What is ‘TUPE’ and how does it affect me?
If you are buying or selling a business that has any staff, or if you are one of the staff in a business that is being sold, whether you yet know it or not you are about to be affected by something called “TUPE”, pronounced ‘tyoo-pee’, or the Transfer of Undertakings (Protection of Employment) Regulations 2006 to give it its full title.
Normally, TUPE automatically transfers the employment of staff on their existing terms and conditions to the new owner when the business or part of a business in which they are employed is sold. It also gives the staff affected rights to be informed and consulted about what is happening.
Exception: Share Sale
If the business is a limited company and the business is to be transferred simply by sale of the shares in that company, in law there is no change of employer and TUPE does not apply, as the staff continue to be employed by the existing limited company, even if that company is under new management.
Asset Sales: Does TUPE Apply? What amounts to a “Sale of a Business?”
Otherwise, in deciding whether there has been a ‘sale of a business’ under TUPE, with consequent transfer of staff, an Employment Tribunal will consider not just what any sale agreement says on paper, but the realities of the situation.
Employment Tribunals are unsympathetic to employers who they consider are trying to conceal the true nature of the transaction to try to avoid TUPE.
Employment Tribunals are equally unsympathetic to employers who think they can get round TUPE and employment rights by “making the staff redundant” one day and re-employing them the next day on new contracts.
A Tribunal will consider what is happening to staff, assets, customer lists, existing contracts, equipment, ‘know how’ and so forth. No one of these is decisive in itself but all are relevant. The Tribunal will decide whether overall there appears to be continuity of a business entity.
If in doubt, it is safer for the employer to proceed with information and consultation for staff as though TUPE applies. This need not be very onerous. We can quickly provide the necessary documents. While the employer is required to “consult” staff, this simply means that the employer should listen to and consider any suggestions or comments the staff may have, but the employer is not obliged to act on them. An organisation’s staff have no legal power to stop the sale of the business going through, nor to change its terms. However, there are penalties for a failure to inform and consult staff properly in a TUPE situation e.g. commonly being ordered to pay the equivalent of three months’ salary to each member of staff who should have been informed and consulted but was not.
Effects when TUPE applies: Information and consultation
If TUPE applies, once there is a reasonably definite agreement in principle for a transfer, but long enough before the transfer that meaningful consultation can take place, the ‘outgoing’ and; ‘incoming’ employer are supposed to provide information to each other and to the employees who may be transferred. If there are 10 or more employees they should be invited to elect representatives, through whom the ‘outgoing’ employer should consult the staff.
Effects if TUPE applies: Transfer of Staff
In principle, staff employed in the business, or in part of a business being sold, automatically transfer their employment on their existing terms and conditions to the incoming employer. This means staff retain their existing rates of pay, holiday entitlement, length of service and any additional benefits such as health insurance, commission and company car.
A major exception is that because the government thought it too complicated to include pensions in TUPE, staff are not automatically entitled to continue paying into, nor require the new owner to continue contributing to, an existing pension scheme.
Generally, the incoming employer cannot ‘cherry-pick’ only the staff they want, but has to assume liability for all of them. Exception: if this leaves the incoming employer with more staff then they need for the way they plan to run the business, then there may be a redundancy situation, which may require redundancy consultation with the individuals affected unless they agree to, for example, go with a ‘golden handshake’ and sign a Settlement Agreement (formerly called a Compromise Agreement).