Transfer of Undertakings (Protection of Employment) Regulations
When a business is sold or ownership transferred to another party this will affect employees of that business. Legal provisions have been made and these attempt to minimise the effect of such activities on employees. The rest of this article will describe the Act and its implications in more detail.
Under common law a change of employer terminates contract because contract seen as involving ‘personal service.’ However, the ERA provisions protect statutory continuity of employment where there is a change of employer:
- ERA provisions protect statutory continuity of employment where there is a change of employer.
- The more significant and wide-ranging provisions are found in the Transfer of Undertakings (Protection of Employment) Regulations, commonly known as TUPE.
- The current regulations replaced those introduced in 1981. They give effect to the EC Acquired Rights Directive 2001 (2001/23/EC) which revised the original directive of 1977.
- The regulations are issued under the European Communities Act 1972 and, for rights not conferred by the Directive, under the Employment Relations Act 1999.
Types of transfer
There are two types of transfer covered by the Regulations.
- A transfer of a business to another person.
- Service provision change. (The service is to be provided by another person)
Transfer of a business to another person
This is the transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity.
The Regulations here have adopted the classic test – an economic entity which retains its identity. Economic entity means an organised grouping of resources which has the purpose of pursuing economic activity but not necessarily in the private sector or for profit. Perhaps surprisingly, leases, franchises, and contracted-out parts of undertakings are included.
Change of control by acquisition of shares is not a transfer: there is no transfer of an undertaking from one person to another because the legal person who is the employer does not change. However, there may be exceptions, for example, where share acquisition masks what is really a transfer: Millam v Print Factory (London) 1991 Ltd  IRLR 526 (CA).
When does the transfer occur? In CELTEC Ltd v Astley, a case taken under the Directive rather than TUPE, the ECJ held that the transfer takes place at a particular point in time rather than over a period of time (although TUPE reg. 3(6) expressly covers a transfer involving two or more transactions).
Service provision changes
A service provision change is where an activity ceases to be carried out by a person (the ‘client’) and is carried out instead by another person on their behalf (the ‘contractor’). The definition also embraces the replacement of a contractor with a subsequent contractor and the client performing the activity themselves instead of contracting it out. It thus covers initial contracting out of services, change of contractor and taking the service back in-house.
Prior to the change, there must be an organised grouping of employees with the principal purpose of carrying out the activity and the service provision change must not relate to a single event or be of short-term duration. The activity must not be wholly or mainly concerned with the supplying of goods to the client.
The service provision changes are expressly included in TUPE for the first time because although the case law has largely determined that they are included in the transfer of an undertaking there is the possibility that some may not be. Such changes will now be protected under TUPE even if they do not amount to transfers of undertakings.
Determining whether or not TUPE applies
This has been a major issue in interpreting the Regulations. It has been held that there is a transfer if: either there is a transfer of significant tangible or intangible assets or a take-over of a major part of the workforce.
What if transferee deliberately avoids taking over staff to side-step the Regulations? In ECM Ltd v Cox, the Court of Appeal held there to be a transfer under such circumstances. This was one of a number of cases where the entity transferred was labour-intensive, with not a great deal else to be transferred.
Transfer of the Contract of Employment
What is transferred?
- The contract and ‘all the transferor’s rights, powers, duties and liabilities’ but not a profit sharing scheme, although the transferee is required to provide an equivalent scheme.
For more information on:
- Changes in the terms of employment
- Automatic unfairness
- Dismissal and re-engagement on reduced terms
- The ETO exception
- Dismissals unconnected with the transfer
- Pre-transfer dismissal because of or connected with the transfer
- Post-transfer dismissal because of or connected with the transfer
- Notification of employee liability information
- Summary of Key Points