Business sales and service transfers: when TUPE applies

Business Sales Lawyers Malton, York, Wetherby

Where the whole or part of a business is sold, or a contract for the provision of services is transferred, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. If this is the case there will be an obligation to inform, and in some circumstances consult, affected employees. Failure to do this will usually mean employees are entitled to compensation.

Transferring employees’ employment contracts will transfer across to the new business on substantially the same terms and conditions, and any dismissals made because of the transfer which do not have a genuine economic, technical or organisational reason entailing a change in the workforce will be viewed as automatically unfair by an employment tribunal.

Given the risks, specialist legal advice should always be taken as Gillian Reid, employment law expert with Ware & Kay in York & Wetherby explains.

‘Where a business sale or service transfer falls within the ambit of TUPE, the requirements of the regulations will apply automatically’, says Gill. ‘There is no right to contract out which makes taking legal advice at an early stage very important, particularly where the current business owner or service provider has suggested TUPE is not relevant.’

When will TUPE apply?

Whether TUPE applies will depend on the circumstances, but in theory it can apply to the sale of a business or a service transfer where the new service provider intends to continue undertaking the same activities. For example, TUPE would apply to the transfer of a contract for hospital cleaning where the services to be provided by the new contractor would be fundamentally the same as those provided by the old contractor.

However, TUPE would not apply to a business sale which was effectively devised to secure equipment or property which the new owner had no intention of using for the same activities as the current owner. Neither would it usually apply to a company share sale where the identity of the employing business remained the same.

What effect does TUPE have?

The main effects of TUPE, from an employment perspective, are:

• All employees who work in the relevant part of the business being sold or transferred will automatically move over to the new owner or service provider. There is no right to pick and choose the employees you take and any attempt to do this which results in job losses could give rise to claims for automatic unfair dismissal.

• Employees will transfer with their length of service protected and on their existing terms and conditions, except those terms relating to pension entitlement.

• The new employer will step into the shoes of the outgoing employer and inherit existing employee-related liabilities, such as ongoing discrimination claims or grievances.

It is important to point out that, notwithstanding the prohibition on dismissing transferring employees, it is possible for the new owner or service provider to restructure the workforce after the transfer has taken place. However, if you choose to do this care must be taken to ensure that the process is fair and does not distinguish between transferred and existing staff. For example, if as a result of the transfer you now have two operations managers when you only need one, both managers must be included in the selection pool for redundancy.

It is also important to mention that although transferring employees must be allowed to transfer on their existing terms and conditions, it is possible for changes to be implemented later in certain circumstances.

What must employees be told?

Before the sale or transfer goes ahead, affected employees must be given certain information about the proposed deal. Some of this is straightforward, like confirming the identity of the new owner or contractor. However, other information is more difficult to deal with as it may require consultation with elected employee representatives or recognised trade unions. Micro employers can inform and consult directly with employees. Consultation might be necessary if any mass relocation is required.

Failure to comply with the information and consultation requirements could leave you liable to pay damages of to up to 13 weeks’ uncapped pay for each affected employee.

What must the new and old owners or service providers tell each other?

The new owner or service provider has an obligation to tell the existing owner or service provider about any changes they propose to make in relation to transferring employees, including any plans to restructure and make redundancies. The new owner or service provider may wish to query the number of employees suggested for transfer, particularly where there are concerns that excess staff are being offloaded.

The current owner or service provider must give the incoming business information about the transferring employees at least 28 days before the transfer takes place. Failure to do this could result in a penalty of up to £500 per transferring employee.

For a confidential discussion about TUPE, or any other employment law matter, please contact Gillian Reid on 01904 716000 or 01937 583210 or email Gillian.Reid@warekay.co.uk.