Guide to managing the essentials of TUPE

Does TUPE apply?

The first step towards good practice is for employers to determine whether or not TUPE applies.

Transfer of an economic entity

TUPE applies where:

• There is a transfer of an economic entity.
• The economic entity retains its identity.

Is there a transfer of an economic entity?

An "economic entity" means "an organised grouping of resources which has the objective of pursuing an economic activity". The economic activity may be central to the business, or ancillary, for example cleaning services. The most obvious example of the transfer of an economic entity is where a business is sold. An economic entity may transfer even where only part of a business is sold.

Has the economic entity retained its identity?

A number of factors should be considered to determine this issue:

• Whether or not tangible assets have transferred.
• The type of business or undertaking.
• The value of intangible assets at the point of transfer.
• Whether or not the majority of employees have transferred.
• Whether or not customers have transferred.
• The similarity of the activities before and after the transfer.
• The duration of a suspension in the performance of activities following the transfer.

The absence of a particular factor does not necessarily mean that the transfer does not come within TUPE. Employers should build an overall picture of what is happening to the business, by considering all of the circumstances.

An economic entity may retain its identity following a transfer even if there are changes to how it operates. The application of TUPE does not rely on there being a carbon copy of the pre-transfer business following the transfer, and there will often be changes to the way in which a business is managed when a new owner is in charge.

Service provision change

TUPE also applies where there is a service provision change. This includes in one or more of the following circumstances:

An organisation:

• Outsources a particular activity previously performed in-house.
• Appoints a new contractor to take over from another contractor already providing outsourced services.
• Brings outsourced services in-house and performs them itself.

TUPE applies in each of these circumstances provided that, before the change took effect, there was an organised grouping of employees with the principal purpose of carrying out the activities.

What should employers inform and consult about?

Comprehensive information

Under TUPE, transferors are required to give certain information to the representatives of employees affected by the transfer. Affected employees means not only those transferring but also those whose jobs may be affected by the transfer. TUPE prescribes that transferors should give representatives information about:

• The fact that the transfer is going to take place.
• The date or proposed date of the transfer.
• The reasons for the transfer.
• The "legal, economic and social implications" of the transfer for affected employees.
• The measures that they envisage taking in relation to affected employees in connection with the transfer, or confirmation that no measures are envisaged.
• The measures that they envisage that the transferee will take in relation to affected employees in connection with the transfer, or confirmation that no measures are envisaged.
• The number of agency workers that are working temporarily for them and under their supervision and direction, the parts of the business in which they work, and the type of work that they perform.

The key to the information requirement is that representatives receive sufficient information to enable them to seek the views of the employees whom they represent, and engage meaningfully in the consultation process that follows.

• “Legal implications of the transfer” means anything relating to the contract of employment, including a change in the identity of the employer and a change to pension rights.
• “Economic implications of the transfer” means anything that affects pay or benefits outside of the contract, for example the transferor's share-incentive scheme being replaced with a cash scheme of equivalent value.
• “Social implications of the transfer” means anything that does not relate to the contract, pay or benefits that has an impact on employees, for example a change to the shift system.

Measures

The word "measures" has a broad meaning. It covers anything, other than the mere fact of the transfer, that will affect employees as a result of the transfer. Measures include:

• A restructure.
• A change to terms and conditions of employment.
• A change to restrictive covenants.
• A change to an incentive scheme.
• The removal of, or a change to, a pension scheme.
• Redundancies.

To assist the transferor with its duty, the transferee should give the transferor information about measures that it envisages taking in relation to transferring employees.

It is prudent for the transferor to seek that information from the transferee in writing if it is not forthcoming.

Meaningful consultation

Transferors have a duty to consult with trade union representatives (or employee representatives where they do not recognise a union) where they envisage taking measures in connection with the transfer in relation to the affected employees. Where the transferee envisages taking measures in connection with the transfer in relation to transferring employees, it is good practice for the transferor to facilitate consultation between the transferee and the appropriate representatives of transferring employees.

The transferor's obligation is to enter into consultation with a view to seeking agreement on the proposed measures. This does not require negotiation with representatives and the law does not require the transferor and representatives to agree, however the transferor must engage in the process with a view to reaching agreement. However, the transferor and transferee will make the final decisions on what measures they will take.

For the consultation to be, and appear to be, genuine, the transferor should:

• Enter into consultation with an open mind.
• Give appropriate consideration to all representations, including comments and ideas, made by representatives.
• Reply to all representations, including those that it accepts and those that it rejects.
• If it rejects representations, give relevant reasons for rejection and articulate them clearly.

Strictly, the obligation to consult relates only to measures that are envisaged. For example, there is no requirement to consult with representatives about the fact that the transfer is going to take place or when it will happen.

Trade union and employee representatives

Transferors are required to inform and consult trade union representatives (or employee representatives where they do not recognise a union).

Prior to the transfer, the transferor needs to identify the appropriate representatives. Micro-businesses (organisations with fewer than 10 employees) may comply with the duty to inform and consult, by informing and consulting directly with affected employees, where there are no trade union or employee representatives and they have not invited the affected employees to elect representatives.

Employee representative elections

Where elections for employee representatives are necessary, the transferor is required to facilitate the process. It is good practice for the transferor to encourage employees to elect representatives.

