Transfer of undertakings: short explanation of the law
The law, the Transfer of Undertakings (Protection of Employment) Regulations, is based on a positive principle that flexibility for business should be coupled with fairness for employees.
The regulations protect employees' rights on the transfer of a business or undertaking, or part of one, to a new owner or organisation. In effect the new employer stands in the shoes of the old employer and the employees maintain continuous employment for the purpose of all statutory employment rights.
Employees and their representatives must be consulted about the changes that will take place. It is vital that consultation takes place between the employees, their representatives, their old employer and their new employer to ensure that all parties fully understand the details of the transfer and how it will affect them.
The regulations apply in any of the following business transfer situations:
when a business unit is sold as a going concern to another business
where two or more businesses stop trading and form a new business together
when a contract to provide goods or services is transferred
It doesn’t matter how large or small the organisation, how many employees are affected, or what is the legal structure of the business.
A transfer may also take place as a result of a series of transactions. However, the business must retain its identity.
The TUPE regulations do not apply in the following instances:
on the takeover of a company by share purchase – the shares transfer to the new shareholders, but the business remains within the company structure
when a business transfers assets only, such as on the sale of equipment
when a business transfers a contract to provide goods or services that doesn't involve the transfer of a business or part of a business
when the transfers is situated outside the UK - although similar provisions apply in the EU
when a business changes identity
What the regulations state
All employees pass between employers with the same terms and conditions of employment as in their contract with the original employer. The new employer may not worsen the terms and conditions of employment of any transferred employee.
Exceptions are for criminal liabilities, and rights and obligations relating to provisions about benefits for old age, invalidity or survivors in employees' occupational pension schemes.
The new employer cannot choose which employees to employ – all must be transferred.
The new employer takes over any collective agreements made on behalf of the employees and in force immediately before the transfer. This includes union memberships and pension schemes.
Neither the transferor nor the transferee can dismiss any employees as a result of the transfer unless there is an economic, technical or organisational reason necessitating changes to the workforce.
This simply means that any employees no longer required will need to be selected fairly for redundancy, and the correct procedures followed.
For the new employer, dismissal could mean a liability to pay redundancy payments - not an ideal situation for all concerned.
The transferor will need to consult all employees being transferred or their representatives. The following information must be provided:
that a transfer is going to take place, and why and when
the legal, economic and social implications of the transfer for the affected employees
whether the new employer will take any action (reorganisation for example) in connection with the transfer which will affect the employees, and if so, what
the name of the new employer
The new employer must give the previous employer the necessary information so that the previous employer is able to meet this requirement. The information must be provided long enough before the transfer to give adequate time for consultation.
All employees who will be affected by the transfer must be informed. If they are represented by a trade union, a representative from the union should inform them. However, if they have no union representative, a representative position will be created and that person will be told the details. This person will then inform affected employees.
Common problems associated with transfers
Because transfers can be and are often complex it is vital to seek legal advice as soon as possible. The following are common problems associated with transfers:
the transferor not providing sufficient details of who is being transferred along with the numbers of employees being transferred
the transferee not thoroughly checking who is being transferred along with the numbers of employees being transferred. It is important to identify, for example, if there are any employees on long-term sick leave
Transferors wanting to get rid of certain employees but not telling the transferee that they are transferring those employees. This is a common situation when cleaning contracts for shopping centres are being transferred to a new cleaning company.
In essence, most problems that are encountered by both the transferor and the transferee involve a lack of communication between all parties involved in the transfer.
An employee claiming to have been unfairly dismissed because of a transfer has the right to complain to an employment tribunal.
Transferred employees who find that there has been a fundamental change for the worse in their terms and conditions of employment as a result of the transfer generally have the right to terminate their contract and claim unfair dismissal before an employment tribunal.
Their period of employment is not broken by a transfer.
The only conditions that change are that the previous employer's rights and obligations relating to benefits for old age, invalidity or survivors under any employees' occupational pension schemes are not transferred. The new employer must provide similar terms, including pensions. If not, the employee has a case for unfair dismissal.
Occupational pension rights earned up to the time of the transfer are protected by social security legislation and pension trust arrangements.
Transferring employees from one business to another, affects morale. The result is often discontentment, not just in those transferred but also in staff left behind in the old business and workmates they join in the new business. You should be especially careful to emphasise the positive benefits of the sale or purchase and try to show how the prospects for all will be improved by the changes.
Complaints to an employment tribunal
An employee who has been dismissed or who has resigned in circumstances in which they consider they were entitled to resign because of the consequences of the transfer may claim in an employment tribunal. An employee must complain within three months of the date when their employment ended.
It may be unclear whether claims should be made against the previous employer or the new employer. In such cases, employees should consider whether to claim against both.
An employee who wishes to claim a redundancy payment should make an application within six months of the dismissal.
Employers’ liability compulsory insurance
Liabilities automatically pass from the transferor to the transferee in a TUPE transfer, as does insurance. Where there is a transfer from public sector to private sector, public sector employers are generally exempted from the requirement to affect insurance cover and, other than in exceptional cases where they have insured themselves on a voluntary basis, there is no cover to transfer.
Occupational pension rights earned up to the sale are protected by social security law and pension trust arrangements. The new employer is required to offer pension provision to transferred employees on transfer. This applies where the employees had access to an occupational pension scheme with an employer contribution before the transfer.
As an employer, you can opt to provide an occupational pension scheme or a stakeholder pension scheme. If you choose a stakeholder or a defined contribution scheme, you will have to match the employee's contributions up to 6 per cent. This can be increased if both parties agree.
If you don't take control over the previous business' shares, you won't be able to provide such shares to your staff. If the previous employer had share or share option schemes, you must provide schemes of substantial equivalence.
The easiest way to make sure that you comply with the law and tell your employees what is required is to use template letters. Net Lawman provides these here.
Agreements for selling a business are also available, and can be found here.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.