If you are buying or selling a business, one of the key regulations you need to be aware of and ensure you are fully compliant with is the Transfer of Undertakings (Protection of Employment) Regulations 2006, known as TUPE 2006.
TUPE 2006 is designed to protect employees’ rights when part or all of a business is transferred to a new employer.
It is important to have a robust knowledge of your compliance responsibilities under TUPE 2006 as breaching the regulations could lead to a claim being made against you.
What type of transfers are covered by TUPE?
TUPE 2006 applies where there is a transfer of all or part of an undertaking from one employer to another. Examples include:
- Where a sole trader or a partnership sell or otherwise transfer all or part of their business.
- Where all or part of a company is sold to another party.
- Where two organisations merge to form a third company.
- Where a contract to provide goods and/or services is transferred which amounts to the transfer of a business or undertaking.
An example of a transfer of a contract which resulted in TUPE 2006 obligations was illustrated in the recent outsourcing of PepsiCo’s transporting operations across England and Wales to logistics specialist Eddie Stobart. The contract resulted in 300 Pepsi Co staff transferring to Eddie Stobart Logistics Plc from 1 July 2018.
TUPE and company transfers – share purchase and asset purchase
Buyers looking to acquire a business can either acquire the entire issued share capital of the company that owns that business, referred to as a ‘share purchase’, or purchase the collection of assets that comprise the business, which may include machinery or equipment, property, intellectual property rights, employees and contracts. This is known as an ‘asset purchase’.
In the case of a share purchase, a buyer acquires the company ‘warts and all’. The company continues to be the employer of its staff, and there is no effect on contracts of employment. With certain limited exceptions, whatever rights, obligations, powers, and liabilities the company has towards past, present, and future employees will be unaffected by the change in ownership. In such a situation, the normal rules of unfair dismissal apply.
In contrast, an asset purchase is likely to trigger TUPE 2006 obligations and responsibilities. This means the employees of the transferring business will handover to the buyer immediately before the acquisition.
The effect of TUPE 2006
Broadly speaking, if TUPE 2006 applies to a transfer, the effect will be that:
- All employees, along with their contracts of employment will be transferred to the buyer of the business. There are certain exceptions relating to occupational pension rights.
- The terms and conditions of the transferring employees will remain the same.
- The liability for any employee dismissed by the seller prior to the sale will be transferred to the buyer if the reason for the dismissal was connected to the transfer of the business. For this reason, it is essential to instruct an experienced solicitor who will perform due diligence on the employment of staff in the business you intend to buy and inform you if the seller has not or is not complying with their TUPE obligations. It must also be pointed out that when conducting due diligence, relevant provisions of the General Data Protection Regulations (GDPR) must be complied with.
- Any dismissal of an employee which is related to the transfer will be deemed automatically unfair except where there is an ‘economic, technical or organisational reason entailing changes in the workforce’.
- Any trade union recognition relating to existing employees will be transferred along with any applicable collective agreements relating to those employees.
- There is an obligation on the seller and buyer to inform and consult representatives of employees about the transfer.
The duty to inform and consult under TUPE
TUPE 2006 puts an obligation on both the outgoing employer (the transferor) and the incoming employer (transferee) to inform and consult with employees who will be affected by the transfer.
Under TUPE 2006, all ‘affected employees’ must be informed of the fact the transfer is taking place, the date it will happen, and the reason for it. In addition, the “legal, economic and social implications…” and “any envisaged measures” that the transferee will be taking must be communicated. Affected employees will also include employees who are not necessarily going to be transferred, but may have their job descriptions or place of work altered because of the transfer.
The buyer of the business may not have a full picture of their intentions until close to the time of transfer. However, you will need to inform employees of any ‘measures’ which will occur because of the transfer, such as redundancies, change of work location etc.
The inform and consultation procedure should take place with an employee representative, unless the business has fewer than ten employees; in this case, staff members should be spoken to directly.
The GDPR has added an extra layer of complexity to TUPE 2006 compliance. To avoid potential employee claims and reputational damage, it is vital to instruct an experienced solicitor to assist you with navigating not only TUPE 2006, but other compliance matters relating to the transfer of a business.
Please note, this article does not constitute legal advice.
Hart Reade Solicitors is a full-service law firm with offices in Eastbourne, Hailsham, Polegate and Meads. We hold a both a Lexcel and Conveyancing Quality Accreditation from the Law Society of England and Wales. To make an appointment with one of our employment solicitors, please phone our office on 01323 727 321.