Overview

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006) is the main piece of legislation governing the transfer of an undertaking, or part of one, from one party to another. (A list of relevant legislation is given at the end of these Q&As.)

The regulations are designed to protect the rights of the employees being transferred, enabling them to enjoy the same terms and conditions, with continuity of employment, as before. Without this kind of legal protection for employees, their employment contracts would automatically end when the business changed hands. Whether to keep the ex-employees, and on what terms, would be at the complete discretion of the transferee.

In 2014 certain amendments to TUPE came into force under the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014. None of the 2014 amendments apply to Northern Ireland.

Both the 1981 and 2006 TUPE regulations were introduced to comply with relevant EC Directives. There have been various amendments to the UK regulations and a great deal of case law.

The Department of Business, Energy & Industrial Strategy published guidance on TUPE to cover developments since 2009, including the 2014 amendments. Acas has also published guidance on the changes.

The Regulations provide that, on a relevant transfer of an undertaking or a part of an undertaking:

  • All employees who were employed in the undertaking immediately before the transfer automatically transfer from the old employer (the transferor) to the new employer (the transferee). An employer cannot just pick and choose which employees to take on.
  • The new employer takes over all rights and obligations arising from those contracts of employment, except criminal liabilities. (Some rights and obligations in occupational pension schemes are not covered by TUPE (see 'Do occupational pensions transfer under TUPE?').)
  • Any liabilities relating to employees who were dismissed before the transfer (for a reason connected with it) also transfer to the transferee.
  • Neither the new employer nor the previous one may dismiss an employee because of the transfer unless the dismissal is for an ‘economic, technical or organisational’ (ETO) reason entailing changes in the workforce (see 'What is the ETO defence under TUPE?'). If there is no such reason, the dismissal will be unfair.
  • If there is an ETO reason and it is the main cause of the dismissal, the dismissal will be fair provided that the employer acted reasonably in the circumstances.

Other consequences

  • The employees’ representatives have the right to certain information and to consultation on the transfer.
  • If the transfer involves a substantial, detrimental change in their working conditions, employees may object to the transfer, or resign and claim unfair dismissal (but not payment in lieu of notice). (Employees can resign and claim constructive dismissal in the usual way if there is a repudiatory breach of their contract.)
  • The new employer may not unilaterally worsen the terms and conditions of employment of any transferred employee, unless for transfers from 31 January 2014 the terms of the contract allow such a variation.
  • Any collective agreements made with recognised trade unions and any recognition agreements where the business retains a distinct identity following the transfer will also transfer. For transfers from 31 January 2014 it is slightly easier to change collective agreements. From this date if employees have terms and conditions provided for in collective agreements, only the terms and conditions in the collective agreement existing at the time of the transfer will apply to the employment with the new employer. Transferees will also be able to change terms and conditions provided for in collective agreements one year after the transfer, provided that overall the change is no less favourable to employees.

A dismissal of an employee by either the transferor or transferee because of the transfer will be automatically unfair unless there is an economic, technical or organisational (ETO) reason entailing changes in the workforce.

Examples include:

  • Economic reasons The demand for output has fallen to such an extent that profitability of the entity is unsustainable without dismissing staff.
  • Technical reasons The transferee wishes to use new technology and staff employed by the transferor in the entity do not have the requisite skills.
  • Organisational reasons The transferee operates at a different location and it is not practical to transfer staff.

Many employers seek to justify the dismissal of employees or to harmonise terms and conditions by trying to establish an ETO reason. However, these employers have failed to understand that an ETO reason must entail changes in the workforce. The Regulations do not define what is meant by this phrase, but over the years the courts have interpreted the phrase to mean that the employer must change either:

  • the job functions performed by the employees, or
  • the number of employees.

ETO reasons have an impact on two main areas: dismissal and variations to terms and conditions.

Dismissal

If the employer can show there is an ETO reason entailing changes in the workforce, dismissal will not automatically be unfair. The employer will still have to justify any dismissals, but only in accordance with the normal requirements for unfair dismissal.

Variations to terms and conditions

Variations to terms and conditions may be effective if they’re for ETO reasons indirectly connected with the transfer (see 'Is it legally possible to vary employees' contractual terms in a TUPE context?').

Deciding whether it is possible to make changes to employees’ terms and conditions following a TUPE transfer is legally complex.

