Tupe Law: When It Doesn't Apply And Why

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, is a UK law that protects employees' rights when the business that employs them changes hands. It applies when there is a relevant transfer, which can be a business transfer or a service provision change. However, TUPE does not apply in certain situations, such as when an entire company is sold (through a share takeover) or when an employer is insolvent and closing down. In a share sale, TUPE is unlikely to apply because there is no formal transfer of staff or assets, and the same company remains the employer. In cases of insolvency, TUPE protection is relaxed to encourage the rescue of failing businesses.

When a company is sold through a share takeover

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, is a UK law that protects employees' rights when the business they work for changes hands or when there is a "service provision change".

TUPE does not apply to every business transfer or service provision change. For example, it does not apply when a company is sold through a share takeover. This is because, in the case of a share sale acquisition, the legal identity of the company remains the same; only the ownership of its share capital changes hands. In other words, there is no transfer of the business itself from one person to another, and the identity of the employer does not change.

However, it is important to note that TUPE may apply in certain share purchase scenarios. For instance, if post-acquisition, the employees are employed by another group company (such as the parent company of the purchasing entity), this can trigger a TUPE transfer. This was demonstrated in the case of Jackson Lloyd Ltd and Mears Group plc v Smith and others, where the Employment Appeal Tribunal upheld that a TUPE transfer had occurred despite it being a share sale because the actions of the purchasing entity after the share sale were sufficient to trigger a business transfer under TUPE.

When a contract is for a single event or short-term task

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, is a UK law that protects employees' rights when the business they work for changes hands or is taken over by another company.

TUPE does not apply to contracts for a single event or short-term task. For example, hiring a catering company for a large corporate event or a security company to secure a site on an interim basis. In these cases, the employees of the contracted company are not protected under TUPE.

However, it is important to note that this exemption only applies if the client intends to use the contractor for a single specific event or task of short-term duration. If there is any uncertainty about the duration of the task or event, it is advisable to seek specialist legal advice to determine if TUPE applies.

This exemption for single events or short-term tasks ensures that companies can hire contractors for specific, limited purposes without triggering the same legal obligations as when transferring a business or undertaking. It provides flexibility for businesses to bring in external providers for one-off events or short-term projects without being bound by the same regulations that govern more permanent transfers of ownership or control.

Nevertheless, it is crucial for employers to carefully assess whether the short-term duration exemption applies to their specific situation. Misinterpreting the applicability of TUPE can result in significant legal and financial consequences, including penalties of up to 13 weeks' pay for each affected employee.

When the contract is for the supply of goods only

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, is a UK law that protects employees' rights when the business they work for changes hands or when there is a "service provision change".

TUPE does not apply if the contract is for the supply of goods only. For example, a car manufacturer getting their brake pads from a different supplier. In this case, there is no transfer of an economic entity that retains its identity, which is a key requirement for TUPE to apply.

When a company changes the supplier of its goods, this typically does not trigger TUPE. This is because the supply of goods usually does not involve the transfer of an "economic entity that retains its identity", which is a key requirement for TUPE to apply. In other words, simply changing suppliers does not usually involve a transfer of a business or part of a business, along with its employees, to a new employer.

However, it is important to note that if the supply of goods also includes the provision of services, then TUPE may apply. For example, if a company provides both goods and ongoing maintenance services, then TUPE could be triggered if that company changes. In this case, the ongoing nature of the services provided could mean that there is a transfer of an economic entity that retains its identity.

Other Scenarios Where TUPE Does Not Apply

In addition to the supply of goods only, there are a few other scenarios where TUPE typically does not apply:

• Share takeover: When a company's shares are sold to new shareholders, there is no transfer of the business itself, so TUPE does not apply.
• Single-event or short-term activities: TUPE does not apply to contracts for single-event activities, such as a conference or exhibition, or for short-term activities, such as isolated repairs to property.
• International transfers: TUPE may not apply to international transfers, especially if the organisation is not based in the UK. However, it may apply if an employee works abroad but the organisation is based in the UK, or if the purpose of the transfer is to move the organisation abroad.
• Insolvency: TUPE is relaxed when the employer is insolvent. In this case, the new employer is not liable for certain payments, such as redundancy and notice payments.

