8. TUPE PDF

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Transfer of Undertakings (Protection of Employment) Regulations 2006. The aim is to protect employees in a business sale situation. it leaves employees in a vulnerable position as the new employer may look to change the contracts or get rid of them. The law on this area is derived from the acquired rights directive which places an obligation on member states to safeguard employee’s rights where businesses are transferred from one employer to another. it is likely that it may be appealed post Brexit as businesses find it restrictive. TUPE APPLIES TO ANY BOTH BIG AND SMALL BUSINESS, PRIVATE OR PUBLIC claims for unfair dismissal relating to TUPE must be brought in 3 months of dismissal.   

transferor = the original employer transferee = the new employer to which the employee goes to employee = ‘means any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides service under a contract for services and references to a person’s employer and construed accordingly (it is very wide and workers could be included)

The amendments in 2014 were that ‘entailing changes in the workforce’ now included a change in location, and amendments which are meant to make it easier for an employer to change employees’ terms and conditions. before TUPE the common law position was that business buyout was automatic dismissal. now a transfer is considered not to be a dismissal automatically, if there are dismissals connected with the transfer it will be automatically unfair. What does TUPE do? 1) Automatic transfer principle 2) Protection against dismissal in connection with a TUPE transfer 3) Obligation to inform and consult

When does it apply? This does not apply o change in ownership it must be a change in employer. TUPE can apply where the company is outside of the EU. Pension schemes do not transfer across. whether regulations apply to workers is also unclear. When there is a relevant transfer;  

business transfer service provision change

Business Transfer Regulation 3(1)(a) ‘a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the UK to another person where there is a transfer of an economic entity which retains its identity’. regulation 3 also provides that a relevant transfer can be a series of two or more transactions and it can take place whether or not any property is transferred. 1) An economic entity

reg3(2)an organised grouping of resources which has the objective of pursuing an economic activity whether or not that activity is central or ancillary. Cheeseman v Brewer Contract Limited – firstly an economic entity covers a situation where one part of the company is being sold, economic entities can include charities and not profitable (economic) activity. 2) Transfer of that economic identity A change in ownership of the undertaking or a change in the identity of the employer – it does not cover share transfers. for there to be a transfer, this can happen if there is no physical property. 3) Economic entity retaining its identity The Going Concern Test – Spijkers v Gebroeders 1986 – here the transferor owned and ran a slaughterhouse and the lack of good will did not prevent the application of good will.     

whether the business’ tangible assets are transferred whether the goodwill has been transferred employees taken over similar activities transfer of customers

This will not cover situations where there is a pause in the business. Most transactions will fall under this category. where the economic entity can function without assets it is not necessary to show that the assets have been transferred. Service Provision Change it was a growing trend in the 1980’s to externalise service functions such as cleaning and catering and IT as it allowed companies to deal with the fluctuating demand for support services. regulation 3(1)(b) there are three ways a service provision change can take place; 1) Initial Outsourcing A client engages with a contractor to work on its behalf 2) Second Generation Outsourcing 3) Bring the Work In House (contractor to client) TUPE will not apply… -

arrangements around public administrative authorities regulation 3(5) share sales will not apply to certain transfers on an international level activities carried out were a single specific event or short term duration (one off jobs) the client changes (the client must be the same throughout) IT MAY APPLY TRANSNATIONLLY BUT THIS IS DEBATED

Under regulation 18 it is not possible to contract out of TUPE any agreement that does this will be void.

What Does TUPE do? 1) Automatic transfer principle

2) Protection against dismissal in connection with a TUPE transfer 3) Obligation to inform and consult Automatic Transfer Principle Under Regulation 4(1) contracts of employment of those employees employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer’ automatically transfer to the transferee on their existing terms. The exception under regulation 4(2) – ‘the transferee not only takes on the obligations and powers under the contract, but also, all of the transferor’s liabilities under or in connection with the transferring employee’s contracts. Certain pension benefits may not transfer. An employee who may automatically transfer can object to a transfer. for someone acquiring employees under TUPE it is high risk. regulation 4(3) says that the regulation applies to individuals who had been unfairly dismissed before the takeover. where there is a pre-transfer dismissal the contract will not transfer, however liability may. Practical steps to take; due diligence and looking at every employment contract, ongoing litigation, and grievance procedures. ‘Do you know of any reason why they may bring a claim against us’. they can then protect themselves with warranties and indemnities. the current employer can give a statement of any non-disclosed information about the employees, if a warranty is incorrect hen there can be breach of contract and damages against the previous employer. Indemnity where the transferor agrees to pay every pound of costs arising from what the Transferee takes on. EMPLOYEE CAN OBJECT – if they do employment is terminated at law and there is no dismissal. this does not prevent the employee from re-engaging on new terms, but continuity is broken here. it may be possible for an employee to object after where they did not know the identity of the employer before as long as they do so promptly. Changing terms of employment As under 4(1) it is on transferee’s existing terms, in the new job the staff may be given less holiday etc where the transferee will want to make sure all employees have the same benefits. It is difficult to change this, simple harmonisation is not possible. General rule is that under 4(4)-(5) any change to the employment will be void if it arises because of the transfer itself. The only circumstances where changes to the contract will be permissible is;  

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contract allowing for variation e.g. mobility clause. The reason for the variation is an Economic Technical or Organisational reason entailing changes in the workforce and the employer and employee agree to that variation. change to collective agreement one year post transfer which entirely benefits the employee

