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Transfer of Undertakings (Protection of Employment) Regulations 2006

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"TUPE" redirects here. For the district in Yauyos Province, Peru, see Tupe District.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) known colloquially as TUPE and pronounced tu-pee,[1] are the United Kingdom's implementation of the European Union Transfer of Undertakings Directive.[2] It is an important part of UK labour law, protecting employees whose business is being transferred to another business. The 2006 regulations replace the old 1981 regulations (SI 1981/1794) which implemented the original Directive.[3]. The law has been amended in 2014 and various provisions within the 2006 Regulations have altered. [4]

Purpose

The Regulations' main aims are to ensure that, in connection with the transfer, employment is protected (i.e. substantially continued).

  • employees are not dismissed
  • employees' most important terms and conditions of contracts are not worsened
  • affected employees are informed and consulted through representatives prior to the transfer

These obligations of protection are placed on the transferring companies both before, during and after the transfer. The obligations are relieved if there is an "economic, technical or organisational" reason for the cessation of employment Regulation 7(1)(b), or alteration to employees terms and conditions, Regulation 4(4)(b).

This does not apply to transfers which go merely through the sale of a company's shares (a "share sale"). When that happens, because the employer (ie the original company) is still the same employer, all contractual obligations stay the same. The Directive and Regulations apply to other forms of transfer, through sale of physical assets and leases. The regulations also apply in some cases for work transferred to contractors. This protected contract terms for workers include hours of work, pay, length of service and so on, but pension entitlement is excluded.

Contents

1. Citation, commencement and extent
2. Interpretation
3. A relevant transfer
  • this takes on the Spijkers language of whether an entity retains its identity, r.3(1)(a)
  • the definition of economic entity as an 'organised grouping of resources' comes from Suzen too, r.3(2).
  • it also now applies explicitly to a 'service provision change', i.e. contracting out services. An example of this case is RCO Support Services, r.3(1)(b)
  • the regulations make clear that a service which is merely performing a 'single specified task' does not fall within TUPE, r.3(3)(a)(ii)
  • the definition of an undertaking, to which the regulations apply as something engaged in economic activities, whether public or private, comes from an EC competition law case called Höfner and Elser v Macrotron GmbH [1991] ECR I-1979[5] r.3(4)(a)
  • a new exception is that an 'administrative reorganisation of public administrative authorities' will fall outside TUPE's scope is still unknown in its effect, r.3(5)
4. Effect of relevant transfer on contracts of employment
  • the core of this law, r.4(1) provides that employment contracts 'shall have effect after the transfer as if originally made between the person so employed and the transferee'. So new business buyers cannot escape the old business' obligations to its workforce
  • it also points out that to fall within the protection of TUPE, you had to have had an employment contract "immediately before the transfer", r.4(3). This was the issue in Litster v Forth Dry Dock [1989] ICR 341, where a relaxed and purposive interpretation was given. So, "immediately" can really mean a while, with wiggle room.
  • in r.4(4) it says that variations of employment terms 'shall be void' if the main reason is the transfer itself or 'a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.' In r.4(5) it is emphasised that employees and employers can agree to change terms where this is not the case. The normal rule is that even consensual agreements are void.
  • where an employee objects to the change in the identity of the employer, then r.4(7) states he will not become one. He is to be treated as if his contract terminated when the transfer takes place, but that he is not dismissed (unless of course the employer actually does dismiss him), r.4(8). This issue came up in Wilson v St Helens Borough Council [1999] 2 AC 52;
  • where the contract is varied detrimentally on transfer, employees can treat themselves as dismissed by the employer. In the Humphreys case (University of Oxford v Humphreys (1) and Associated Examining Board (2) [2000] ICR 405, Court of Appeal) it was decided that an employee who resigns on or before a TUPE transfer because of well-founded fears that the new owner intends to impose worse terms and conditions of employment than those provided by the original owner can claim constructive wrongful dismissal against the original owner. Also the Tapere case ruled on the interpretation of mobility clauses, and where a relevant transfer involves a substantial change in working conditions which is to the employee’s material detriment, held that "detriment" should be considered using the subjective approach which applies in discrimination law.
5. Effect of relevant transfer on collective agreements
6. Effect of relevant transfer on trade union recognition
7. Dismissal of employee because of relevant transfer
  • states that employees will be considered dismissed unfairly, if they are dismissed without the employer showing an economic, technical or organisational reason for dismissal. What is certainly not included in this concept is dismissals simply to improve the price of the company before its sale.[6]
  • where there is an economic, technical or organisational reason for dismissals, these are considered 'substantial reasons' (i.e. justified reasons) under the fair dismissal provisions of the Employment Rights Act 1996 (s.98(2)(c)). The result for the employee is that he is considered redundant, and thereby should receive a compensation payment if they have been an employee for more than two years under s.135 ERA 1996.
  • importantly, an employee dismissed by the seller of the business is deemed to have been dismissed by the purchaser too. This means an unfair dismissal claim can be brought against either party.
8. Insolvency
9. Variations of contract where transferors are subject to relevant insolvency proceedings
10. Pensions
11. Notification of Employee Liability Information
12. Remedy for failure to notify employee liability information
13. Duty to inform and consult representatives
14. Election of employee representatives
15. Failure to inform or consult
16. Failure to inform or consult, supplemental
17. Employers' Liability Compulsory Insurance
18. Restriction on contracting out

