4/11/2011

By Maeve Vickery, Head of Employment Law at Pardoes

Although the Transfer of Undertakings (Protection of Employment) Regulations 2006, known as TUPE, may be one of the most complex pieces of legislation on the statute book, this should not mean that they need to be approached with trepidation by businesses.

Below is a summary of the key points all businesses need to be aware of when contemplating a sale, purchase or service provision change that comes under TUPE.

Employees will automatically transfer to the new employer on the same terms and conditions and related contractual rights. The majority of the liabilities in relation to these will also pass across to the new employer, so it is important that indemnities are included in any sale and purchase or similar agreement to reflect how these risks have been apportioned by agreement between the parties.

Dismissal of staff for a reason connected with a transfer is automatically unfair —
as long as the individual has had one year’s continuous service — unless the dismissal is for an economic, technical or organisational (ETO) reason connected with a change in the workforce in terms of numbers or skills. The most common scenario for an ETO reason is when there is a duplication of skills leading to redundancies.

Changing terms and conditions for a reason connected with the transfer is also prohibited and any such changes will be deemed void by the Courts, unless these are for an ETO reason.

Employers need to consult with the staff affected by the transfer and not just those that are transferring. They need to provide certain information in writing to staff representatives and consult with staff on any proposed ‘measures’ as a result of the transfer, such as potential redundancies.
Note that this is a collective consultation exercise — this means that if staff do not have elected representatives, they must be given the opportunity to go through this exercise. If they choose not to, then the notification and consultation can be carried out individually.

The new employer is obliged to advise the old employer of any ‘measures’ they are proposing in relation to transferring staff, so as to enable the old employer to consult with their staff properly. There is no obligation on either employer to consult with the other employer’s staff, they only have to consult with their own. However, it is often sensible for both the old employer and the new employer to get together and draw up a communication and consultation strategy jointly, as, in practice, TUPE transfers go smoothly when people are kept informed about what is likely to happen to them and when they understand why.

Failure to consult in good time before the transfer can result in an award of 13 weeks pay per individual affected, not just those transferring, but to all staff affected, so this can give rise to a sizeable liability. Consultation is a critical part of the exercise and it is important to consult properly to avoid liability, as well as to ensure the process is accepted by the affected staff.

The old employer also has to provide specific Employee Liability Information to the new employer. This will be part of what is normally acquired during any due diligence process in relation to a sale and purchase. Under TUPE this needs to be provided at least 14 days before the transfer or as soon as possible after that. The new employer potentially has a claim against the old employer for failure to do so, although in practice this arises rarely.

Failure to consult now carries joint and several liability, which means that either the old or the new employer can be liable, depending who is at fault. If the new employer fails to give information on measures to the old employer, so that the old employer is unable to consult properly, the liability will fall on the new employer.

Once the employees have come over into the business then the relevant process needs to be carried out, if ETO redundancies need to be made. If 20 or more dismissals are proposed, different collective consultation regulations come into effect under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA). The sanction for failure to consult under this particular piece of legislation is up to 90 days pay per person, so this is something that all employers who are embarking on a relatively large TUPE exercise must be aware of.
Once the employees are settled in the new workplace it is likely that they will have different terms and conditions and then there will be a question of how these can be aligned. Harmonisation is not permissible, whereas changes in terms and conditions for ETO reasons, or for reasons unrelated to the transfer which would have happened anyway — for example, a business re-organisation or restructure at some point after the transfer — are.

There is no absolute rule as to how long is long enough for changes to be unrelated to the transfer. In practice, individuals may be prepared to agree to terms that they consider more favourable, but an employer must be careful to make it clear in any new contract that if any employee then decides they wish to return to any of their old terms, which they would be entitled to under TUPE, they then have to give up all the new terms otherwise employees would be able to cherry pick the more favourable terms from either contract.

Undertaking a TUPE transfer may appear hazardous, but as long as businesses are aware of their obligations, plan properly and develop a good communication strategy at the outset — a smooth transfer can be achieved.


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