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A guide to help understand what it is & how it may affect you The Transfer
of Undertakings (Protection of Employment) Regulations 1981
The regulations are designed to implement a directive which was adopted by the European Community in 1977 (Directive 77/187), often referred to as the Acquired Rights Directive. A revised version of the Directive was approved by the Member States on 17th July 1998 (Directive 98/50), with an implementation date of 17th July 2001. The UK Government intends to introduce new TUPE Regulations in the latter part of 1999. Full 36 page TUPE download - August 2006 is available here TUPE safeguard the rights of employees in five key ways: (i) allow them to transfer automatically into the employment of the new employer (the transferee) on the same terms and conditions as they had with the old employer (the transferor); (ii) protect them from being dismissed because the undertaking is being transferred; (iii) provide for the transfer of collective agreements; (iv) require the new employer to honour existing arrangements for trade union recognition; (v) oblige both the old and the new employer to consult with a recognised union or with elected employee representatives. When do TUPE apply? TUPE apply whenever an undertaking, or part of an undertaking, is transferred from one employer to another. It is easy to recognise a transfer where it involves the transfer of a business as a going concern e.g the sale of a factory. But it can be difficult to decide whether TUPE apply if a transaction relates to a single activity e.g. where there is a change in the employer responsible for providing a service, such as cleaning or catering. Although it was at one stage thought that most instances of contracting-out and re-tendering would be covered by TUPE, recent decisions of the European Court of Justice (ECJ) have introduced uncertainty into the picture. In Suzen v Zehnacker Gebaudereinigung GmbH Krankenhausservice [1997] IRLR 255, the ECJ said that a change in the employer responsible for providing a service will only constitute a transfer if two conditions are satisfied, namely that: (i) the service can be regarded as “an economic entity”; and (ii) it “retains its identity” after the transfer. Whether a service constitutes an economic entity depends on how it is organised before the transfer, in particular whether it has some degree of autonomy from the rest of the employer’s activities and whether it is staffed by a dedicated team of employees. The test of whether a service retains its identity involves considering how many elements of the service are taken over by the new employer. In Suzen the ECJ appeared to suggest that in the case of services which are labour-intensive e.g. cleaning, there will only be a transfer if the new employer takes over a majority of the employees who work in the service. On the face of things, this leaves it open to the new employer to circumvent TUPE by refusing to take over the existing workforce. However, it can be argued that two more recent decisions of the ECJ point to a dilution of this approach. Such rulings may make it possible to argue that the new employer’s unwillingness to take over the staff who work in a labour-intensive service does not prevent TUPE applying. In addition, the Employment Appeal Tribunal (“EAT”) has said that the new employer’s refusal to take over the existing workforce should not be taken into account where it is motivated by a desire to avoid TUPE. Which employees transfer? It is not always easy to decide which employees are entitled to transfer under TUPE. Regulation 5(1) provides that an employee will transfer if s/he is employed: (i) immediately before the transfer; (ii) by the transferor; (iii) in the undertaking or part of an undertaking which is being transferred; (iv) under a contract which would otherwise have been terminated by the transfer. In Secretary of State for Employment v. Spence [1986] IRLR 248 the Court of Appeal said that the words “immediately before the transfer” mean “at the moment of transfer”. In the Spence case itself, this meant that employees who were dismissed only three hours before the transfer were held not to have been employed immediately before it. If, however, the dismissal breaches the special rules governing transfer-connected dismissals (which are explained below), the employee’s employment is deemed to continue until the moment of transfer. Although regulation 5 only applies to an employee who is employed “by the transferor”, employees who have a different employer e.g. another group company may be protected if they spend most of their working time in the undertaking. The question which often generates the greatest practical difficulty is deciding whether an employee is employed in the undertaking. According to the ECJ, the test which must be applied is to ask whether the employee is “assigned to” the undertaking. In an extreme case, this can mean that an employee who spends 100% of his or her working time in the undertaking will not transfer under TUPE if s/he is attached to another department. As a general rule, however, tribunals are willing to accept that employees who spend the majority of their working hours in the transferred undertaking are assigned to it. An employee who agrees to remain in the employment of the old employer will not transfer under TUPE, since it cannot then be said that the employee’s contract would otherwise have been terminated by the transfer. But the mere fact that an employee continues to work for the transferor after the transfer does not necessarily mean that s/he has elected to remain behind. As the EAT pointed out in the Sunley Turriff Holdings case, an employee may