The Perils of TUPE

What is TUPE?

It is the much needed acronym for 'The Transfer of Undertakings (Protection of Employment) Regulations 2006'. These rules are of crucial importance when ownership of a business is transferred. The rules apply not only in the clear circumstances of a sale of a business, but also in all kinds of less obvious circumstances where an 'undertaking' changes hands even where there is no obvious sale.

So what do the rules say?

When a business changes hands all the employees, together with all their contracts of employment, transfer automatically to the new owner. This means that the new owners of the business not only inherit all the staff, but also the terms and conditions in their contracts of employment. The new owner cannot impose their own contractual terms on the workforce. Consequently their pay and conditions must remain the same. Also their start date for their employment stays the same, i.e. when computing years service, you go back to the commencement of their original employment.

Consultation

There are also a number of other obligations placed on the new owners of the business. The new owners and the old owners are both required to consult with the workforce prior to the transfer taking place. This is not widely known. Failure to comply with the duty to consult the workforce can prove extremely expensive because if there is a failure to consult, the employees can make an application to the Employment Tribunal in relation to the failure to consult and this can lead to protective awards being made of up to 90 days pay for each of the employees affected. This can add up to a substantial figure.

Once a transfer has taken place, if the new owner dismisses any of their employees for a TUPE related reason, i.e. for a reason directly relating to the transfer, then that is deemed to be an automatically unfair dismissal. There have been cases where a dismissal taking place up to 5 years after a transfer of undertaking has been held to be still related to that transfer and thus automatically unfair.

The TUPE rules apply to any transfer of a business and this can be anything from the modest acquisition of a paper shop to the purchase of a large factory. Unfortunately the impact of the TUPE rules is often forgotten about or not considered when a business transfer takes place. This can cause substantial difficulties after the transfer has taken place.

Change of Service Provider

The TUPE rules do not just apply to a straight forward sale and purchase of a business, they also apply in any case where an ‘undertaking’ is transferred. A good example of this relates to what is known as a change of service provider. This is when a Company decides to change the provider of a service such as cleaning or security. In many cases where this is a labour intensive service, the TUPE rules apply as between the old contractor and the new contractor. This means that the new contractor can be forced to take on the workers who were working for the previous contractor. An example of this is where a business employs a contractor to carry out office cleaning services for it. It then decides to change contractor. In most cases this will be considered to be a TUPE transfer and consequently the personnel who actually carry out the cleaning will have their contracts of employment transferred to the successful applicant for the contract.

This can lead to the absurd position of an organisation dismissing their contractor because of the poor service they receive and because of the poor quality of the personnel carrying out the work. They appoint a new contractor to carry out the work and find that the same staff are still working on the contract due to the TUPE rules.

Because such a TUPE transfer often occurs between two competitors where there is no love lost between them, there are sometimes attempts at sharp practice on the handover of the contract such as the original contractor ‘dumping’ some of his problem employees on the new contractor.

Buyer Beware

It is important to note that because all the employee’s rights transfer to the person who has acquired the business, the liability for any mistakes on a TUPE transfer will nearly always fall on the new owner not the old owner. This really is a case of Buyer Beware.

The one major exception to the operation of the TUPE rules is where a Company goes bust. If a Company goes into liquidation and subsequently the business which it carried on is taken up by a new Company, then the new Company does not have to take on the workforce of the insolvent Company on the same terms and conditions. This was a change introduced by the 2006 rules as prior to that date the rules did apply in this situation. The rules were changed in order to encourage the rescuing of defunct businesses.

Unfortunately this has led to the practice of what are known as ‘pre pack’ administrations. This is where a floundering business lines up a buyer and then goes into administration. The assets are then quickly transferred to the buyer often for a low price. The new Company then carries on, often in the same premises, but is able to discard the old workforce who become redundant.

Take Advice

I have only described the bare bones of the TUPE rules in this article. The rules are complicated and if not adhered to, can cause great difficulty and expense to a Company who is acquiring another. It is important when considering the acquisition of a business, or when tendering for a service contract, that you factor in the possible expenses and problems that may be caused by TUPE. Some of the harsher aspects of the TUPE rules can be mitigated by a carefully worded contract with the seller of the business. Therefore if you are at any time acquiring a business, or bidding for a service contract, you do need advice from a specialist employment solicitor. Taking timely advice will mean that mistakes are not made that can often lead to costly and time consuming claims being made against you.