The ability to make variations is inextricably linked to the law governing economic, technical or organisational (ETO) reasons (see 'What is the ETO defence under TUPE?').

Unless there is an ETO reason entailing changes in the workforce, the starting point is that any purported variation of an employment contract will be void if the sole or principal reason for the variation is the transfer itself.

Reasons for the change

The reasons for the change to any terms and conditions are important. If the changes are entirely unconnected to the transfer the changes will be permissible.

For example, Acme Ltd acquires a number of employees as a result of a TUPE transfer and then discovers that the employees had been incorrectly paid in the past. The mistake needs correcting, whether or not the transfer takes place. A variation after the transfer to correct this mistake is permissible because it is unconnected to the transfer.

Variations for ETO reasons

Variations to terms and conditions may be effective if they’re for ETO reasons indirectly connected with the transfer.

For example, a small insurance broker takes over another small company, which has five employees who transfer to the brokerage. All five employees are still needed. Three of the clerks at the small company receive monthly salaries which are £500 more a month than those received by their counterparts at the brokerage.

The managing director of the brokerage is concerned about the impact on profit and morale by the discrepancy between the salaries, so she seeks to bring the pay of the small company’s employees into line with the pay offered at the brokerage.

In this situation the employer cannot say there is an ETO reason. The reason behind the plan is arguably economic, because there is a concern about profitability. The reason is also arguably organisational in that the brokerage wishes to produce uniform terms and conditions. The big ‘but’ is that there was no change or reduction to the number of employees needed to do the work after the transfer. If the brokerage had been able to show that improved software had necessitated a reduction in the number of employees, there may have been an ETO reason.

Post-transfer harmonisation

A proposal to vary terms and conditions to achieve harmonisation will be by reason of the transfer and is very unlikely to entail a change in the workforce. An employer cannot therefore usually rely on an ETO reason that would potentially validate the variation.

See also 'Does the law permit the new owner of an undertaking to harmonise employees’ terms and conditions of employment after they have transferred?' and 'What approaches can the new owner take to harmonise the terms and conditions of transferred employees?'

Agreement and contractual variation

Variations are possible where the employees are in agreement:

  • For transfers before 31 January 2014 some variations may be effective subject to being agreed between the parties (or their representatives) according to relevant case law.
  • For transfers on or after 31 January 2014 variation to an employment contract will not automatically be void even if the reason for the variation is the transfer itself if 'the terms of that contract permit the employer to make such variation'. This wording is intended to reflect the Acquired Rights Directive more closely, but as the law is new there may be some interpretation difficulties.

Normal rules about contractual variation

The normal employment law rules governing variations to contracts of employment continue to apply and an employer cannot unilaterally change contractual terms (Terms and Conditions of employment Q&As).

Collective agreements

Some complex issues about changing terms and conditions can arise where private sector employers take over businesses and staff formerly in the public sector. In such cases employees may have terms and conditions which are provided for in collective agreements. It is possible to change collective agreements one year after the transfer.

Where employees have terms and conditions provided for in collective agreements, only the terms and conditions in the collective agreement existing at the time of the transfer will apply to the employment with the new employer.

This is of benefit to private employers who offer services to the public sector, because collective agreements made in the public sector will not bind the private sector employer who was not involved in the collective agreement negotiations.

Transferees can change terms and conditions provided for in collective agreements one year after the transfer provided that overall the change is no less favourable to employees. (Effective for all TUPE transfers from 31 January 2014.)

The European courts have also addressed this issue. A transferee is bound only by the terms and conditions incorporated by the collective agreement at the time of the transfer. Attempts by employees to rely on collective agreements amended after a transfer were unsuccessful.

Employers should always clarify what collective agreements (if any) are in force at the time of any transfer and what terms are incorporated into the contracts of employment.

Other changes include the ability to incorporate a change of location into the definition of ETO reasons (see 'Is it possible to impose relocation of employees following the transfer of an undertaking?').

The issue of whether TUPE applies at all can be a complex one and those involved in a transaction should take detailed legal advice. Employers cannot really avoid TUPE. The Regulations exist to protect employees, regardless of whether the transferee wants them or not.

Two main ways the parties may address the impact of TUPE are to:

  1. Ascertain whether there is an economic, technical or organisational (ETO) reason for any proposed dismissals or variations to terms and conditions (see 'What is the ETO defence under TUPE?' and 'Does the law permit the new owner to harmonise employees' terms and conditions of employment after they have transferred?').

