do need to ensure that you do not inadvertently trigger the TUPE provisions by going further than a simple share sale/ purchase.

Dealing with TUPE requires a reasoned and pragmatic approach.  TUPE is far from being user friendly legislation.  It is often impenetrable and logic defying.  Our aim is to guide you through the process and arm you to enable you to take practical decisions.

When Does TUPE Apply?

TUPE implements an EU directive which is designed to ensure that employees working in a business that transfers have their terms and conditions of employment protected when they are transferred to the new employer.

TUPE applies where there is one of two types of “relevant transfer”:

• A business transfer: the transfer of a business or undertaking (or part of a business or undertaking) where there is a transfer of an economic entity that retains its identity.
• An economic entity is “an organised grouping of resources that has the objective of pursuing an economic activity”.  This can include part of a business and doesn’t have to be profitable.
• How the transfer takes place is not relevant.  Indeed, it can result from a series of transactions.
• In deciding if the economic entity has retained its identity, the test is whether the economic entity is still in existence after the transfer.  This should be apparent from the fact that the operation is being continued, or has been taken over, by the new owner carrying on with the same or similar economic activities.  A mere change in the way it is carried out does not necessarily change its identity.
• A change in service provider, for example a client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work in-house.
• There must be an organised group of employees before the change whose principal purpose is to carry out the relevant activities on behalf of the client.  A single employee can be an organised grouping.
• It does not cover a contractor providing the services for a single specific event or a task of short-term duration.
• It does not cover the supply of goods for the client’s use.
• There is no need for the entity to retain its identity; it is merely necessary for one person to cease to provide the activities and for another to take them over.  This means that it is not possible for the incoming service provider to avoid TUPE by performing the services in a different way or by not taking over the workforce.

Some transfers may be both a business transfer and a service provision change.

What Does TUPE Do?

TUPE applies to a transfer from a transferor (usually the seller of a business) to a transferee (usually the buyer).  If TUPE applies:

• Anyone employed by the transferor in the “organised grouping of resources or employees” immediately before the transfer automatically becomes the transferee’s employee on their existing terms of employment (including pay) and without a break in their period of employment.  This includes employees who are dismissed before the transfer, but for a reason connected with it which is not an “economic, technical or organisational reason entailing changes in the workforce” (often called an ETO reason).
• All rights, powers, duties and liabilities under the employment contracts pass to the transferee.  This could even include trade union recognition in some circumstances.
• Any changes to the employees’ terms will be void if the sole or principal reason for the change is either the transfer itself or a reason connected with a transfer which is not an ETO reason.
• Any dismissal will be automatically unfair where the sole or principal reason for the dismissal is the transfer itself or a reason connected with the transfer that is not an ETO reason.  It will also be necessary to show that the dismissal was procedurally fair.  This will include any resignations in response to a repudiatory breach of contract or to substantial changes in working conditions to the employee’s material detriment.
• Employees may refuse to transfer (known as objecting), but the effect is to terminate their employment without any right to compensation.

What Must You Do?

Both the seller (transferor/outgoing contractor) and the buyer (transferee/incoming contractor) must formally inform employees of the proposed transfer.  If they propose taking any “measures” in respect of employees’ terms and conditions (which is a pretty wide concept involving most small changes) they must consult representatives of their own affected employees in relation to the transfer (or directly with employees if there are fewer than 10).  If they fail to do so, an employment tribunal can award up to 13 weeks’ gross pay for each affected employee.

Let Us Help You Further

The obligations appear daunting and complex but we can assist you to ensure you get it right and that you limit your exposure to any claims.

If you need any assistance in this area, please contact a member of our team.