Transfer of Undertakings ("TUPE")
Where a going concern is sold, what will happen to the existing employees?
This situation is regulated by the Transfer of Undertakings and Protection of Employment Regulations 2006 ("TUPE"). The Regulations apply in the case of either: -
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; or
a service provision change.
The basic effect of the Regulations is that the employment contracts that are in place for employees with the existing employer will automatically transfer to the new employer.
"Service provision change" covers a situation where the service provider changes but the business, as a whole, remains the same (e.g. a contractor carrying out a particular function within a business is replaced by a new contractor).
The test is whether the business that has transferred "retains its identity". If the business does not retain its identity, TUPE will not apply. A mere transfer of shares is unlikely to trigger TUPE.
The new employer will take over the contracts of all employees who are employed immediately before the transfer, on exactly the same terms that they were employed on before. The new employer is effectively substituted for the old and takes on the contracts as though they had been party to the original terms.
The new employer also takes over all of the outstanding obligations of the previous employer. The new employer must pay the employee, honour the terms of the contract and deal with any issues going forward. This also means that (from the date of the transfer) any claims against the employer, brought by an employee, should be brought against the new employer, even where they relate to conduct taking place prior to the transfer.
The new employer should therefore obtain an indemnity from the existing employer against any liability for claims relating to the conduct of the existing employer (and vice versa).
Should he so wish, an employee is able to object to his contract being transferred to the new employer. His employment will then be treated as having been terminated by reason of his resignation and he will forego any right to make a claim for redundancy pay or unfair dismissal.
There is a duty on both the transferor and the transferee to consult with employees, any recognised trade unions or employee representatives where a transfer of the business or undertaking is taking place. Failure to consult may result in an award of compensation by the Tribunal to the employee (up to a maximum of 13 weeks' uncapped pay).
It is automatically unfair dismissal if the employer terminates the employee’s employment because of the transfer itself or for a reason connected with the transfer, unless that reason is an economic, technical or organisational reason entailing changes in the workforce.
For further information on unfair dismissal – see Unfair Dismissal.