TUPE: what is it?

What does TUPE mean?

It is an acronym of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).

It is primarily concerned with protecting the employment of employees when there is a change in the identity of their employer due to a transfer.

Why do we have TUPE laws?

TUPE implemented EU laws designed to protect employees whose contracts of employment are in effect transferred to a new employer.

Prior to TUPE where the identity of the employer changed, the employees affected had no particular protection and were often just made redundant.

TUPE preserves most of the rights of the employee, and duties of the employer, as they were under the contract with the original employer.

If it has come from European law, will the UK remove it?

TUPE is unlikely to disappear altogether and in fact, there are some TUPE provisions (such as in respect of service provision changes) that do not originate from the EU. It may be that the Government look to ease some TUPE burdens, such as in respect of harmonising terms and conditions after TUPE has occurred, but as yet, there is no indication this will happen anytime soon.

In simple language, when does TUPE apply?

TUPE will apply whenever there is a ‘relevant transfer’. In simple terms, there are two types of TUPE transfer:

• Where there is an economic entity, that entity transfers, and it retains its identity. This is known as a business transfer and commonly occurs when a business is sold.
• A service provision change (referred to as an ‘SPC’). This concept was introduced in 2006 and is where particular work is reassigned. For example, a company decides to outsource their finance function to a third-party company. There are usually three types of SPC:
  • a company outsources work to a third party (outsourcing);
  • a company changes the provider of work which is already outsourced (contractor to contractor or sometimes called second generation contracting out);
  • a company decides to bring work inhouse which was previously outsourced (insourcing).

What does TUPE mean by the terms ‘transferor’ and ‘transferee’?

Transferor means the seller (in a business transfer) or the client or outgoing contractor (in an SPC).

Transferee means the buyer (in a business transfer) or an incoming contractor or client (in an SPC).

How do I know if there is a business transfer due to happen/ has happened?

• Firstly, is there is an economic entity? TUPE defines this as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”. It must be more than a collection of assets.
• Secondly, has there been a transfer? i.e., has there been a sale/ change in ownership?
• Thirdly, has that economic entity retained its identity after a transfer? This involves assessing if the transferee continues or resumes the economic activities in question. A number of factors may be relevant in determining this issue such as:
  • the type of business or undertaking;
  • whether tangible assets transfer such as buildings and stock;
  • the value of intangible assets at the time of the transfer;
  • whether the majority of the undertaking’s employees are taken over by the new employer;
  • whether or not customers are transferred;
  • the degree of similarity between the activities carried on before and after the transfer;
  • the period, if any, for which those activities were either interrupted or suspended.

Although any of the above factors may be engaged, the importance afforded to it will depend upon the particular situation. If the above three points apply, TUPE will most likely apply.

How do I know if there is a SPC due to happen/ has happened?

• Firstly, consider if one of the three situations set out above applies (outsourcing, contractor to contractor or insourcing).
• Secondly, the following must apply:
  • immediately before the SPC, there must be an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned on behalf of the client;
  • the activities must be fundamentally the same as the activities carried out by the person who has ceased to carry them out;
  • the client must be the same, namely if the contract is to provide Company X with security, if the contract is outsourced, Company X must remain as the client.

It doesn’t apply where a contract is for the supply of goods or where the activities are for a specific event or short-term task (such as security for the Commonwealth Games).

We will consider the specific issues relating to SPCs in more detail over the next few weeks.

If TUPE applies, what does this actually mean?

The employment contracts (with exception of some pension provisions) of those employees to whom TUPE applies will automatically transfer from the transferor (original employer) to the transferee (new employer).

All of the original employer’s rights, powers, duties and liabilities under or in connection with the transferring employees’ contracts pass to the new employer and any acts or omissions of the original employer before the transfer are treated as having been carried out by the new employer.

It does not apply to any employee who objects to the transfer which we will explore more in subsequent articles.