TUPE: common myths are busted

April 10, 2013

Whether on a business sale, outsourcing or group restructure, the thought of TUPE being applicable can strike fear into the most hardy HR heart, and perhaps it is this fear of TUPE which has led to a number of myths about situations which are thought not to be affected by it. However, these mythical scenarios, which may not initially present themselves as classic cases of TUPE, could be potential traps for the unwary. So, in this article we will look at some common misconceptions so that businesses can recognise TUPE’s application early, in order to deal with the implications as effectively as possible.

The Basics: When does TUPE apply

A “relevant transfer” is defined in two ways:

  • a business transfer – the transfer of a business, or part of a business where there is a transfer of an economic entity that retains its identity; and
  • a service provision change - a client engaging a contractor to do work on its behalf, reassigning such a contract or bringing the work "in-house" (although there is an ongoing Government consultation on the potential repeal of this part of the TUPE Regulations).

Myth: TUPE isn’t relevant to an intra-group transfer

The transfer of a business within a group can constitute a transfer for the purposes of TUPE in the same way as a transfer between two unconnected parties.

In many group reorganisations the only change will be to the identity of the employer. However, even in these cases, there is still a requirement to inform (and consult, if applicable) appropriate representatives of the employees. It can be easy to overlook these formalities in a seemingly straightforward transfer, but it is important to comply as a failure to inform and consult can result in a claim for up to 13 weeks’ pay per employee.

If any changes to terms and conditions are proposed in connection with the transfer, the usual TUPE principles apply and employees may not be bound by any detrimental changes.

Myth: Insolvent companies are not subject to TUPE

There are insolvency provisions contained within TUPE which do modify the "normal" rules that apply, but do not exempt insolvent companies from the Regulations completely. There are two different sub-regimes, depending on the type of insolvency proceedings.

For insolvent businesses that are transferring as going concerns, the automatic transfer of employees will still apply, but some pre-existing employee debts will not transfer. It is also possible to agree certain changes to the employees’ terms of employment provided that a specific process is followed.

In liquidations, the protections offered by TUPE are watered down further. The automatic transfer principle does not apply and employees do not benefit from any special protection against dismissal.

Myth: TUPE is not engaged on a team move

If the departing team has been working in a particular and distinct part of its business, it is entirely possible that TUPE could be engaged, and there may be reasons why either the old employer or the new employer would want it to apply.  

TUPE applying can act to the old employer’s advantage if it would rather not retain any remaining employees after the team move (either to avoid redundancy costs or to get rid of underperforming employees), as TUPE would serve to transfer the whole team to the new employer.

For the new employer, TUPE may work to its benefit if there is an employee who they would like who is subject to a long notice period or onerous restrictive covenants. If the new employer can rely on the automatic transfer principle under TUPE, the employee will move without the old firm benefiting from the employee's notice period or their post-employment restrictions.

Myth: Offshoring is not affected by TUPE

There has been a lot of debate about whether TUPE is relevant when a business is transferred from the UK to an overseas jurisdiction, but case law has suggested that it can apply.

Under the traditional TUPE business transfer test, there is an argument that a transfer overseas will not meet the definition because the business will be so different following the transfer that it will not “retain its identity”. However, that argument becomes harder to sustain if the transfer is a service provision change, as the focus of that test is only on the pre-transfer stage.

On either interpretation, however, offshoring will almost always result in the loss of jobs, as employees will usually want to remain in the UK and may object to the transfer on that basis, or the new employer will not want to keep on the existing staff, in which case they may have to be made redundant. From a practical perspective it is therefore useful to understand the underlying legal position when negotiating with the overseas entity and the employees.

Myth: If TUPE does apply, I can just compromise any potential claims

Not all claims arising out of TUPE can be validly waived using a compromise agreement. For example, it is not possible to waive the right to be informed or consulted.

Employers commonly seek to compromise claims when they want to vary the terms of the contract. However, such variations, even if recorded in a compromise agreement, are invalid and could leave the employer in the position where the employee is able to cherry pick the best elements of each contract.

One practical solution to varying terms and conditions, is to dismiss the employee, compromise their automatically unfair dismissal claim (which is possible), and re-engage them on the new terms. However, this approach can be complicated and potentially unpalatable from an employee relations perspective, so should be used with caution.

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