CANNOT HAPPEN UNILATERALLY. the transferee will be liable for all claims by the dismissed employee unless the dismissal was for an ETO reason which entailed a change in the workforce (in which liability for a pre-transfer dismissal will lie with the transferor) ETO is not defined in statute. It is likely to include

a) economic reason would be something linked to profitability. b) technical relates to production process c) organisational relates to management and structure. Employees often will not want to agree to this. if there is an ETO reason the dismissal will either be for redundancy or for a substantial reason under 98(1) if there is no ETO then dismissal will be unfair and new employer will be liable. under regulation 4(9) constructive dismissal is construed widely to include substantial changes in working conditions to a material detriment of a person whose contract of employment is transferred. TEMPORARY ASSIGNMENT – the court should consider the length and duration of employee’s time there and whether a date has been set by the transferor for his return or re-assignment to another part of the business or undertaking. Enhances Protection Against dismissal Consider an employer purchasing a business and then will inherit too many staff in place. there will be a need to make dismissals but there is more protections, so it is harder to dismiss than normal. Under regulation 7(1) of TUPE ‘where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee is to be treated as unfairly dismissed (under ERA) if the sole or principal reason for the dismissal is the transfer AUTOMATIC UNFAIR DISMISSAL WHERE RELATED TO TRANSFER. Exception: ETO exception under 7(2)-(3). for contract variation ETO reason are hard to apply but here they are easier to apply. this is because the definition covers a redundancy situation e.g. profitability (too many staff). redundancy is a defence to an unfair dismissal claim. they would have to include their own existing staff in the redundancy selection. To rely on ETO, dismissal of employees must happen AFTER the transfer. Normally, the transferee would try and get rid of them before however, this is a high risk strategy you cannot claim it is for reason of ETO and redundancy as if they dismiss before they move over there is no surplus of staff. it is better to advise to take employees on and then follow the normal redundancy procedure Obligations to Inform and Consult Under regulation 13 – ‘obligation on both the transferor and the transferee to inform and (if appropriate) consult with the recognised trade unions or elected employee representatives in relation to any of their own employees who may be affected by the transfer or any measures taking in connection with it’ the consultation is collective through the trade union or elected representatives. if they fail to do so its 13 weeks pay per affected employee (uncapped) for failing to consult. The court will look to: -

seriousness of failure of the employer to comply any loss sustained by the transferee attributable to the matters complained of terms of any contract between transferor and transferee under which the transferor may be liable to pay a sum

The employers will not want to give a lot of notice as transfer is confidential, the legislation just refers to reasonable. employees only think this consultation is a few days which is significantly shorter time scale than normal redundancy.

What the Transferee Acquires -

all employees employed before the transfer except where temporarily assigned or the employee has objected. all rights and liabilities arising from the contract (except criminal and occupational pension schemes)- the transferee can sue the employee for breach of the contract before the transfer too.

Dismissal of an employee because of a relevant transfer if an employee is dismissed before or after the transfer the dismissal is effective, and the contract ends. depending on the facts the liability may fall on the transferor or transferee. will need minimum of two years’ service. unfair dismissal if it relates to the transfer itself. CASE STUDY ON TUPE ScienceTech is looking to purchasing another business and seeks advice on employment law issues. what are the core legal issues requiring advice? 1) Do employees transfer over Business transfer under 3(1)(a) – transfer of an economic entity which retains its identity. It is a transfer as network sales have sold the business for money from ScienceTech. whether it retains its identity you have to look at the Spijkers criteria. we can be confident that the regulation applies. Does Brexit change the application of TUPE? Brexit does not change the application; they are derived from EU legislation acquired right directive but the TUPE is UK legislation so it will continue to apply in the same way. they may change over time when UK has more control over its laws but not for the foreseeable. There will be an automatic transfer of employees so there is a need for due diligence and contractual protection as it is all elements of the contractual relationship with employees. (warranties and indemnities) Information and consultation requirements, the buyer and seller must consult with employees. the client did not ask for advice, but this may be because they did not know. this is important as the consequence can be 13 weeks pay for each employee uncapped. 2) How can dismissals be managed appropriately There will be a surplus of staff. regulation 7(1) says either before o after a relevant transfer it will be an automatic unfair dismissal, so it is a high risk situation. there is one defence, dismissed where there is an ETO reason (e.g. redundancy). it could potentially be redundancy as there is surplus and this would allow dismissals to be made. Following Hind v Armstrong dismissals should not be made before the transfer as before there is not a redundancy situation since there is not a surplus and this would undermine the ETO reason. Instead they should do a post-transfer dismissal. Wrongful, unfair and redundancy are all relevant here. No wrongful dismissal as long as there is the correct notice given.

Unfair dismissal is high risk as compensation is high – the employer has to show reasonableness of the dismissal. this will involve looking at the procedural and substantive fairness. when making redundancies ScienceTech needs to consider appropriate consultation, a fair selection procedure (not prioritising old staff as this would be unfair) and considering alternative employment for people losing their jobs. If ScienceTech ague redundancy as the ETO they would have to make a redundancy payment. 3) Relocation of Staf Automatic transfer principle says that staff transfer across on their existing employment and it may not be easy to change the place of employment so relocation will not always be straightforward. Under regulation 4 there can be a change if there is a mobility clause in the contract, but if this is not wide enough or existing the company will have to argue it is due to an ETO. Generally it will fall within this when there has been a transfer....