Tupe 2006 Notes

TUPE applies if the proposed acquisition is classified as a "relevant transfer" (reg 3(1)):

1. transfer of a business situated in the UK; QUESTION OF FACT

2. from one person/company to another; substance over form

3. where the transfer of an "economic entity which retains its identity"

“Economic entity” = an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary (reg 3(2)).

In other words, the transfer of a business situated in the UK as a going concern.

• On transfer, employment contracts of the target are automatically transferred to B by statutory novation on their existing terms and conditions (reg 4(1)).

• S is discharged and the contract is treated as if it was originally made between B and employee.

• All rights, obligations, powers and duties under the employment contracts transfer from S to B

What if TUPE does not apply?

Any rights which the employees have (e.g. normal employment claims for redundancy, unfair dismissal or wrongful dismissal) must be enforced against SELLER.

i.e. no liability for B

TUPE applies to 2 categories of employees:

1. Employees actually employed by S at the time of the transfer (i.e. the date of completion) (reg 4(3)), unless they personally object to becoming employed by B (i.e. they resign) (reg 4(7)).

2. Employees who were dismissed before the transfer, and were dismissed:

1. by reason of the transfer (i.e. redundancy – must relate to the ongoing conduct of the business); or

2. for a reason connected with the transfer where no ETO reason exists (automatically unfair if no ETO)

Only employees assigned to the relevant part being transferred will be transferred to B. Whether or not an employee is assigned to the relevant part is a question of fact, taking into account whether it "formed the organisational framework within which their employment relationship took effect" (Botzen)

BUYER – will want to limit liability

1. Definition of "employees"

1. Include a schedule in the SPA

1. Which employees are going to B?

2. Which employees are not going to B?

   1. Warranties – B should seek warranties from S that:

1. B will not inherit/ co does not employ any other persons other than those listed

2. S has not offered employment to anyone which has not yet been, but still can be accepted

3. no dismissals pre-completion of deal

4. no change in T&Cs of employees pre-completion

5. complied with all statutes, regulations, relating to each employee

6. no employment claims

7. all information on employees has been supplied to B with complete/correct details

8. any collective agreements that may exist; and

9. that there have been no dismissals by sole and principal reason of the transfer and there is no ETO reason that applies (i.e. protecting against TUPE – B would be liable - breach by S means that B can bring breach of warranty claim for value of TUPE liability)

   1. Indemnities

1. against claims from employees which are attributable to any breach by S

2. against costs/liabilities arising from employees up to completion

   1. Reduce purchase price to reflect potential claims – put together a fund for redundancy costs rather than reducing PP on basis redundancies will only be made for an ETO reason and B will act fairly in dismissal

SELLER

1. Seek an increase in price if it restructures the company on request of B before completion and has to pay compensation to those dismissed.

2. Disclosure any restructuring/dismissals made before completion.

• Employees are entitled to retain same terms and conditions of employment post-transfer as they enjoyed pre-transfer

• all pre-existing employment rights and liabilities remain intact on transfer

1. Positive changes are allowed (Power v Regent Security)

2. Negative changes are prohibited and automatically void where sole or principal reason for the change is:

1. by reason of the transfer;

   • BIS Guidance has provided that 'harmonising terms' between B and the co = a reason of the transfer itself and is therefore void.

   • However, BIS not binding and therefore could argue that harmonisation is the result of a reason unconnected to the transfer, or connected to the transfer but an ETO reason.

2. a reason connected to the transfer (unless there is an ETO exemption) (reg 4(4)).

   • If it is a reason connected to the transfer, is there an ETO? (economic, technical, organisational reason)

   • No statutory def of an ETO reason but it must be a change in the:

   1. nature of duties of employees (i.e. function); or

   2. number of employees

   3. ...which relates to the on-going business

However, change of terms and conditions may be legitimate if they are aimed at:

1. improving performance and efficiency (Enterprise Managed Services Limited v Dance)

2. bringing them in line with the industry standard (Smith and Others v Trustees of Brooklands College)