  2. Negotiate warranties and indemnities, a variety of which may be negotiated under TUPE.

It will be necessary is to obtain details of the employees who are not required, and that information could be used to negotiate the sale price with a reduction for any potential exposure. It is common for the transferor to agree which employees transfer and there would then be mutual warranties and indemnities. It is also possible to retain an amount of the sale price in escrow pending any potential claims.

Warranties and indemnities in the transfer agreement should cover the obligation to inform and consult as TUPE 2006 introduced joint and several liability for failure to do this. Where inadequate information is supplied, a transferee with well-drafted warranties and indemnities may make a claim against the transferor.

Full liquidations/bankruptcies

In some insolvency proceedings the TUPE protections usually afforded to employees will not apply. If there are bankruptcy or similar proceedings with a view to the liquidation of the transferor’s assets, under TUPE the contracts of employment will not transfer to the purchaser. The employees will have no effective protection against dismissal. However, the state will cover certain sums owed to employees in these situations.

Administrations and voluntary arrangements

Some insolvencies involving administrations are treated differently from full liquidations. There may be insolvency proceedings which are not with a view to liquidation of the assets, and which are supervised by an insolvency practitioner:

  • administration
  • voluntary arrangement
  • creditors’ voluntary winding up

TUPE protection will always apply to transfers of business from companies in administration. In such situations employers may make transfer-related changes to the employees’ terms and conditions, subject to certain specified safeguards. The TUPE provisions which apply are designed to make it easier to rescue aspects of insolvent businesses. Changes may be agreed even where there are no economic, technical or organisational (ETO) reasons that would render them potentially lawful in any event. The agreed changes must comply with national law and practice, with a view to ensuring the survival of the business and thereby preserving jobs.

The transfer must take place after the date on which insolvency proceedings start. Insolvency proceedings start once the insolvency practitioner has been appointed at the creditors’ meeting and not before.

An administrative receivership or other receivership or members’ voluntary winding up is not included.

Debts to employees

When an employer acquires all or part of an insolvent business special rules apply to debts to employees:

  • Certain existing debts to employees will be paid by the National Insurance Fund, rather than pass to the transferee in the same way as if the employees had been dismissed on insolvency.
  • The debts include eight weeks’ pay arrears, holiday pay for up to six weeks, statutory notice entitlement, statutory redundancy pay and unfair dismissal basic awards (see Statutory rates and compensation limits).
  • Debts to employees in excess of the limits referred to above will transfer to the transferee.

Variation of terms

Subject to certain conditions, there is greater scope to vary employment terms in connection with relevant insolvency proceedings. The key points are:

  • The transferee may change terms and conditions made by reason of the transfer if the changes are:
    • designed to safeguard employment opportunities by ensuring the survival of the undertaking, and
    • agreed with appropriate representatives of the employees (union representatives or, if none, elected representatives) and
    • do not contravene UK law.
  • The transferee may change terms and conditions even where there are no ETO reasons, provided that the conditions referred to above are met.

There appears to be no requirement for the employees themselves to agree the above changes. However, if the employees are represented by non-union representatives, the agreement must be in writing and signed by each Representative. Prior to signature, a written copy of the changes together with guidance on them must have been given to each affected employee.

The rules described in this Q&A are special rules which apply in certain insolvencies. However, some ETO changes are permitted by TUPE in normal situations outside this insolvency regime. This means that the transferee may still change terms and conditions if the reason is:

  • entirely unconnected with the transfer, or
  • for an ETO reason.

Both of these situations will require the consent of employees in the usual way.

For transfers taking place from 31 January 2014 variations may also be possible if the terms of the contract permit the employer to make such a variation (see 'Is it legally possible to vary employees' contractual terms in a TUPE context?').

Which transfers TUPE applies to is not straightforward and has been challenged on numerous occasions in the courts.

The relevant questions to ask when considering whether there has been a relevant transfer are:

  • Has there been a transfer of an economic entity that retains its identity (a business transfer)?
  • Is there a service provision change?

Service provision changes occur when a client who engages a contractor to do work on its behalf is either:

  • reassigning such a contract, or
  • bringing the work ‘in-house’ (a service provision change)

It will not 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.

If the transfer is a service provision change, the transfer the activities must be fundamentally the same as the activities carried out previously (see 'How does TUPE affect service provision changes?').

