The Transfer of Undertakings (Protection of Employment) (TUPE) regulations ensure employees’ terms and conditions are preserved when their employment transfers to a new employer and that employers follow the correct legal procedure through the transfer process.
TUPE transfers impact both employees’ rights and employers’ obligations. It is a complex piece of legislation with potentially significant implications for both incoming and outgoing employers when a business is sold, activities are outsourced or brought in-house, or a contract for services is moved over from one provider to another.
If your organisation is due to be partially or completely sold to another employer, or you are switching service providers in a manner that will involve the transfer of employees, you have a statutory responsibility to ensure the TUPE regulations are met throughout the transaction. Failure to do so could result in transferred employees taking legal action against you at an employment tribunal.
For both the outgoing and incoming employers, it will therefore be important to understand the employment liabilities relating to the transfer to avoid the risk of employment law claims and ensure an effective transaction.
In this comprehensive guide to TUPE for UK employers, we set out what TUPE entails and the legal obligations it imposes, and we share practical advice on managing the transfer process.
TUPE applies to employers of all sizes, both in the private and public sector and whether commercial or not for profit, where there is a relevant business transfer or transfer of service provider.
The Transfer of Undertakings (Protection of Employment) regulations (TUPE) exist to protect employee rights when the business they work for changes owner.
In broad terms, the TUPE Regulations provide key legal protections for employees when all or part of the business that they work for changes ownership or where employees are engaged in providing a service and there is a change of service provider. The Regulations do this by preserving the rights of transferring employees and protecting them from any unfair disadvantage. These employees will maintain continuity of employment from their original start date with their old employer and should continue to benefit from the same employment terms and conditions.
The regulations apply to businesses of all sizes in the UK. The transfer in question may involve hundreds of employees or even a single employee. In all cases, TUPE provisions are designed to ensure that a new or ‘incoming’ employer cannot change the employee’s contracted hours and rate of pay, bonuses, commissions, benefits and reward schemes, holiday and sickness day allowances, and other terms and conditions within the transferee’s employment contract.
Key TUPE definitions include:
a. Undertaking: In the context of TUPE, an ‘undertaking’ refers to any kind of business or economic entity that retains its identity following the transfer. This can include companies, parts of companies, or even distinct service functions within a business.
b. Transfer: A ‘transfer’ occurs when an undertaking or service provision is moved from one employer to another, resulting in a change of the entity responsible for the employees.
c. Economic Entity: This term refers to an organised grouping of resources that has the objective of pursuing an economic activity, whether central or ancillary. TUPE protects the employees within this entity during the transfer.
In practice, this means TUPE arises in two main scenarios:
a. Relevant business transfers
TUPE regulations apply to transactions involving the transfer of all or part of a business from one owner to another.
Types of transfers covered by TUPE include business sales, where a business or part of a business is sold to a new owner, and when TUPE ensures that the employees of that business are transferred to the new employer with their existing contracts of employment. In the case of a merger, where two businesses combine to form a new entity, TUPE ensures that employees from both businesses are transferred to the new entity with their existing terms and conditions.
b. Service provider transfers
TUPE also applies to situations where services are outsourced, insourced, or reassigned to a new contractor.
In broad terms, the TUPE Regulations apply in the context of a business transfer or service provision change, where a service provision change can either refer to where activities are outsourced or brought in-house or where a contract for services is moved from one provider to another. In this context, various provisions are made within the Regulations around contractors, where any reference to contractors also applies to subcontractors.
A service provision change can include where a contractor (or subcontractor) takes over the activities from a client, known as outsourcing; where a new contractor (or subcontractor) takes over activities from a previous contractor, known as re-tendering; or where a client takes over activities from a contractor (or subcontractor), known as insourcing. It is essentially where a client engages a contractor (or subcontractor) to undertake work on its behalf or reassigns a contract, including bringing the work in-house. This can include contracts to provide office cleaning, workplace catering and other labour-intensive services, as well as professional business services, including legal and accountancy services.
However, for a service provision change to be covered by the TUPE Regulations, the activities carried out by the old contractor and the new contractor must be ‘fundamentally the same’. This means that if the service requirement significantly alters post-transfer, there would be no service provision change under TUPE. That said, minor differences in the nature of the tasks involved would not normally, without more, be sufficient to mean that the activities are not fundamentally the same. For example, if a company contracts with a catering business to serve hot canteen dinners, where the new contractor continues to provide the same service as the previous contractor, but the ingredients are sourced from a different supplier, TUPE will probably still apply. In contrast, if the old catering contractor served hot dinners in the company canteen, but the contracting company decided to change the terms on expiry of the contract to provide and stock self-service refrigerated food instead, TUPE would be unlikely to apply where a new catering contractor wins the tender.
When TUPE applies, employers have specific legal obligations to ensure the process is handled correctly. These responsibilities span the period before, during, and after the transfer, ensuring that employees’ rights are upheld throughout.
Any failure to meet these obligations could result in joint and several liability for potentially costly tribunal claims. Post-transfer, the application of the TUPE Regulations will then determine the extent of the employee’s rights moving forward, where any existing statutory and contractual liabilities will transfer to the new employer.
