Download Prospect's guide to TUPE regulations
On 31 January 2014, new regulations on the Transfer of Undertakings (Protection of Employment) – known as TUPE – came into effect. These regulations updated the TUPE 2006 regulations which were designed to safeguard employees’ rights when a business or organisation transfers to a new employer.
The regulations are relevant to people working in both the private and public sectors. Takeovers, mergers and insolvency in the private sector, and a massive programme of privatisation and contracting out in the public sector have increased in the last 20 years.
How Prospect can help
TUPE’s basic principle is that employees transfer with their work and their jobs are protected. Prospect and other unions have campaigned to ensure that employees’ rights are protected as far as possible in the event of a change of employer. Prospect has successfully represented members’ interests in situations where TUPE has applied and will continue to do so.
When TUPE applies
The regulations apply where an undertaking, or part of one, is transferred from one person or organisation to another, or where there is a change of service provider.
The first factor in determining whether TUPE applies is to identify the undertaking. The regulations define an undertaking as including any trade or business. Case law has given this a broad interpretation and most forms of employment are covered.
TUPE applies equally to the public and private sectors and an undertaking can be part of a private or public sector organisation.
To be covered by the regulations, the undertaking must be situated in the UK immediately before the transfer. Members should seek advice if there is an international dimension to the transfer.
The second test is to determine whether there has been ‘a relevant transfer’ of the undertaking.
The transfer can be by ‘sale, some other disposition, or by operation of law'. For example, some other disposition would cover contracting out and a privatisation may be enacted by law.
TUPE does not apply where there is a transfer by share acquisition – ie where shares change hands in a limited company.
TUPE applies regardless of the number of staff involved. For example, in one case TUPE applied when a bank contracted out the cleaning of one branch which was previously done by one person. The European Court of Justice ruled that TUPE applied, even though there was only one employee.
When TUPE applies
The transfer may consist only of the provision of services and need not necessarily involve a transfer of assets, such as buildings or equipment. For example, TUPE applied when a car dealership passed from one franchisee to another, even though no assets were transferred.
TUPE will usually apply in the following circumstances:
- contracting out
- management/employee buy-outs
- change of a contract for service provision
- second round contracts
- contracting back in-house
- change of lease or license
- commercial purchase.
The European Court of Justice has ruled that a relevant transfer is a transfer of staff or a transfer of tangible or intangible assets (eg goodwill or know-how).
Service provision changes
TUPE will usually apply in situations where a contract for a service expires and it is either contracted back in-house or transferred to another contractor.
TUPE regulations apply in the following situations:
- a client outsources to a contractor
- a new contractor takes over activities from another contractor
- a client takes activities back in-house from a contractor.
These types of transfer are called service provision changes.
The 2014 regulations state that for TUPE to apply, the activities being done before and after the transfer should be 'fundamentally the same'.
For there to be a transfer of a service provision, there must be no change to the identity of the client commissioning the services before and after the change in service provider.
Knowledge of the transfer
TUPE will apply even if the individual employee does not know that the transfer has occurred.
The decisive factor in determining if there has been a relevant transfer is whether the entity in question retains its identity after the transfer. Factors to be considered include:
- the type of undertaking or business involved
- the transfer or otherwise of tangible assets such as buildings and stocks
- the value of intangible assets (including goodwill)
- whether or not the majority of staff are taken on by the new employer
- the transfer or otherwise of the transferor’s customers
- the degree of similarity between the activities carried on before and after transfer
- the duration of any interruption of those activities.
Not all these factors have to be present. The courts have stressed that the existence or absence of any one or more of these factors is not conclusive either way.
A helpful question to determine if there has been a relevant transfer is whether the jobs previously done by the group of employees still exist. If the answer is yes, and there has been a transfer of staff or assets, the undertaking is likely to have been transferred.
TUPE does not apply in all situations, and its application is determined by the courts. For example, a contract to finish work on a company canteen building was held not to be covered by TUPE because it did not involve the transfer of a stable economic entity and was limited to finishing one piece of work.
Who is transferred?
All those employed ‘immediately before the transfer’ are protected by TUPE.
Employees dismissed for a reason connected to the transfer will also be covered by TUPE.
Assigned to the work
Once a relevant transfer is identified, all the employees are covered by TUPE and should transfer with their work. Problems can arise where only part of an organisation is being transferred and the employee is not dedicated solely to one part or the other.
Employees often work in different parts of an organisation – one that is being transferred and one that is not being transferred. The courts have said that those employees ‘assigned’ to the work being transferred will be covered by TUPE.
The regulations cover employees who ‘ordinarily work outside the UK’ to the extent that their contracts of employment will transfer. Such employees will not, however, be covered by the provisions relating to unfair dismissal and the employer’s duty to inform and consult representatives.
Effects of TUPE
TUPE means that if there is a transfer of undertakings, employees’ contracts are transferred to the new employer.
After the transfer is completed, all the transferor’s responsibilities in connection with contracts of employment transfer to the new employer.
The new employer has to take on all existing contractual terms. These include expressly agreed and implied terms, such as:
- redundancy entitlement
- sick pay arrangements.
Where it is not possible to transfer a contractual term to the new employer, for example, a profit sharing scheme, the new employer must offer a scheme of ‘substantial equivalence’.
Full pension rights do not transfer under TUPE. Redundancy payments, however, are covered by TUPE and will transfer to the new employer, even where they are linked to pension provisions.
Union recognition agreements also transfer to the new employer.
Liability for past breaches of contract also transfers to the new employer. For example the transferee will be responsible for arrears of pay that accrued before the transfer. Liability for accidents at work should also transfer.
Effects of TUPE
Employment between the two employers will be continuous.
In calculating the length of continuous employment, years with the transferor will be added to time with the transferee.
Employees and employers cannot agree to opt out of the protection that TUPE affords. For example, a clause stating that contracts of employment would not transfer, even though there was a relevant transfer, would be void. Likewise, a clause stating that the new employer refuses to recognise the employee’s previous continuity of service would also be void.
Contracts of employment pass automatically to the transferee on the date of transfer, even if the employer and employees intend differently. It is not open to the parties to postpone the date on which the contracts transfer.