The transferor is required to ensure that, as far as possible, the election of employee representatives is fair, that there are sufficient representatives to represent the interests of all of the affected employees, that no affected employees are unreasonably excluded from standing for election that all of the affected employees are entitled to vote and that the votes are secret and counted accurately. If employees do not elect representatives, as may be the case with only a small number of affected employees, the employer would be required to give employees the information required under TUPE directly.

Transferee involvement

Transferors should allow transferees to have some involvement in their consultation process with transferring employees. This is particularly important where the transferee is proposing measures in connection with the transfer, because it will be much better placed than the transferor to explain its proposals and to consider the effect on those proposals if any comments or suggestions that representatives may make were effected.

Engaging with the transferee's existing employees

TUPE requires the transferee to inform and consult with the trade union representatives (or employee representatives where it does not recognise a union) of its existing employees who may be affected by the transfer or envisaged measures taken in connection with it. In addition to providing the information required under TUPE and consulting on envisaged measures, the transferee should enable affected employees to ask questions about the future, and answer those questions in a timely manner.

Employee liability information

Transferors are required to provide transferees with "employee liability information", which is information about transferring employees. The importance of sharing information From the transferor's perspective, providing comprehensive information about transferring employees early is the best way to avoid disputes later in the process about whether or not the requirements of TUPE, or any information obligations under the contract, were breached.

Transferors are required to provide the following information in relation to transferring employees:

• Their age and identity;
• The date their employment began.
• The date of continuous employment.
• Their pay, including when payment is usually made.
• Their hours of work.
• Their holiday entitlement and holiday arrangements.
• Sickness and sick pay arrangements.
• Pension arrangements.
• Their notice period.
• Job title or duties.
• Whether employment is permanent or fixed term, including an end date where relevant.
• Place of work.
• Whether the employee is required to work outside the UK for more than a month.
• Details of disciplinary procedures that apply.
• Details of grievance procedures that apply.
• Whether there is in force a contracting-out certificate in accordance with the Pension Schemes Act 1993.
• Their particulars of employment, required to be given to employees under s.1 of the Employment Rights Act 1996.
• Information on disciplinary procedures taken against, or grievance procedures taken by, employees within the previous two years.
• Information on any court or tribunal case, claim or action brought by an employee against the transferor within the previous two years, and any case, claim or action that the transferor has reasonable grounds to believe that an employee may bring against the transferee arising out of his or her employment with the transferor.
• Information about collective agreements that will transfer.

The transferee may benefit from possessing information in addition to the information required under TUPE. For example, the transferee may wish to review the transferor's conclusion on who will transfer, by looking at information on the amount of time that employees spend on the transferring services, for example timesheets.

Obtaining information on non-contractual benefits, for example discretionary bonuses, customs and informal processes in the business, could also help the transferee. Or, where there are a few potential bidders, the transferor might consider disclosing information earlier than required under TUPE, because they might find the information useful when putting together their offer. While it might make good business sense for the transferee to ask for additional information, the transferor should analyse on a case-by-case basis whether or not it makes good business sense for it to provide the information.

Harmonising terms and conditions

Many transferees face a dilemma over whether to continue to operate different terms and conditions of employment for existing staff and transferred employees, or to harmonise terms and conditions, so that employees are contractually aligned and thus easier to deal with in terms of HR processes and employee relations. Changes to terms and conditions of employment because of a transfer under TUPE are regulated by law, and must be for an Economic, Technical or Organisational (“ETO”) reason (see section below). If a transferee is planning to harmonise terms and conditions, it should:

• Ensure that the potential gains of such an exercise outweigh the risks.
• Ensure that, as far as possible, all of the relevant employees sign up to the changes.
• Check the contract with the transferor, as this may constrain the transferee's ability to make changes to terms and conditions.
• Identify and ring-fence available finance within the business to fund the changes, which could be used to provide incentives, for example a one-off bonus, to encourage employee agreement.
• Review the potential impact of the changes on groups and individuals, and if it identifies specific problem areas, consider transitional arrangements to support employees during the change.
• Consider whether or not the new terms and conditions could be made up of an amalgamation of transferred employees' terms and conditions and those of its existing employees, as it may be preferable to ask all employees to accept a change rather than to single out transferred employees.
• Engage with trade union representatives (or employee representatives where it does not recognise a union) at an early stage, but only after taking advice on the options, so that it understands the risks that each option involves.

Dismissals following the transfer

Despite due diligence and integration planning, the transferee may have employees surplus to requirements following the transfer and may consider making redundancies.

If the transferee is planning to make dismissals, it should take account of the following guidelines:

• The transferee should consider the contract between it and the transferor to determine if it contains requirements relating to dismissals following the transfer and, if it does, incorporate these requirements.
• The transferee should implement a fair and meaningful consultation process, taking account of legal requirements, including TUPE and redundancy legislation and collectively agreed procedures. The transferor's redundancy process may be relevant. If it has contractual force, it will have transferred with transferred employees and the transferee should apply it.
• The transferee should analyse the reasons for the proposed dismissals, taking into account the legal risks of dismissals that are because of the transfer.
• The transferee should consider whether or not the redundancy pool should include existing employees and transferred staff. Not including both sets of employees is likely to increase the legal risks associated with the dismissal process, because the pool for redundancies may be drawn too narrowly.
• The transferee should apply the normal considerations relevant to any redundancy exercise. It should consider: alternatives to redundancy, for example changes to working hours, sabbaticals and voluntary redundancies; suitable alternative roles; and outplacement support for displaced employees.