Example

Imagine a company that has in-house cleaners. The company decides that they want to tender-out the contract for cleaning services. The new company that takes over the work may employ the same cleaners. If it does so, TUPE will make it likely that the new employer will have to employ the cleaners subject to the same terms and conditions as they had under the original employer.

If any staff are dismissed by either employer for a reason connected with the new arrangement this will automatically be deemed an unfair dismissal and the new employer will be liable for any statutory claims arising as a result.

This is also the case where a target business (as distinct from shares in a company) is bought from company A by company B (often much larger) and integrated with the business of company B.

Evaluation

The benefits to individual workers are clear; TUPE prevents the possibility of everybody in the firm losing their jobs, just because the company providing the service changes. This gives employees increased certainty. A side-effect of the new regulations could prove unfortunate for some employers. This has been particularly highlighted in connection with law firms.

According to the Law Society's magazine, The Law Society Gazette, law firms might be forced to employ teams of lawyers when taking over contracts.[7]

Under the new rules, if a client decides to source their legal work from a different provider, the legal team from the old provider would be entitled to transfer to the new provider under the same terms and conditions as before; if the new provider were to object, the new employees would be entitled to sue for unfair dismissal.

Dr John McMullen, an expert on TUPE, is quoted as saying: "If you had an organised grouping of solicitors at a law firm devoted to one client, and that client said 'I do not want this law firm, I will appoint law firm X', then TUPE 2006 could apply so that—contrary to what the client is expecting or wanting—it may find that the lawyers would have the right to turn up at the newly appointed law firm. The definition of 'organised group' can be just one person."

Objections to the new regulations had been raised during consultation.[8] An exemption for professional services firms had apparently been mooted by the government but was eventually ruled out. In 2012, the UK coalition Government sought feedback on the efficacy of TUPE in relation to professional services and found that there were “mixed views” about whether professional services should continue to be covered by the service provision change regime. In certain sectors, particularly advertising, there was strong support for the idea of introducing an exemption. However, lawyers have highlighted problems with the operation of the New Zealand equivalent of TUPE and warned the Government to be cautious in trying to exclude certain groups of employees.

There are potential problems for employees as well. An employee might not want to transfer to the new employer. But, in those circumstances their only option is to "object" which in essence is a resignation but does not impose a duty not the employer to pay notice pay. As their role continues (with the new employer) they are not redundant and therefore have no entitlement to redundancy pay and cannot (except in limited circumstances) claim unfair dismissal.

Anomalies

When the new company takes over the work of its predecessor, it must take on the staff (from the old company) on their existing terms and conditions. This can create the situation where "transferring" employee may be on enhanced terms compared with an employee already employed by the new company. Harmonisation of the terms and conditions between the two groups of employees is generally not possible as the "reason" for it would be the TUPE transfer which (except in limited circumstances) is specifically prohibited.

This could result in a situation where a transferring employee (whose old contract gave them an enhanced holiday entitlement) may be working alongside an existing employee of the new company (working under a contract of employment whose terms were set by the "new" company) who has less generous holiday rights.

Reform

In April 2011, the UK government proposed a number of reforms to TUPE.

Cases

See also

Law outside the UK

Notes

  1. ^ "Citation - HR And Employment Law - TUPE".
  2. ^ Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses
  3. ^ "EUR-Lex - 31977L0187 - EN - EUR-Lex". eur-lex.europa.eu.
  4. ^ http://www.acas.org.uk/index.aspx?articleid=4715
  5. ^ "? - EUR-Lex". eur-lex.europa.eu.
  6. ^ Whitehouse v Charles A Blatchford & Son Ltd [2000] ICR 542, says the reason would have to be one connected with the business' future prospects.
  7. ^ Rothwell, Rachel (9 March 2006). "TUPE changes 'force' legal teams on firms". The Law Gazette. Law Society.
  8. ^ Rohan, Paula (26 May 2005). "TUPE could force lawyer moves". The Law Gazette. Law Society.

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