Some transfers will be both a business transfer and a service provision change.

It is important to remember that TUPE applies only to situations where a business or part of one retains its identity after the transfer. If it does not retain its identity there is not a ‘transfer of a business or part of a business’ as envisaged by the Regulations.

No. TUPE applies to:

  • transfers of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the UK, and
  • service provision changes where the organised group of employees are situated in Great Britain before the service change but with no limit as to where they are situated afterwards.

The Acquired Rights Directive, from which TUPE 2006 is derived, does not extend to transfers which take place entirely outside the EU. UK legislation does not usually apply to foreign companies outside the UK. Employees working overseas, but for a UK undertaking, should be caught by the UK provisions.

Most transfers of undertakings outside the UK but within the EU will be covered by the regulations of other EU countries who have implemented the Acquired Rights Directive.

This issue is complex, and employers should seek specialist legal advice.

The changes to these contractual arrangements can involve:

  • contracting out or outsourcing where a service previously undertaken by the client is awarded to a contractor for the first time
  • re-tendering where a contract is assigned to a new contractor on subsequent occasions
  • contracting in or in-sourcing where a contract ends with the service being performed in-house by the client themselves.

TUPE applies to changes in service provision which involve an organised grouping of employees whose purpose is to carry out the activities concerned on behalf of the client (see 'Which employees do the TUPE regulations protect' and 'What is an ’organised grouping’ of employees after a service provision change?'

For transfers from 31 January 2014 the activities must be fundamentally the same after the transfer as previously. However, the whole of a service does not have to transfer for there to be a service provision change (Arch Initiatives v Greater Manchester West Mental Health NHS Foundation Trust [21 January 2016]).

If there is no identifiable grouping of employees and it is unclear which employees should transfer in the event of a change of contractor, there may be no ‘service provision change’ and TUPE may not apply.

The service provision change can constitute just one person, for example, a cleaning company which sends just one employee to clean an office. Other examples include contracts to provide such labour-intensive services as workplace catering, security guarding, refuse collection, and machinery maintenance.

Subcontracting

In subcontracting situations there can be more than one client and the in-sourcing provision in TUPE should be understood in the context of the provision covering second-generation outsourcing.

Employers should not assume that the ‘client’ of the subcontractor will always be the contractor. The ‘client’ could be the organisation who ultimately benefits from the service. TUPE protection may therefore extend beyond the employees of contractors to the employees of subcontractors. Employers should consider obtaining appropriate indemnities from contractors to cover liabilities relating to a subcontractor’s employees.

‘Fundamentally the same activities’

For there to be a service provision change the activities being carried out by the transferee must be ‘fundamentally the same’ as those carried out by the transferor before the transfer.

Yes. Each of the two new employers providing the service will inherit liability for the employees who were wholly, or mainly, assigned to the transferor’s activities that have been taken over.

The key test remains whether or not an organised grouping (which has the principal purpose of the carrying out the relevant activities) has transferred. For transfers since 31 January 2014, the activities must also be 'fundamentally or essentially the same' after the purported transfer.

  • Employers involved in outsourcing or re-tendering exercises where activities are redistributed to a number of different contractors will usually attract the consequences of TUPE.
  • Incoming contractors may be able to avoid TUPE if the activities are so fragmented, particularly if the activities are split between different new contractors.
  • The more fragmented an activity is, and the greater the number of contractors post-transfer, the more likely it is that TUPE will be avoided by those incoming contractors.
  • Employers who provide services under a contract may lose the contract and then be unable to pass on their employees under TUPE – they might be left with employees who will need to be redeployed or made redundant.
  • Whether an employee is assigned to the activities after a service provision change will depend on establishing a link between the employee and the work performed, including the amount of time spent on the work. The terms of the employment contract showing what the employee could be required to do and how the cost of the employee's service has been allocated between the different parts of the business would also be relevant.
  • In the tendering process the potential transferee will need to consider if they will acquire the greater part of the activities to which the employees are assigned (this may be hard to determine).
  • Liabilities for employees cannot be divided between two or more transferees on a percentage basis.
  • When looking at the definition of service provision changes, activities must be 'fundamentally or essentially the same' after the purported transfer.

The short answer appears to be ‘yes’. Advertising agencies or firms of solicitors that take over a client from another firm following a tender process may be under an obligation to also take on the staff who were working on the client account with the previous company.

