‘TUPE first came into UK law decades ago through a European directive. TUPE is renowned for being tricky and often onerous. It was expected to be a prime target for change by the previous government following Brexit. But other than a small change to consultation obligations, the regulations are unchanged and remain an expensive trap for the unwary. The current government announced in October 2024 that it would launch a call for evidence on TUPE,’ according to Frances Woods, Partner and Head of Employment Law with QualitySolicitors Parkinson Wright. ‘If you miss a TUPE transfer you can end up taking on unexpected employee liabilities, liability to pay damages for failure to inform and consult, and even end up with unwanted and unexpected staff turning up for work.’
Frances looks at when TUPE will apply and some examples, and firstly emphasises why employers need to know about TUPE.
Why do we need to know about TUPE?
If TUPE applies, the employees gain a range of important rights and protections. These affect both the outgoing employer (called the transferor) and the incoming employer (called the transferee) and include:
- the transferee inherits employees from the transferor, including most employee liabilities relating to those employees, such as ongoing discrimination liabilities;
- the transferring employees transfer on their existing terms and conditions (with a few exceptions) and the new employer is significantly restricted from making changes to their contracts, even if this means they are on more generous terms than their existing staff;
- in the lead-up to the transfer, both employers have to share specific information with each other at particular times;
- obligations to inform and consult with staff, usually through representatives; and
- other than in limited circumstances, if an employee is dismissed; whether before, on, or after the transfer, and the sole or principal reason is the transfer, this is automatically unfair. Liability will usually pass to the transferee.
Compensation just for failure to inform and consult can be up to 13 weeks’ gross pay for each affected employee. Failure to take on employees who are transferring under TUPE can result in unfair dismissal claims. Specific provisions also apply where the business is insolvent.
When does TUPE apply to undertakings: sale of a business or assets?
This is a complex area of law and many factors will be at play to determine if TUPE applies. We always recommend seeking specialist advice if you think TUPE could apply. In broad terms, TUPE applies where there is a change in the legal identity of the employer for whole or part of an ongoing business (or ‘undertaking’). It does not apply just on the sale of shares.
Employment tribunals look at a number of factors to decide if there has been the ‘transfer of an economic entity which retains its identity’. The different weight attached to the factors will depend on the nature of the business. The factors include:
- if physical or tangible assets (such as buildings and equipment) are transferred and the importance of those to the business;
- if intangible assets, such as a supplier database, customer database or intellectual property are transferred;
- if any staff transfer or similar staff are needed;
- how similar the activities are before the transfer to those carried out after; and
- if the activities of the business were suspended for any time.
Examples of TUPE transfers of undertakings
Whether or not TUPE applies will depend on the individual facts and tribunals will closely analyse the situation against a number of factors. By way of example, TUPE can apply in the following circumstances:
- sale of freehold or leasehold property – where the building is a serviced office block and will continue to operate as such after the sale;
- assignment of a commercial property lease – a tenant runs a restaurant at leased premises and a new tenant takes on the property at the end of the lease and also runs a restaurant from the premises. A temporary closure to allow the new owner to apply for a licence or to allow for a refit, would not necessarily prevent TUPE applying;
- an example from European case law – an airline company took over the charter flight contracts of a wound-up airline company and also developed a charter flight business on the routes the wound-up company served. It took on some of the leasing contracts for four planes, took on office equipment and employed staff who had been on secondment with the wound-up company; and
- when different parts of a business are divided up and taken on by new organisations.
When does TUPE apply for a change in service provider?
TUPE can apply in the following three scenarios in relation to a contract for the supply of services:
- outsourcing of a service from a client to a contractor;
- change from one contractor to another contractor; and
- insourcing, bringing the contract back in-house.
One-off or short-term contracts are unlikely to result in a TUPE transfer, for example security for a one-off event. Buying goods, rather than services is unlikely to be a TUPE transfer. Other conditions have to be met, including:
- there must be ‘an organised grouping of employees’ who are carrying out the work for the client. This can be just one employee; and
- the activities carried out before and after the transfer must be fundamentally the same, although they need not be identical.
If the work being carried out is split up and divided up between different providers, TUPE may still apply. The fragmentation of the activities between several contractors may mean that the activities can no longer be said to be the same. However, it has been found in cases that it is possible for an employee’s contract of employment to be split between more than one provider.
Examples of when TUPE did and did not apply in change in service provider
As with the transfers of undertakings, tribunals analyse the situation to make decisions based on the specific individual facts, as these examples from case law show.
TUPE did not apply where:
- a new contractor changed a catering service from hot food in a canteen to pre-prepared cold food from a kiosk;
- IT services to schools became fragmented at the end of the contract, with the new contractor initially taking on fewer than half the schools and five other contractors picking up the IT work for the remaining schools;
- vulnerable adults moved from a residential care home operated by an NHS trust to supported living in their own homes. The new care arrangements were run by private sector providers and were sufficiently different to the NHS service so as to prevent TUPE applying to the care workers.
TUPE did apply where:
- a property manager was allocated to managing a portfolio of properties in the Netherlands for a client and as such was a ‘one person department,’ and the management of the property portfolio moved to a subsidiary;
- a change in haulage company delivering a manufacturer’s products, where the outgoing contractor had its own fleet of vehicles and directly employed the drivers, but the incoming contractor did not own the vehicles or directly employed drivers. Instead, it acted as a middle man by putting each delivery out to tender to haulage companies who then did the deliveries; and
- a change in contractor providing accommodation and administrative services for service users involved a change in location and a change in the length of stay from up to four weeks to only one or two nights.
How we can help
The above examples demonstrate how complex TUPE can be. We can help you identify a possible transfer as early as possible. This should give you time to comply with your legal obligations, take the impact of TUPE into account for timescales and workforce planning and open up a window to negotiate protection for your business. Where necessary, we will work with our colleagues in other teams on due diligence and contract or lease negotiations.
For further information, please contact Frances Woods or a member of the employment team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.