My company is changing hands - a guide to TUPE

When a company changes hands, employees can naturally feel concerned about what this will mean for their employment. However, although employees going through a transfer may feel that their situation is precarious, their rights are protected under the Transfer of Undertakings (Protection of Employment) Regulations that are known as TUPE. 

What is TUPE? 

TUPE is the mechanism used to protect the employees of a busines where ownership is transferred to someone else.  

Before TUPE, transfer of a company from one employer to another would automatically terminate the employees’ contracts of employment. Usually this meant that existing employees would be made redundant.  

TUPE was introduced in 1981 (with major amendments in 2006 and 2014) and applies to a wide range of business transactions that occur on a daily basis. It applies in cases where there is a “relevant transfer”, which is defined as the “transfer of an economic entity which retains its identity”. The courts use a range of factors to determine if TUPE applies, including 

• The type of organisation that has been transferred 

• Whether tangible and intangible assets have been transferred and their value 

• If the majority of employees have been taken on by the new employer 

• If any customers are transferred 

• How similar the activities are before and after the transfer 

• How long any activities are suspended for 

Under TUPE, where a relevant transfer has taken place, the employees of the organisation being transferred automatically have their employment moved to the new owner. 

When does TUPE apply? 

For a relevant transfer to have taken place, it is the identity of the employer, and not the owner, that must have changed. Relevant transfers can include: 

• Mergers 

• Change of franchise 

• Sale of a partnership 

• Division of a company  

Whereas the sale of shares or assets alone may not constitute a relevant transfer.  

Two possible types of relevant transfer exist:  

• Business transfers, which occurs where an economic entity changes hands (this can be the whole or part of a business) but retains its identity after transfer. In other words, its operations must be essentially the same after the business changes hands. 

• A service provision change occurs where a company contracts out services, such as cleaning. In this context, a relevant transfer occurs when: 

  • When a business enters into a new contract with a contractor 

  • Where an existing contractor outsources their services to a subsequent contractor 

  • When a business that had previously outsourced certain services then brings these services ‘in-house’.   

As with business transfers, the activities carried out must be the same as they were prior to transfer.  

If a relevant business transfer or service change has taken place, then TUPE applies to all employees employed by the original employer immediately before the transfer and automatically transfer the terms and conditions of employment, meaning that continuity of employment is maintained.  

Obligations of Employers under TUPE 

When a company is changing hands, employers have a duty to inform and consult the employees (or an appropriate representative) who may be affected by the transfer. This does not apply to employers that have less than ten employees. It is worth noting that consulting is a separate duty from informing and must be done with a view to reaching agreement with the employees or their representatives regarding the measures to be taken.  

The employers must inform the employees or their representative: 

• That a transfer will be taking place 

• When this will occur 

• Why this is happening 

• About any measures that will be taken in respect of the employees  

Employees do have a right to object to the transfer, but this can mean foregoing normal rights on dismissal, meaning that they will be regarded as having resigned.  

Rights of Employees under TUPE 

Primarily, TUPE ensures the right to continuity of employment. This means that all existing employment terms and conditions transfer from one employer to another without interruption, and all pre-existing rights are preserved.  

A failure to inform and consult can result in complaints to an Employment Tribunal. The maximum award if successful is up to 13 weeks’ pay for every affected employee.  

If an employee is dismissed directly before or after your company changes hands, they may have been unfairly dismissed. Indeed, if it can be shown that the transfer was the principal or only reason for an employee’s dismissal, then it will be automatically unfair. However, if it can be shown that the transfer was not the principal reason for the dismissal, but that there was another substantial reason (for example, dismissal), then the dismissal may be fair.  

Any effected employees, or representatives of these employees, who feel that their rights have been breached, are entitled to bring a complaint to an employment tribunal if this is no later than three months after the date of transfer. If the complaint is upheld, then these employees will be entitled compensation. 

It should be noted that TUPE is relaxed where the exiting employer is insolvent as a form of protection for the new employer, who will be more tempted to rescue businesses that are financially struggling.