TUPE will apply in most straightforward cases involving outsourcing, re-tendering or insourcing.

However, in some situations there will not be a service provision change. It is clear there is a risk for employers in some outsourcing situations – if an employer loses a contract but TUPE does not apply, the employer may be left with the employees but no work for them to do.

The TUPE regulations specify that there is not a service provisions 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.

The TUPE regulations also make it clear that:

  • for there to be a service provision change there must also be an ‘organised grouping’ of employees, the principal purpose of which is carrying out the relevant activities on behalf of the client, and
  • a single employee can be an organised grouping of employees.

For transfers which take place from 31 January 2014, the activities must also be 'fundamentally or essentially the same' after the purported transfer (see 'How does TUPE affect service provision changes?').

Transferors are obliged to give the transferee written information about the employees who are to transfer and all the associated rights and obligations towards them:

  • The identity and age of the employees who will transfer.
  • Information contained in the employees’ written particulars of employment under section 1 of the Employment Rights Act 1996.
  • Information on any collective agreements affecting the employees that will apply after the transfer.
  • Details of any disciplinary or grievance proceedings taken by, or against, the transferring employees to which the Acas code of practice applies. (Before this date, the information supplied will include information about disciplinary and grievance proceedings within the last two years to which the statutory disciplinary and grievance procedures applied.)
  • Any claims brought by the employees against the transferor in the last two years.
  • Any claims that the transferor reasonably believes might be brought.
  • The written information to be given to employee representatives about the transfer includes certain details about temporary workers.

Failure to supply information

The information supplied must be no more than two weeks old, and the obligation is a continuing duty to provide changes in information as well. The transferee employer will have rights to compensation if the transferor provides incorrect information or fails to notify the information listed above. However, not all failures to supply detailed information will give rise to compensation. The remedy includes compensation paid by the transferor, based on any loss sustained by the transferee.

Agency workers

Employers must specify:

  • how many temporary agency workers the organisation has
  • which part of the organisation they work in
  • what type of work they are carrying out.

See also 'What are the obligations that arise under the Immigration, Asylum and Nationality Act 2006 following a TUPE transfer?'

Yes. It helps if that employee has been instructed by the employer to carry out all of the activities necessary to provide the services for the client.

TUPE appears to apply where the employer has deliberately set out to create a grouping of a single employee, rather than where it has arisen by accident or chance. In practice, it will often not be immediately obvious how the organised grouping has come about, so an employment tribunal will look very carefully at the particular facts before making a finding on this point.

Either the transferor or the transferee must inform the appropriate representatives of any affected employees of the fact the transfer is happening and:

  • approximately when it is happening
  • the reasons why it is happening
  • the legal, social and economic implications for the affected employees
  • the measures the employer intends to take in relation to those employees (if any)
  • if the employer is the transferor, the measures the transferee envisages taking in relation to those employees who are to be assigned on the transfer (if any).

Employers may be fined up to £20,000 per illegally employed worker unless they can prove that they checked the prospective worker’s right to work in the UK. If the employer knows that an employee is not permitted to work the fine is unlimited with a possible sentence of two years’ imprisonment.

Although TUPE provides that right to work checks carried out by the transferor (the old employer) are considered to have been carried out by the transferee (the buyer or new employer), the transferee employer should conduct its own checks.

Although the transferee employer ‘inherits’ any statutory excuse acquired by the transferor when they conducted their checks this cannot be safely relied upon.

We have published a factsheet on what employers need to know about the immigration law changes, and the government provides an Employer’s guide to right to work checks, which includes advice on TUPE. The Home Office has an employer’s helpline.

There is no specified time in which consultation has to take place. The only obligation to consult is where the transferor or transferee envisages it will take measures in relation to any of the affected employees. It must then consult with the appropriate representatives with a view to reaching agreement on the measures to be taken (see 'In a TUPE situation, what information should be given by the transferor and the transferee to the employees affected?').

The employees who are 'affected' by the transfer must be consulted.

There is no obligation to consult with the whole of the workforce or everyone in the workforce who might apply for a job in the part transferred in future.

With effect from 31 January 2014 any redundancy consultation which begins before the transfer takes place can count towards collective redundancy consultation (provided the transferor agrees). This consultation will then count towards the 30 (or 45) day collective redundancy consultation period (see 'Does collective consultation apply only in a redundancy situation?' in our Redundancy Q&As).

