If you are buying or selling a business (other than by way of share sale), entering into a contract for the provisions of services (whether as a service provider or service user) you need to know about TUPE and how it works or you will incur unexpected employment costs and liabilities which make the transaction less profitable at best, loss making at worse and otherwise cause practical problems for your business.
Below follows a short beginners guide to TUPE and some examples of particular problem areas you should be aware of.
What is TUPE?
TUPE stands for the Transfer of Undertaking and Protection of Employment Regulations. It is European derived legislation that protects employees where the business they work for transfers from one employer to another. Notwithstanding Brexit it is expected that these regulations will apply for some time to come.
How does it work?
TUPE applies on the transfer of a business from one person to another or when services that employees carry out for their employer are then carried out by another person – so on the asset (not share) sale of a business, on the outsourcing of services, a change in service provider or if outsourced services are taken back in house. When TUPE applies there’s a “TUPE Transfer.”
On a TUPE Transfer the new employer (the “Transferee”) essentially steps into the shoes of the existing employer (the “Transferor”) automatically taking on the employees who are tied to the business/contract that is transferring on their existing terms and conditions of employment, with accrued rights and liabilities also transferring and continuity of employment being maintained.
TUPE also protects employees from being dismissed, having their terms and conditions changed or from suffering any “material detriment” to their working conditions if, in broad terms these things happen because of the TUPE transfer.
In addition, TUPE requires that, before the transfer takes place, the Transferor is provided information about the employees they are taken on, the Transferee tells the transferor about what it’s going to do with them, with an information and consultation process taking place with employees affected by the TUPE Transfer (or with their elected representative where the employer has 10 or more employees) so they know what’s happening and there there’s the opportunity for concerns to be addressed.
What are the particular problems should I be aware of?
The information that the Transferor is required to provide about transferring employees under TUPE is not comprehensive, not including some important information (such as whether employees are or about to be long term absent, e.g by reason of illness or family related reason, or whether employee benefits are contractual entitlements or not.)
Where information is provided in excess of that required by TUPE, GDPR legislation breaches commonly occur. In particular, Transferors often fail to properly anonymise personal data that’s being provided, in compliance with GDPR legislation.
Transferees may decide they don’t want or need transferring employees. However, if the Transferee gets the Transferor to dismiss employees it doesn’t want or need before they transfer to avoid taking them on the dismissal will be unfair (and it is the Transferee who will be liable.)
Once employees have transferred those who are not needed may be (fairly) dismissed as redundant under TUPE but the Transferee can’t exempt its existing employees from the process, as to do so may give rise to unfair dismissal liability. Transferees must also remember that if a TUPE transfer affects their staff, then an information and consultation process with them before the TUPE transfer takes place.
Transferees may not want to make incoming employees redundant but often want to change their terms and conditions. TUPE prohibits them from doing so except in limited circumstances. One often overlooked problem this causes is in respect of restrictive covenants e.g. non-compete provisions. Restrictive Covenants in a transferring employee’s contract of employment are often drafted in such a way that they protect the particular business of the transferor, not that of the transferee and TUPE can work to prohibit the Transferee from changing the covenants for its protection even if the employee agrees to this.
So how is TUPE best dealt with?
TUPE is difficult to avoid and is complex so problems do arise. The best way to deal with them is before a TUPE transfer includes/negotiates suitable terms in contracts with staff, services contracts and sale documentation, carrying out appropriate diligence before the transaction (and being as open and straightforward with your staff as possible).
The author of this blog post is Jonathan Hemmant. Jonathan is a senior employment and commercial services lawyer.
Qualifying as a solicitor in 2000 he has worked for almost all his career for full service City Firms or niche firms run by lawyers with a Magic Circle/US firm background, acting as the employment department head for two of the firms he has worked for, one of which he helped to establish.
Jonathan advises on a wide range of contentious and non – contentious employment law issues and also carries out commercial work, having particular expertise advising on arrangements for the provision of staff and services that fall outside of the standard employment model.