TUPE falls into two categories, either a business transfer or a service provision change.

Business transfers

TUPE applies if there is a transfer of an 'economic entity that retains its identity'. This can be determined by asking:

• Is the type of business being conducted by the ‘transferee’ (the new owner, or the employer who is receiving staff) the same as the ‘transferor' (the old owner, or the employer who is transferring staff)?
• Has there been a transfer of tangible assets such as building and moveable property (although this is not essential)?
• Are there intangible assets (such as such as patents, trademarks, copyright, goodwill or brand recognition) transferred at the time of the transfer?
• Have the majority of employees been transferred?
• Have the customers been transferred?
• Is there a high degree of similarity between the activities carried on before and after the transfer?

If the answer to several of the above is 'yes', then TUPE is likely to apply. In some cases, just one of these factors is enough for TUPE to apply.

Service provision changes

A ‘service provision change’ occurs when a client who engages a contractor to do work on its behalf involves either:

• Reassigning such a contract (whether by contracting out, outsourcing or re-tendering and in some cases subcontracting); or
• Bringing the work ‘in-house’ (where the service changes to being performed in-house by the client themselves).

In addition, the activities undertaken must be essentially the same after the transfer as they were before it.

It won't be a service provision change if:

• The contract is wholly or mainly for the supply of goods for the client’s use; or
• The activities are carried out in connection with a single specific event or a task of short-term duration.

TUPE applies to all relevant transfers, including situations where services are assigned to a new contractor, for example in labour-intensive services such as office cleaning, catering, security and refuse collection.

The Government and Acas have both published guidance. CIPD members can find out more in our Tupe law Q&As.

TUPE has been found to apply to:

• Mergers.
• Sales of businesses by sale of assets.
• A change of licensee or franchisee.
• The inherited gift of a business.
• Transfers from companies in administration.
• Contracting out of services.
• Changing contractors.
• Selling or transferring all or part of a sole trader's business or a partnership.

TUPE doesn't apply to:

• Transfers by share take-over.
• Transfers of assets only (for example, the sale of equipment alone is not covered, but the sale of a going concern including equipment would be).
• Buying in services from a contractor on a one-off basis - rather than an ongoing relationship for the provision of the services.
• A situation where business identity changes, for example if the nature of the work or the organisational structure changes radically.
• The supply of goods for the client's use (for example, supplying food to sell in a client's staff canteen, rather than the contractor running the canteen for the client).
• Transfers of undertakings situated outside the UK (although these may be covered by similar regulations of EU member states).

Overall, TUPE only applies to situations where a business or part of it retains its identity after the transfer. If it doesn’t, there's no transfer as envisaged by the regulations.

Changes of contractors for labour intensive activities have caused past confusion, but TUPE usually applies in these situations. TUPE may also apply where an organisation, such as an advertising agency or a law firm, takes over a client from another firm following a tender process. The new firm may be obliged to take on the staff previously working on the client account.

It’s essential for employers (both the transferor and the transferee) to plan well and seek legal advice at the earliest possible stage. Planning includes identifying key risks and a genuine dialogue with employees throughout. All employees employed in the organisation (or part) that is transferring will be entitled to carry on working for the new organisation with their existing terms and conditions of employment and continuity of service is also preserved.

The transferee inherits liability for all statutory rights, claims and liabilities, for example those arising from the contract, liabilities in tort, unfair dismissal, equal pay and discrimination claims. The exception to this rule is criminal liabilities. The law prevents employers and employees from 'contracting out of' the regulations, so it’s not possible to prevent TUPE from applying. It may be possible to negotiate warranties and indemnities which will provide a partial, or total, cushion against the financial impact of any claims resulting from TUPE's application.

Our practical guidance for people managers regarding staff transfers provides minimum standards and steps to follow for all parties and includes sections on service provision transfers, transferring staff teams, pension issues, and the challenges surrounding attempts to dismiss or harmonise terms and conditions.

Dismissal

Any dismissals because of the transfer are automatically unfair unless the employer can show an 'economic, technical or organisational' (ETO) reason entailing a change in the workforce - see below. Also see our dismissal factsheet.

Consultation and notification

Transferors must conduct full, meaningful consultations with employees at the earliest feasible time. Unlike collective redundancy consultation, there’s no specified minimum consultation period before the transfer. Employers must provide the required information to employee representatives “long enough" before the relevant transfer to enable consultation. Employers who fail to consult properly can be required to pay staff up to 13 weeks' pay in compensation. The transferor and transferee are both liable to pay this.

If there are no trade union or employee representatives, then the employer must facilitate an election of representatives by the affected employees for the purposes of consulting over the transfer. Micro businesses (under 10 employees) can inform and consult with employees directly if there's no union.

The employer must explain a transfer is to take place and provide the:

• Reason for the transfer and when it is expected to occur.
• Implications for employees.
• Measures that current and new employers expect to take regarding the employees.

Pensions

Strictly speaking certain pension rights do not transfer under TUPE. However, if the previous employer provided a pension scheme, the new employer must provide some form of pension arrangement for those eligible. It does not have to be the same as the previous employer's arrangement provided but must meet the minimum standards required.

Provisions equivalent to TUPE may therefore apply to pensions. Employees' entitlements depend on the nature of the pension scheme previously offered and employers should take advice to identify pension benefits that may transfer.

Information to the new employer

Transferors must give the transferee written information about the transferring employees and all the associated rights and obligations towards them. This information includes, for example, the identity and age of those employees, written particulars of employment information (under section 1 of the Employment Rights Act 1996) and details of any tribunal claims that the transferor reasonably believes might be brought.

If the transferor does not provide this information, the transferee may apply to an employment tribunal for compensation that starts at a minimum of £500 per employee.

Right to work checks

The transferor has a 60-day grace period after a transfer to enable the transferee to conduct fresh right to work checks. A thorough due diligence process which examines previous right to work checks can minimise any risks  of liability for transferees, who may also seek warranties and indemnities from transferors.

ETO reasons

'Economic, technical or organisational’ (ETO) reasons for a change in the workforce may justify a transferee’s refusal to take on the transferor's workforce. TUPE also permits limited changes to terms and conditions if there is an ETO reason for changes in the workforce. If an ETO reason is the main cause of a dismissal, then the dismissal may be justifiable provided that the transferee acted reasonably in all circumstances. Examples of ETO reasons include a severe reduction in output that makes trading unsustainable without dismissals (economic) or new technology which means that far less staff are needed (technical). Even if there is an ETO reason, the normal law and practice on redundancies and unfair dismissals will still apply. If there was no real change in the job functions or in the number of employees, the economic (or other reasons) may be disputed. If the workforce was not taken on to avoid TUPE, the transferee will be liable for potential tribunal claims.

CIPD members can find out more about ETO reasons in our Tupe law Q&As.

Contacts

GOV.UK - Business transfers, takeovers and TUPE

Acas – Transfer of undertakings

Books and reports

BARNETT, D. (2019) Deconstructing TUPE. (Employment Law Library 5). London: Nielsen.

WYNN-EVANS, C. (2016) The law of TUPE transfers. 2nd ed. Oxford: Oxford University Press.

Journal articles

HURST, M. (2021) How the allocation of employees under TUPE could affect employers. People Management (online). 14 May.

MORRISON, L. (2020) What happens when TUPE transfers are split between organisations? People Management (online). 5 October.

WEATHERHEAD, A. (2019) How to deal with tricky TUPE issues. People Management (online). 24 July.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.