If an employer recognises an independent trade union, the appropriate representatives will be trade union representatives. In the event there is no recognition agreement, or any other elected consultation forum for consultation, an employer will be required to make arrangements for employees to elect representatives for consultative purposes.

Micro businesses (those with 10 or fewer employees) can inform and consult with employees directly where there is no trade union.

  • Where there is a failure to consult with or inform representatives of a trade union, the trade union may bring a complaint.
  • A complaint may be brought by any of the employee representatives if there is a failure to consult with or inform them.
  • Any affected employees may bring a complaint in any other situation.

TUPE 2006 protects employees:

  • who are assigned to the undertaking or the part of the undertaking that is being transferred and who are employed immediately before the moment of transfer, or
  • who would have been employed at the moment of transfer but for the fact that they were unfairly dismissed for a reason connected with the transfer and there was not an economic, technical or organisational (ETO) reason for such a dismissal (see 'What is the ETO defence under TUPE?').

Service provision changes and ‘organised grouping’

Understanding which employees are assigned to the part being transferred and are protected by TUPE can be difficult especially where a service is changing hands under TUPE. There must be an organised structured team dedicated to the provision of services for the employer’s client or customer.

Service provision changes

For TUPE to apply in the context of a service provision change, there must be an ‘organised grouping’ of employees whose principal purpose is carrying out the relevant activities on behalf of a client. Employees who are engaged in providing a service for an employer, where the service is subsequently transferred back in house or to a new incoming contractor, will only have their employment transferred under TUPE to the new service provider in certain circumstances.

Which employees are assigned to work on the services being transferred can cause many problems.

‘Principal purpose’

For employers to decide if a service provision change after considering whether there is an organised grouping, it is necessary to decide if the grouping had, as its ‘principal purpose’, the carrying out of the activities concerned on behalf of the client.

If the principal purpose involves activities which are not the subject of the service provision change, then TUPE may not apply. To decide this matter, the employment tribunal will look at the actual activities being carried out.

Points for employers

  • Employers must determine if there is an organised grouping of employees with the principal purpose of carrying out activities for the client.
  • Employers must consider whether the employee in question is assigned to that grouping.
  • Percentages of work undertaken can be a practical indicator of where the employee is assigned. The higher the percentage of work undertaken, the harder it is to argue that they are not assigned to that part of the undertaking. Other factors, such as the cost and value of the employee to each part of the business and any managerial responsibilities, are relevant too.

All rights and liabilities transfer, apart from criminal liability and some pension rights. Pensions are not governed by TUPE but by the Pensions Act 2004 (see 'Do occupational pensions transfer under TUPE?').

The safeguards for employees are covered by TUPE. The Act ensures that the employees are protected by assigning their contracts to the transferee. The date of commencement of employment for continuity of employment purposes will be preserved from the date of commencement of employment with the transferor. The transferee inherits all civil liabilities and obligations, including:

  • liability for personal injury claims against the transferor
  • liability for age, sex, sexual orientation, race, religion and disability discrimination claims against the transferor
  • liabilities for any breach of contract
  • all statutory rights and liabilities, for example unfair dismissal claims
  • an equivalent to profit shares of a cash payment or award of shares
  • unequal pay claims.

With respect to equal pay claims, it appears that the transferee can be liable for up to six years’ worth of unequal pay claims resulting from unequal pay practices adopted by the transferor. The equal pay claims relating to employment before the transfer will have to be brought within six months of the transfer. The transferee is liable for unequal pay during the employee’s employment with the transferor. To minimise exposure to such claims transferees must:

  • attempt to determine any inequalities in the pay levels of relevant employees before agreeing to the transfer
  • try to obtain indemnities and warranties from the transferor to cover equal pay claims
  • try to obtain the evidence necessary from the transferor to defend any claims should the need arise.

Transfer-related changes to terms and conditions of employment are void under TUPE. Employers can safely harmonise employment terms only if:

  • there is an economic, technical or organisational (ETO) reason (see 'What is the ETO defence under TUPE?')
  • the terms of the employment contract permit the employer to make such variations for transfers from 31 January 2014 onwards.

However, to show an ETO reason the employer must, at the same time, establish a change in the workforce (normally a workforce reduction). Measures designed only to harmonise the terms and conditions of employment will not be sufficient (see 'Is it legally possible to vary employees' contractual terms in a TUPE context?' and 'Can the new owner of an undertaking harmonise the terms and conditions of employment if the changes are to the benefit of the employees who have transferred?').

