The Importance of Understanding TUPE for Businesses

TUPE – Is it really that hard to understand and comply with the regulations if you are a small business? Preparation and understanding of obligation is the key.

What is the real fear?

When considering a merger or a service outsourcing opportunity, many small businesses have the fear of managing a process such as TUPE (The Transfer of Undertakings Protection of Employment) because they believe it to be complex, laced with legal risk and put simply, a mechanism that they just don’t understand. In truth, it can be a headache for business owners, M&A specialists, HR Professionals and the legal team because every scenario is different. However, understanding the key principles of the process and accessing the right support at the right time makes it more manageable to navigate.

Looking after your employees during the process of a workforce transfer is essential, whether it’s a few individuals or a whole team. One of the biggest mistakes is looking at regulation compliance without considering the people challenges connected with the commercial opportunity. Small businesses particularly recognise that the success of the business transfer will be supported and measured by the resulting engagement, happiness and motivation of the team – so engaging those impacted at every stage is a must.

Leading a business during a TUPE process isn’t easy and setting the scene for communication, engagement and transition to a new organisation, rules and structure shouldn’t be underestimated. Being guided step by step by a TUPE Consultant will help avoid the common mistakes.

What does it really mean?

There are two types of employee transfer protected under the TUPE regulation.

1. Business transfers – where a business or part of a business moves from an employer to a new owner or there is a merger. This can include mergers where 2 companies close and combine to form a new company. The identity of the employer must change for the employees to be protected under TUPE in this scenario.
2. Service provision change (SPC) – when a service provided in-house (such as a call centre, payroll or office cleaning) is outsourced to a contractor, or where the contract is awarded to a new contractor, or where the service is brought in-house. The activities carried out before the service change must be fundamentally/essentially the same as the activities carried out after the service change and only the employees who are clearly identified as providing the service are protected.

So, once it has been established that TUPE does apply, understanding the responsibilities of both parties in the transaction is crucial. HR support for small businesses at this stage is often helpful and essential, as spelling out the consequences is paramount. For instance, business owners should understand that their original employees (and their employee contracts) automatically become employees of the new employer. Continuous service is therefore maintained for the transferring workforce alongside the existing terms and conditions, which ultimately means that the new employer is responsible for any failure of the old employer to observe the employees’ legal rights. Getting your ‘house in order’ ahead of this process can make conversations about unusual or difficult employee circumstances easier to manage and categorise. 

How to prepare for the process

Whether you are the outgoing employer (the “transferor”) or the incoming employer (the “transferee”), there are several crucial steps you need to follow to make sure you get through the process compliantly and avoid any employment tribunal claims, as an employee in the TUPE pool could bring a discrimination claim against the new employer even if the discrimination occurred prior to the transfer.

The Outgoing employer – or Transferor employer – should follow steps to promptly identify the pool of employees impacted based on the whole or partial sale of the business, requesting information from the new incoming employer about any ‘Measures’ the incoming employer intends to take after the transfer so that you can consult on the proposed measures with your affected employees (or their representative) before the transfer takes place.

The Outgoing employer will need to communicate the fact that the transfer is taking place, detailing the timings and reasons in conjunction with providing ‘employee liability information’ to the incoming employer a minimum of 28 days before the transfer. The outgoing employer also has the obligation to inform the impacted employees, noting that if more than 10 employees are affected then representatives will require electing to manage the transfer information and proposed incoming employer measures. This part of the process should not be rushed or overlooked – managed carefully and sensitively, it will underpin the chances of a successful TUPE transfer.

The New/Incoming – or Transferee Employer – inherits all the rights, responsibilities, and liabilities that the outgoing employer held towards their employees to ensure the employees aren’t disadvantaged by the transfer. To be prepared for what this entails, your TUPE Consultant will recommend ascertaining employee liability information (minimum of 28 days before the transfer) such as:

•   How many transferring employees?
•   Whether any of your current employees might be affected by the transfer.
•   The identity (usually the name) and age of the employees who will transfer.
•   Information about any relevant collective agreements.
•   Details of any disciplinary action against an employee in the last two years.
•   Details of any employee grievances raised in the last two years.
•   Details of any legal action (before the court or employment tribunal) brought against the employer by an employee in the last two years and information about any potential legal action.
•   Information contained in their employment contracts
•   terms and conditions
•   statement of pay
•   hours of work
•   holidays
•   length of service

Aside from damaging employee relations, failing to inform and consult with employees during the TUPE process can have legal consequences. Each employee who is not informed and/or consulted about the transfer could claim up to 13 weeks of uncapped pay, so the cost of getting it wrong could be significant, both to the incoming and outgoing employer.

For both the incoming and outgoing employer, it is essential to make sure that all affected employees are adequately informed and/or consulted with. This includes employees who may not be transferring, but who will still be affected because of the transfer.

A TUPE transfer can be an unsettling time for employees and they deserve to be part of the conversation, so preparation and understanding obligations of all parties are key ahead of embarking on the process in its entirety.