By Jamie Johnson
What is TUPE?
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) impose obligations on acquiring firms with respect to the employees that they acquire. Due to TUPE, firms who are seeking to purchase another firm need to be careful with respect to the due diligence they do over the target firm’s employment practices.
TUPE applies when a business or assets are being transferred. The main two provisions for determining where TUPE applies is whether the activities before and after the transfer are the same and whether staff are organised in a way to give services to the client.
What are the obligations entailed by TUPE?
There are three principal obligations entailed by TUPE: the contracts of employment must remain the same, dismissals cannot be given purely because of the transfer and trade unions must be recognised insofar as the previous owner recognised them.
The contracts of employment for employees need to be the same as they were before the acquisition. In fact, the acquirer is banned from changing the conditions of the employment contract of the employees. All rights and liabilities entailed by the previous contract transfer over to the new owner.
If an employee is made redundant purely because the transfer has taken place, then the dismissal classifies as unfair. Consequently, the former employee could take the acquirer to court. The exception to this unfair dismissal grounds is where the dismissal can be shown to be because of economic, technical or organisational reasons.
If there was a trade union that was recognised by the previous owner, the new one has to recognise this independent trade union as representing the members of the union. The new owner can renegotiate terms and conditions from collective agreements, but if they do so then the new agreement cannot be less preferential to the employee.
What should the acquiring business do to comply with TUPE?
There are two main ways that acquiring businesses can prepare for their obligations surrounding TUPE: they should be aware of the existing employment contracts and they should consult with employees on any proposed changes to said contracts.
Acquiring businesses can become aware of the existing employment contracts through the due diligence process (the audit the acquiring business does of the target business when considering whether to acquire the target). This would allow the acquiring business to spot any particularly onerous clauses.
Acquiring businesses should also consult with the existing employees about the changes that they wish to make to their employment contracts. If this consultation is not done, employees could take the new employer to an employment tribunal.
What should the target business do to comply with TUPE?
The target business has an obligation to provide the acquiring business with information about the employees who are getting transferred. This includes information about things such as the rights and liabilities of employees. This information has to be provided at least four weeks before the transfer is formally undertaken. If this is not done, the acquiring business can take the target business to a tribunal to get compensation.
What happens if the target business is going insolvent?
The obligations under TUPE are not as stringent if the target business is going insolvent. There are two main changes to the obligations from TUPE: the acquiring business will find it easier to change the existing employment contracts, and the acquiring business will find it easier to terminate certain employment contracts.
The acquiring business will find it easier to put in changes to existing employment contracts if they can be shown to make the business more competitive. This is to allow the business to survive. Nonetheless, this must be agreed with employees or representatives of the employees. In addition, these changes to employment contracts need to respect existing legislation around workplace discrimination.
If the business is doing particularly badly and it is being liquidated, then the employment contracts of a business can be automatically ended. In other cases, it would be easier to make workers redundant on the ground of an economic, technical or organisational reason. This is because the poor position of the business makes it easier to justify redundancies.
How will TUPE be affected by Brexit?
TUPE is UK legislation but it implements EU legislation. Given the end of the transition period, TUPE may be repealed in order to make the UK a more competitive area for M&A deals.
However, if any M&A deals involved an EU state, then the EU Directive would apply. In addition, repealing TUPE in its entirety may be too politically unpopular. What is therefore more likely is that TUPE will be gradually changed over time. For instance, acquiring businesses may find it easier to change certain aspects of employees’ contracts in the future.
Tabberer v Mears Ltd – (2018) here an employer wanted to end travel allowances for employees after they had acquired the business. The travel allowances had been given since the 1950s. The payment had become less relevant for each employee over time. The Claimants said that this broke with TUPE because the travel allowances had been ended purely because of the transfer of the business. Ultimately, the court held that it was legitimate not to provide the allowances because they had not been given to most employees.