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.