Transfer of Undertakings (TUPE)

What is TUPE?

A TUPE or Transfer of Undertakings refers to a set of regulations relating to business ownership. They are of crucial importance when ownership of a business is transferred. The rules apply not only in the clear circumstances of a business sale, but also in a number of less obvious circumstances where an “undertaking” changes hands (most commonly a change in service provider).

Businesses carrying out a TUPE must adhere to stringent regulations as a failure to do so can leave them exposed to large claims.  Any business which is undertaking a TUPE should take legal advice at the very outset.

What are the rules?

When a business comes under new ownership, all the staff, together with their employment contracts, transfer automatically to the new owner. This means that the new business must engage the staff from the old business on the same terms and conditions.

The new owner cannot just impose their own contractual terms on the workforce.  All conditions relating to pay, holiday entitlement, sick pay and notice must remain the same.  An employee’s length of service will be deemed to have started on the date they were first employed by the original employer.

Should the terms and conditions be changed, an employer could find itself facing a claim for unfair dismissal.

Consultation and Advice for Buyers

There are numerous obligations placed on the new owners of the business. Both the new owners and old are required to consult with the workforce prior to the transfer taking place.  A failure to consult properly can also leave employers open to claims by employees.

Once a transfer has taken place, if the new owner dismisses any of their employees for a TUPE-related reason, then it is deemed to be an unfair dismissal. There have been cases where a dismissal taking place up to five years after a TUPE has been held responsible and thus automatically unfair.

The liability for any mistakes on a TUPE transfer will nearly always fall on the new owner. This means that careful consideration needs to be given when the contracts dealing with the purchase are negotiated.  TUPE applies to all businesses, no matter how big or small. 

One situation where business can avoid TUPE situations is where the selling business is insolvent.  If a new party takes over the business, the new enterprise does not have to take on the workforce of the insolvent company.  Unfortunately, this has led to an increase in what are known as “pre-pack administrations”, where a failing business lines up another buyer before going into administrations. The assets are then quickly transferred to the buyer for a lower price. The new organisation will then carry on, but is able to discard the old workforce who have been made redundant.