TUPE 2006 confirms that a change for an ETO reason can be valid, provided that the employees consent.

If the reason for the change to the terms and conditions is the transfer it will be void and unenforceable – even if the employees agree to the change. This difficulty often arises where the transferor wishes to dispose of an unprofitable undertaking. The transferee will take it on, but needs to rationalise to make it profitable. If the variation is due to the transfer and no other reason the changes will be invalid. If, however, there is an ETO reason for the changes the variations may not be solely due to the transfer.

The guidance produced by the Department for Business, Energy & Industrial Strategy gives some indication of when the reason for a change is transfer-connected and when it isn’t.

Example of a reason unconnected to the transfer

The ‘new’ employer (the transferee) needs to re-qualify staff to use the different machinery used by the transferee. The change is prompted by a knock-on effect of the transfer and is not solely a result of the transfer itself. The reason is not exclusively connected to the transfer and the change is therefore permissible.

Examples of transfer-related reasons

The ‘new’ employer (the transferee) wishes to make changes to harmonise terms with those of the transferee’s existing workforce, for example by reducing the remuneration packages of some employees. These changes are by reason of the transfer itself and are therefore void. (Such changes may not fall within the definition of an ETO reason anyway.)

The employer and employee may therefore agree a variation of the contract if the sole or principal reason for the variation is a reason connected with the transfer that is an ETO reason.

See also 'Is it legally possible to vary employees' contractual terms in a TUPE context?'

Any purported variation of the contract shall be void if the principal reason for the change is a TUPE transfer or a reason connected with the transfer (unless it is an ETO reason – see 'What is the ETO defence under TUPE?').

The TUPE regulations were designed to prevent employees being placed at a detriment, not to refuse employees the benefit of a more favourable term.

It appears that an employee can enforce changes, post transfer, which are to the benefit of the employee. However, any detrimental changes made following a transfer will be unenforceable. The guidance published by the Department for Business, Energy & Industrial Strategy states that:

  • the underlying purpose of the Regulations is to ensure that employees are not penalised when a transfer takes place and
  • changes to terms and conditions agreed by the parties which are entirely positive are not prevented by the Regulations.

The object of TUPE is to safeguard existing rights at the time of the transfer, not to improve the employee’s position retrospectively.

Employers who acquire new employees following a TUPE transfer may wish to harmonise the new employees' terms, even though some terms may not be beneficial.

Under TUPE, any purported variation of the contract is void. A variation to an employment contract will not be automatically void (even if the reason for the variation is the transfer itself) if the terms of that contract permit the employer to make such variation.

Despite the amendment to TUPE 2006 enabling variations if ‘the terms of that contract permit the employer to make such variation,’ it is difficult to see how this will provide greater flexibility for employers in practice. Straightforward post-transfer harmonisation is simply not possible without risk.

An employer aiming to harmonise terms after a TUPE transfer is therefore in difficulty as harmonisation of terms will be connected with the transfer and will not be an economic, technical or organisational (ETO) reason. Parties cannot contract out of TUPE, so even employees who agree to changes could later seek to rely on their previous terms.

TUPE prevents employers from making changes to terms in connection with the transfer unless those changes are ETO reasons entailing changes in the workforce.

  1. The simplest way to avoid TUPE is to structure the transaction differently. Selling a business by way of a share sale means that TUPE doesn’t apply as it does where assets and goodwill are sold.

  2. One option some employers use to harmonise terms is to dismiss employees, enter into compromise (or settlement) agreements with them to waive claims, and then re-engage them on new terms. This may be pursued only with the benefit of careful legal advice, as it exposes an employer to automatically unfair dismissal claims if any employees decide not to agree or to subsequently argue that the agreement is void. There is doubt as to whether such agreements are effective because they attempt to contract out of TUPE, but employees who have signed an agreement and accepted new terms are perhaps unlikely to challenge the position later. If there is a change as a result of the transfer that is a ‘material detriment’ to the employees they will be able to resign and claim unfair dismissal.

  3. The most direct way to change contractual terms is with the consent of the employee. Lump sum incentives can be offered in return for the employees agreeing to the less favourable terms. This can be highly risky.

