TUPE 2006

by John Morris

New Transfer of Undertakings (Protection of Employment) Regulations (known as TUPE) became law on 6th April 2006. These new Regulations will affect all business transfers, as well as changes in service provision.

The 2006 Regulations apply whenever there is a “relevant transfer”: e.g. when a business or undertaking, or part of one, is transferred to a new employer or where there is a change of the provider of a service. 

The broad effect of the Regulations is that when a relevant transfer takes place the contracts of employment of any person assigned to the transferring business will be transferred to the new employer.  The employee’s position will be as if his or her contract of employment had originally been made with the new employer: the terms and conditions of employment will be the same (except for certain occupational pension rights) and continuity of employment will be preserved.  In these circumstances, it is not necessary to issue new contracts of employment to employees who have transferred.  The change of employer is no more than an amendment to the existing contracts, which should be notified to the employees.

The main changes in the law are:

* Clarification that “service provision changes” (i.e. first and subsequent generation contracting-out and contracting-in) are covered by TUPE when there is an organised grouping of employees whose principal purpose is to carry out the contracted-out activities.

For instance, fictitious firm, Superservice has a three year contract to service and repair all the photocopiers belonging to the national chain, Townagents. Forty employees work exclusively on the service and repair of Townagents’ copiers. At the end of the three year period, Townagents award their contract instead to ExtraService. Those forty employees would be protected by TUPE as the service provision changed from Superservice to ExtraService: they would become employees of ExtraService.

Attempts to vary the contracts of employment of the transferring employees are void unless the principal reason for the variation is an “economic, technical or organisational reason entailing changes in the workforce” (an ‘ETO reason’); or the transferor is insolvent and variations are agreed with appropriate employee representatives like a Trade Union. Thus, a change to an employee’s hourly rate of pay to fit in with the new employer’s existing employees would not normally be allowed.

If the employer can show that the sole or principal reason for the change is a reason unconnected with the transfer or, if connected with the transfer, is an ETO reason, the contracts of employment can be varied.

* The transferor is obliged to provide “employee liability information” to the transferee at least a fortnight before the transfer. This will include information about the age and identity of employees; statements of their terms and conditions of employment; any disciplinary proceedings or grievances (excluding in respect of warnings) in the last 2 years; any court or Tribunal cases in the last 2 years or any court or Tribunal cases which the transferor has reasonable grounds to think that the employee might bring; any collective agreement which will have effect after the transfer.

If the transferor fails to provide this information accurately to the transferee, an Employment Tribunal can order the transferor to pay compensation to the transferee of a minimum of £500 per transferring employee. At this level, compensation costs can quickly mount for the transferor so it is essential that any information prepared for a transferee is accurate, full and up to date.

* Both the transferor and the transferee will have joint liability for failing to inform and consult with appropriate representatives.

Both employers (the transferor and transferee) will usually have a duty to provide specified information about the transfer to representatives of their employees who are affected by the transfer.

The related employers’ duty to consult with the representatives only arises if measures will be taken (like changes to place of work) in connection with the transfer. If no such measures are to be taken, the obligation is merely to inform. Although the transferor may not intend to take such measures, it is almost inevitable that measures will be taken by the transferee and, as such, the duty to consult will usually arise.

The consultation process is similar to that laid down in respect of large scale redundancies. The employer is obliged:

o to consider any representations made by the employee representatives, and

o to reply to those representation , and if it rejects any of those representations,

o to state the reasons for the rejection.

* Some liabilities of insolvent companies are not transferred to the transferee.

These will be met instead by Government funds. Such liabilities include statutory redundancy pay, up to eight weeks’ arrears of pay, notice pay based on the statutory minimum notice period, outstanding accrued holiday pay and basic awards for unfair dismissal. In calculating many of these payments, a week’s pay is “capped”, presently at £290. Amounts owed over and above the statutory sums will pass to the transferee as normal as will other debts owed by the insolvent transferor to relevant employees.

While most of the Regulations do no more than codify developments arising from the Courts and Tribunals following the 1981 Regulations, there is also some new law and clarifications of the existing law. If you are buying or selling a business or are taking over a service contract, it’s certainly worth taking advice on TUPE from Burnetts Employment team on 01228 5522222.

John Morris is head of Employment Team and Burnetts’ Senior Partner. He was part of Law Society’s Employment Law Committee which advised the Government on this new legislation. He has written a guidance document on the new Regulations - TUPE Regulations 2006. Key Issues is available at a cost of £150 plus VAT.

June 2006