continue working for the transferor because the transferee has refused to take him/her on or because s/he is confused or mistaken about the true legal position. The right to object Although employees who come within the scope of TUPE have an automatic right to transfer to the new employer, it is not obligatory for them to do so. Under regulation 5, an employee who does not wish to transfer can inform either the old or the new employer of that fact. In that event, the employee’s contract terminates automatically by operation of law, which means that s/he is not entitled to any compensation. The EAT has said that an objection will only be valid if it is communicated to either the old or the new employer before the transfer. Which rights transfer? Where an employee transfers under TUPE, the new employer is required to step into the shoes of the old employer in virtually all respects. This is the effect of regulation 5(2), which provides that: (i) all of the old employer’s rights, powers, duties and liabilities under or in connection with the contract of any transferring employee transfer to the new employer; and (ii) anything which the old employer did in relation to that employee is deemed to have been done by the transferee. This allows transferring employees to insist that the new employer honours their existing contracts of employments. The transfer of contractual rights is not limited to express terms but also covers implied terms e.g. a customary right to receive enhanced redundancy pay. The new employer must also adhere to any terms and conditions which derive from a collective agreement. In some circumstances, the change in the identity of the employer which results from a TUPE transfer may affect the way in which a contractual term operates. An example would be a profit share scheme under which pay is linked to the employer’s profits. If the new employer is a small company with much lower profits, the employee could be significantly disadvantaged. Where this is the case, the new employer may be obliged to establish a new scheme which produces comparable levels of remuneration. In addition to being obliged to adhere to existing terms and conditions, the new employer becomes liable for previous breaches of contract e.g. arrears of wages. Statutory liabilities also transfer e.g. the right to complain of unfair dismissal and claims under the discrimination legislation. Occupational pensions are the only exception to the principle that the new employer must step into the shoes of the old employer. This is because TUPE do not apply to any part of a contract of employment or collective agreement which relates to an occupational pension scheme. However, the Government may make it obligatory for the new employer to provide comparable pension arrangements when the new TUPE Regulations are introduced. It should also be noted that the exclusion of occupational pension rights does not extend to provisions of a pension scheme which are not concerned with benefits for old age, invalidity and survivors. Collective agreements and trade union recognition In addition to safeguarding individual rights, TUPE also seek to ensure that the new employer steps into the shoes of the old employer so far as relationships with trade unions are concerned. Regulation 6 provides that any collective agreement made between the old employer and a trade union which it recognised in respect of the transferring employees shall have effect after the transfer as if it had been made between the relevant union and the new employer. Regulation 9 provides for the transfer of union recognition, although this only applies if the transferred undertaking maintains an identity which is distinct from the remainder of the new employer’s undertaking. Transfer-connected dismissals Dismissals which are related to the transfer of an undertaking are governed by a special statutory regime. It is contained in regulation 8 of TUPE and has four key features: (i) it applies to a dismissal for which the reason or principal reason is the transfer of an undertaking or a reason connected with it; (ii) any such dismissal is rendered automatically unfair for the purposes of the Employment Rights Act 1996 (“ERA”); (iii) the automatic unfairness rule does not apply where the reason or principal reason for the dismissal is “an economic, technical or organisational reason entailing changes in the workforce” (“an ETO reason”). In that event, the dismissal is regarded as being for some other substantial reason; (iv) a dismissal for an ETO is therefore potentially, but not necessarily, fair. It must still pass the general fairness test contained in the ERA. The special protection from dismissal which employees enjoy under TUPE is not limited to actual dismissals. It also applies to a constructive dismissal and to the non-renewal of a fixed term contract when it expires. So far as constructive dismissal is concerned, TUPE make clear that an employee can resign and complain of constructive dismissal if there is a substantial detrimental change in his/her working conditions. But it is important not to jump the gun. In Sita (GB) Ltd v Burton and others [1997] IRLR 501, the EAT held that a fear that the new employer would alter terms and conditions of employment did not give the employees the right to resign. The protection from unfair dismissal provided by TUPE applies to any employee who is dismissed by reason of a transfer, whether or not s/he works in the transferred undertaking. But the right to bring a complaint is subject to all the normal service qualifications. It may be possible to demonstrate that a dismissal is connected with a TUPE transfer even if no specific transferee has been identified at the time when the dismissal occurs.