  4. An employer can try to make agreed variations that are unconnected with the transfer. However, as discussed, any pure harmonisation is likely to be transfer related. In a service provision change situation where services are being put out to tender, changes may be made to avoid TUPE. If the nature of the service is so significantly changed that the same activities are not resumed by the next contractor, this may successfully avoid TUPE.

  5. Employers who wish to make changes could wait until a considerable period of time has passed since the transfer, or better still, until some non-transfer related event occurs which requires changes. However there is nothing in the legislation saying when the link between the variation and the transfer is no longer effective. The length of time will be difficult to gauge and, as each case depends on its own facts, there is little guidance from existing case law on the length of time which must elapse. The mere passage of time is not enough to ensure that the changes are not transfer related.

Yes. A change in the place of employment after a TUPE transfer is a justifiable reason for dismissal. This means that employers can rely on the relocation of roles as an economic, technical or organisational reason that entails changes in the workforce. The notice of dismissal (or, if no notice is given, the effective date of termination) must be on or after 31 January 2014, as TUPE 2006 was amended from that date.

Any dismissal will have to be handled fairly, following all the usual procedures.

Employers should still protect themselves by including warranties and indemnities in contractual negotiations with the transferor against any claims made by employees.

The essential point is that dismissals as a result of the transfer may be automatically unfair. However, where there is an economic, technical or organisational (ETO) reason the dismissals may be fair (see 'What is the ETO defence under TUPE?').

TUPE 2006 sets out three different categories of dismissal:

  1. Dismissals for which the sole or principal reason is the transfer itself and is not an ETO reason – these dismissals remain automatically unfair under the unfair dismissal legislation.

  2. Dismissals for which the sole or principal reason is not the transfer itself, that is an ETO reason – these dismissals are potentially fair, subject to the normal test of reasonableness under the unfair dismissal legislation.

  3. Dismissals for which the sole or principal reason is unconnected with the transfer – these fall outside TUPE as they are unrelated to a relevant transfer and the usual unfair dismissal principles will apply. This is the case even though the dismissals may be made around the time of such a transfer.

Employees must still have one year's service to bring a claim under TUPE 2006 (or two years for employees starting employment on or after 6 April 2012) unless they can argue unfair dismissal for asserting their statutory rights (Unfair dismissal Q&As).

No, the transferor is exposed if it dismisses employees in anticipation of a TUPE transfer and then seeks to justify the dismissals by relying on the transferee’s ETO reasons (see 'What is the ETO defence under TUPE?').

  • Employees who were dismissed before a business transfer will normally sue both the new and former owners.
  • Transferors should not make pre-transfer dismissals in reliance on the transferee's post-transfer ETO reason, unless the transferee agrees to indemnify the transferor against any liability.
  • Transferees may make such dismissals post-transfer if a valid ETO reason exists.
  • Transferees must, however, follow the statutory dismissal procedure in full and a fair overall procedure, which will often entail pooling the transferred employees with their own existing workforce before selecting the redundant employees.

Technically, they do not.

TUPE expressly says that contractual provisions relating to old age, invalidity or death benefits in connection with an occupational pension scheme do not transfer. Other regulations protect employees following a TUPE transfer.

Although pension rights do not transfer under TUPE, a right to some early retirement benefits does transfer. Any rights which fall outside the benefits classed as 'old age, invalidity or survivors' may transfer under TUPE. This applies to benefits that are paid on dismissal, such as the right to be considered for early retirement on reaching age 55.

Department for Business, Energy & Industrial Strategy guidance, which covers TUPE 2006, provides information on pensions.

Brexit

The only changes that are possible until March 2019 are those where the current TUPE regulations go beyond what is required by EU law. The government can prune TUPE, but only back to what the Acquired Rights Directive says.

Further changes may be possible once the UK leaves the EU. For example, the government has wanted employers to be able to make changes to employees’ terms and conditions more easily after a transfer. This may be implemented following the severance of links with the EU.

Other previously proposed attempts to change TUPE which may be revisited now that Article 50 has been triggered include repealing the service provision change rules, or increasing the scope of ETO reasons enabling the dismissal of employees before a transfer.

A transferor still cannot rely upon the transferee’s ETO reasons to dismiss an employee prior to a transfer.

For more information on what Brexit may mean for employment law, read the blog post by our Public Policy Advisor (Employer Relations) and visit our Brexit resource hub.

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