When TUPE Does Apply

While the above scenarios provide some guidance on when TUPE does not apply, it is important to note that determining whether TUPE applies can be complex and often requires specialist legal advice.

In general, TUPE applies when there is a "relevant transfer", which can include:

• Business transfer: When the whole or part of a business is transferred to a new employer as a going concern. This can include mergers, changes of franchisee, sales of a sole trader's business, transfers of a lease, management buyouts, or intra-group transfers.
• Service provision change: When a client engages a contractor to undertake work on its behalf, reassigns a contract to a new contractor, or brings the work in-house. This can include contracts for workplace catering, office cleaning, professional business services, and more.

Key Factors to Determine TUPE Applicability

When determining whether TUPE applies, some key factors to consider include:

• Economic entity test: Is there a transfer of an economic entity that retains its identity? This means that the business operation continues to offer essentially the same products and services to the same customers.
• Organised grouping of employees: For service provider changes, TUPE requires an organised grouping of employees carrying out work for a specific client.
• Similar activities: The activities undertaken before and after the transfer must remain fundamentally the same.
• Staff organisation: The staff providing the activities must be organised into groupings that provide the activities to the client.

TUPE's Purpose and Effects

TUPE is designed to protect employees' rights when a business changes hands. Its effect is to automatically transfer employees, along with any associated liabilities, from the old employer to the new employer. This means that employees retain their existing terms and conditions of employment, including pay, benefits, and continuity of service. TUPE also protects employees from unfair dismissal due to the transfer and gives them the right to object to the transfer and choose who they work for.

When the business is insolvent

When a business is insolvent, TUPE law is relaxed to protect incoming employers. In such cases, the liability for redundancy, notice, and some other payments to employees will not be transferred to the new employer. This means that a buyer can choose whether to hire the seller's employees directly or not at all. If they do hire them, they will not be bound by the existing employment contracts and can offer different terms. This is beneficial for a buyer who wants to achieve harmonisation with the contracts of their existing employees or make other changes to improve the business's viability, such as reducing pay or holiday entitlement.

However, employees recruited from the insolvent seller will have continuity of employment, which is essential for claiming unfair dismissal or receiving statutory redundancy pay. The clock is not reset to zero after the transfer—employment with the seller will still be counted.

Additionally, while there is more flexibility for the buyer to change employment terms, certain liabilities are carved out. Employment liabilities relating to employment prior to the transfer, which the employee can claim from the Insolvency Service, are not transferred to the new employer. These include sums such as up to eight weeks' arrears of pay, holiday pay, and unpaid pension contributions, capped at the level set for statutory redundancy pay. The buyer may still take on considerable liabilities for any payments exceeding this cap or for other contractual payments or liabilities not covered by the relevant statutory schemes.

To encourage rescue attempts, TUPE law also allows for terms and conditions of employment to be changed (without an ETO) if the change is designed to save a failing business. This can be done with the agreement of trade unions or employee representatives.

It is important to note that the changes to TUPE law in an insolvency context only apply when formal insolvency proceedings have been commenced, and an insolvency practitioner has been appointed. If an insolvent company sells its business before the appointment of an administrator, the ordinary TUPE provisions would apply, and the buyer would face the full range of liabilities.

When there is no transfer of an economic entity

TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, is a UK law that protects employees' rights when the business they work for changes hands or when there is a "service provision change".

TUPE is triggered when a "relevant transfer" takes place. This is defined as either a business transfer or a service provision change. A business transfer involves the transfer of an economic entity that retains its identity post-transfer. This could include mergers, a change of franchisee, the sale of a sole trader's business, or the transfer of a lease.

For a business transfer to be covered by TUPE, it must involve the transfer of an "economic entity that retains its identity". This means that the business operation continues doing essentially the same thing as it did before. For example, if a business is sold to a new owner but continues to offer the same services and products to the same customers, TUPE is likely to apply.

In the case of Securitas v ICTS Portugal, Securitas took over security services from ICTS but refused to take on the employees. This case helped establish that, in labour-intensive businesses such as cleaning, the transfer of employees is vital for TUPE to apply. In contrast, for businesses more heavily reliant on other assets such as land or equipment, the transfer of these assets is more important.

In summary, when there is no transfer of an economic entity, TUPE does not apply. This means that the business operation is not continuing in the same way, and the employees, assets, and operations are not being transferred to a new owner.

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