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Tupe 2006 Notes

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TUPE 2006

(TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT) REGULATIONS 1996) Does TUPE apply to the proposed sale?

TUPE applies if the proposed acquisition is classified as a "relevant transfer" (reg 3(1)): (i) transfer of a business situated in the UK; QUESTION OF FACT (ii) from one person/company to another; substance over form (iii)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. What is the effect of TUPE?


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 S is discharged and the contract is treated as if it was originally made between B and employee.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

Which employees are automatically transferred?
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: (a) by reason of the transfer (i.e. redundancy - must relate to the ongoing conduct of the business); or

(b) 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)

How to protect against potential claims?
BUYER - will want to limit liability

1. Definition of "employees" (a) Include a schedule in the SPA (i) Which employees are going to B?
(ii) Which employees are not going to B?

2. Warranties - B should seek warranties from S that: (i) B will not inherit/ co does not employ any other persons other than those listed (ii)S has not offered employment to anyone which has not yet been, but still can be accepted (iii)no dismissals pre-completion of deal (iv) no change in T&Cs of employees pre-completion (v) complied with all statutes, regulations, relating to each employee (vi) no employment claims (vii) all information on employees has been supplied to B with complete/correct details (viii)any collective agreements that may exist; and (ix) 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)

3. Indemnities (i) against claims from employees which are attributable to any breach by S (ii) against costs/liabilities arising from employees up to completion

4. 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.

SCENARIO 1: Changing the terms and conditions of the transferred employees' contracts
 Employees are entitled to retain same terms and conditions of employment posttransfer 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:

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(i) 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. (ii) 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: (i) improving performance and efficiency (Enterprise Managed Services Limited v Dance) (ii) bringing them in line with the industry standard (Smith and Others v Trustees of Brooklands College)

Scenario 2: Dismissal of an employee by seller BEFORE completion - what claims can employee bring?

Unfair Dismissal (where reason for dismissal is not fair) Does TUPE apply?
(1) Is there a relevant transfer?
- YES = liability may transfer to B as transferee
- NO = liability remains with S as transferor (2) Does the person satisfy the criteria for unfair dismissal? (reg 4) (i) 1 year's continuous employment immediately prior to dismissal (if employed before 06/04/2012); or (ii) 2 years' continuous employment immediately prior to dismissal (if employed on or after 06/04/2012); and (iii)has there been a dismissal?
NO = no unfair dismissal claim **no need to proceed**
(3) YES = was the dismissal because of: (i) the transfer itself; (e.g. collusion with B to get rid of some numbers/dead wood - Hind) or (ii) for a reason connected to the transfer?
- NO = Unfair dismissal rules against the transferor (seller)
- YES = automatically unfair against transferee (buyer) unless ETO applies which makes it potentially unfair (4) Does S have an ETO reason for dismissal?
No statutory definition but it must be a change in the: (i) nature of duties of employees (i.e. function); or (ii) number of employees;
...which relates to the on-going business

(iv) redundancy (SHOULD NOT INVOLVE B - must relate to ongoing business of S or will be B's liability as by reason of transfer itself and no ETO available) (a) Complete closedown (whole business ceases) (b) Partial closedown (place/job where employee was employed ceases) (c) Over manning/change in type of work (work where employee was employed has ceased/diminished, or is expected to) (v) some other substantial reason (e.g. personality clash between worker) NO = dismissal is automatically unfair and claim against the B (5) YES = was the dismissal handled fairly under S98(4) ERA 1996?
 were all employees put up for evaluation? or just the employees transferred?
 genuine and reasonable belief?
 belief based on reasonable investigation and procedure?
 size of business? What is appropriate for them?
 any procedural defects, such as: o Warning?
o Given chance to improve?
o Offered supervision & extra training?
o Redeployed to another area suited to employee's competence?
NO = unfair and claim against seller as transferor YES = dismissal is fair but the employee may be entitled to redundancy payment Remedies

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