What is TUPE? When it applies and the rights it gives
What does TUPE stand for? The definition
The acronym TUPE refers to Transfer of Undertakings (Protection of Employment) regulations.
What does TUPE mean?
TUPE regulations were first passed in 1981, and have since been amended in 2006 and 2014, to protect and safeguard employees’ rights if the business which employs them changes hands.
Under the original common law position, the relationship between employer and employee is personal and set out or defined in the contract of employment. Were that business to change hands or ownership, the strict common law position would mean the end of the original employer-employee relationship. This would mean that the employee’s contractual rights would terminate with the change of ownership.
In contrast, TUPE regulations exist to protect the contractual employment rights of the employee, where the business is sold or transferred as part of a going concern. This means that an employee cannot be dismissed, or their contract terminated or varied, by sole reason of the transfer or sale of the business.
The TUPE regulations provide the framework under which the employee’s rights are protected.
What employee rights does TUPE protect?
The TUPE transfer means that the new employer effectively steps exactly into the shoes of the old employer, so the original contract of employment stands exactly as it did before the transfer. This means that annual salary, holiday entitlements, pension arrangements, hours and place of work etc. stay exactly as they were before the transfer. It is ‘business as normal’ for the employee.
This is not to say that an employee’s conditions of employment cannot be varied before or after the transfer. They can, but they cannot be varied (specifically, worsened) solely because of the transfer. Employment conditions can only change, or dismissals be made, for what are called Economic, Technical or Organisational (ETO) reasons, which require changes being made to the workforce, but not solely because of the transfer.
As defined on the government’s website:
- ‘Economic’ reasons are to do with how the company is performing.
- ‘Technical’ reasons are to do with the equipment or processes the company uses.
- ‘Organisational’ reasons are to do with the structure of the company.
If an employee is made redundant after a TUPE transfer has applied, due to ETO reasons, the employee’s redundancy and notice entitlements, along with any unpaid wages or holiday days would pass to the new employer.
On the other hand, if the employee was to choose not to work for the new employer, the employee does have the right to refuse to continue the contract. If this were the case, the contract of employment would simply end with the transfer. In such cases, the employee would unlikely to be entitled to any redundancy or notice payments.
When does TUPE apply?
The conditions in which TUPE transfers apply are many. Alongside business sales, TUPE transfers can apply to:
- the granting of franchises or leases,
- the movement of companies in a group
- ‘contracting out’ cases
- There are also specific conditions for ‘service provision changes’, when the rights of employees who can be clearly identified as providing a service being transferred, will be protected when the service provider changes
What is key is that a ‘relevant transfer’ has taken place. A relevant transfer is the ‘transfer of an economic entity which retains its identity’ after a transfer has taken place.
There are certain insolvency exceptions which prevent TUPE from applying even when the other conditions for a relevant transfer have taken place. We look at these in more detail here.
What are the conditions of a TUPE transfer?
Before a transfer happens, the employer must consult with the employees, trade union or via an employee representative to tell the employees that the transfer is happening, when and why. There can be a penalty for employers found not to have consulted and appropriately informed their employees.
How to determine when a relevant transfer has taken place:
Have any tangible assets been transferred?
Have any intangible assets been transferred?
Have the majority of employees been taken on by the new employer?
Have any or all customers been transferred?
Is there a degree of similarity between the activities carried on before and after the transfer?
Does TUPE apply in the ‘gig economy’?
In March 2017, Boxer v Excel was heard in court. The case decided that a courier who had previously been classed as self-employed was in fact employed and due contractual entitlements as if he was an employee.
Off the back of this win, a further case has been commenced by the courier in question, in which he claims that under TUPE he is owed accrued entitlements from City Sprint who purchased Excel.
The case has yet to be heard, but many business owners, investors, and the workers involved in the ‘gig economy’ are eagerly waiting to find out whether TUPE does or doesn’t apply.
The court’s decision will potentially change business valuations, their future interactions with workers, and may even provide a welcome windfall to those ‘employees’ on the sharp end of this fast changing business model.
When does TUPE not apply?
TUPE regulation 8 allows an insolvency exception for when TUPE doesn’t apply even when there has been a relevant transfer.
TUPE nearly always applies when then has been a relevant sale by an Administrator, however, whether TUPE applies or not when a company is liquidated comes down to timing.
In short, there might not be a TUPE transfer of employees if a relevant transfer of assets is made after a company enters liquidation ie. sold by the liquidator. However, if the company sells its assets to another company before entering liquidation, then TUPE may apply.
If I’m liquidating my company, does TUPE really matter?
TUPE implications should be considered if you are purchasing the assets of the insolvent company.
If you get the timings wrong or use the wrong insolvency route, your business could be liable for all historic employee liabilities, so it’s important to get it right.
What should I do about TUPE?
Contact Business Rescue Expert! TUPE is a minefield, and if you get it wrong, it can substantially increase the costs of an insolvency sale.
We are able to advise on TUPE in all insolvency scenarios and can make sure you get the best outcome from your business transfer.