An employer can avoid the automatic unfairness rule by showing that there was
an ETO reason for the dismissal. An ETO defence may succeed if the dismissed
employee is redundant or if changes in the way the undertaking is run create a
need for new skills which s/he does not possess. Complaints of unfair dismissal
should nevertheless be made if the employer has failed to act fairly e.g. by
failing to consult or to give adequate consideration to alternative employment. TUPE impose very substantial restrictions on an employer’s ability to change terms and conditions in the context of a TUPE transfer. These restrictions arise in two ways: 1. the Court of Appeal has held that an employee’s agreement to vary his or her terms and conditions of employment will not be binding if the transfer of an undertaking is the reason for the variation. This means that an employee who has apparently accepted a new contract can subsequently claim that s/he is still employed on pre-transfer terms and conditions - see Credit Suisse First Boston (Europe) Ltd v Lister [1998] IRLR 700. Moreover, the employee is entitled to insist on the employer’s adherence to each individual term in the contract. The employer is not allowed to say that, taken as a whole, the new contract is as favourable as the old one. Note also that there is no specific time limit on an employee’s right to reject transfer-connected changes in terms and conditions, although the passing of time may make it easier for the employer to say that the changes are not a consequence of the transfer. 2. an employer is not entitled to dismiss staff who refuse to accept new terms and conditions if the changes are connected with the transfer of an undertaking. This is subject to the qualification that the dismissal will not be automatically unfair if there is an ETO reason for the change in terms. UNISON has asked the European Commission to challenge the House of Lords refusal to refer these cases to the European Court of Justice Consultation rights TUPE require both the old and the new employer to consult the representatives of any employees who may be affected by the transfer. Where UNISON is recognised, the employer is given the option of either consulting with us or alternatively inviting the affected employees to elect employee representatives. Regulation 10 of TUPE sets out the information which an employer must provide. It comprises: (i) the fact that the transfer is to take place, when it is to take place and the reasons for it; (ii) its “legal, economic and social” implications for the affected employees; (ii) details of any measures which the employer envisages taking in relation to the employees; (iv) in the case of the old employer, details of any measures which the new employer envisages taking in relation to the employees. This information must be provided long enough before the transfer to enable consultation to take place. Although employers are obliged to provide information about the transfer in every case, the duty to consult only arises if an employer plans to take measures which will affect the employees e.g redundancies. Where the employer is required to consult, it must do so with a view to seeking the representatives’ agreement to the proposed measures. If the employer fails to consult, or consultation is inadequate, a complaint can be brought in the employment tribunal. This must be presented within three months of the transfer. If the complaint is upheld, the tribunal may order the employer to pay compensation of up to four weeks’ pay to the affected employees. Remedies Potential remedies for our members who are affected by a TUPE transfer include the following: (i) for members dismissed in connection with a transfer, a complaint of unfair dismissal. The correct respondent will usually be the new employer, even if the member was dismissed before the transfer. But if there is any doubt as to whether TUPE applied, it will be wise to bring claims against both employers; (ii) for members who have been made redundant, a claim for redundancy pay; (iii) where our members’ terms and conditions are changed unilaterally (without their being dismissed), potential options are: a) a claim in the employment tribunal for unlawful deduction of wages; b) an application to the employment tribunal under section 11 of the ERA asking the tribunal to determine what particulars should be included in the statement of terms and conditions which the employer is required to provide under section 1 of the ERA; c) a claim for breach of contract in the ordinary courts; These remedies may also be available if our members accept new contracts in circumstances where it can be shown that the reason for the introduction of the new terms was connected with a TUPE transfer. If the members’ employment has terminated, it would be possible to bring a contract claim in the tribunal: (iv) if the employer fails to consult, a complaint to the employment tribunal. These briefs are not a full statement of law and further advice should be sought before bringing or defending proceedings. ** A PDF 36 page document (TUPE August 2006) is available for download here If there are any subjects you would like covered, please contact Adam Creme, Legal Department or Christine Durance, Policy & Research (both at Mabledon Place, London).
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