Commercial and technology contracts legal A-Z: T is for TUPE

Commercial and technology contracts legal A-Z: T is for TUPE

Beneficial variations to an employment contract held to be void where the principal reason is a TUPE

TUPE is the commonly used acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006, a complex area of law aimed at protecting rights of employees when certain business changes take place. TUPE is not just a matter for employment lawyers and employment tribunals - it has potentially widespread implications for a variety of commercial contracts. It is essential that all businesses are aware of TUPE and understand the sort of employment liabilities that can arise.

When does TUPE apply?

When TUPE applies it is not straightforward and each situation will require analysis. However, in general, TUPE applies to a “relevant transfer”, which covers two main scenarios:

BUSINESS TRANSFERS - TUPE may apply if a business or part of a business moves to a new owner so that the employer of the employees in a business changes. TUPE will not apply on a share sale unless a business transfer is also involved.

SERVICE PROVISION TRANSFERS - TUPE may also apply in the following situations:

  • a contractor taking over activities from a client (e.g. outsourcing)
  • a new contractor taking over activities from another contractor (e.g. re-tendering) and
  • a client taking over activities from a contractor (e.g. bringing services back in-house).

Some transfers will be both a business transfer and a service provision change.

Key effects of TUPE

  • Automatic transfer of employment: The employees of the outgoing employer automatically become employees of the incoming employer at the time of transfer. The transferred employees carry with them their continuous service, therefore the new employer inherits many employment related liabilities such as unpaid wages, discrimination claims, or harassment claims. The transferred employees also continue to enjoy largely the same rights, benefits and terms and conditions of employment with the new employer. The TUPE regulations contain detailed provisions to help identify the specific "group" of employees that may transfer. 
  • Protection against dismissal: If an employer seeks to dismiss any transferring employee due to their transfer, the employee is likely to have a claim for unfair dismissal.
  • Obligation to inform and consult: Both the transferor and transferee must inform and (if appropriate) consult with recognised trade unions or elected employee representatives in relation to employees who may be affected by the transfer or any “measures” to be taken in connection with it (e.g. changes to terms and conditions).

Negotiating TUPE terms 

Whilst employment liabilities may transfer by operation of law under TUPE, the parties to the contract effecting the TUPE transfer may agree commercially a different apportionment of such liabilities and procedures for dealing with employee claims. Such matters can be dealt with in a TUPE schedule or TUPE clause with indemnities in the contract, both of which are often technical and heavily negotiated between the parties.

Where any business is looking to enter into or terminate a commercial contract, the employment costs, liabilities, and potential TUPE risks need to be carefully assessed. Both redundancy costs and employment liabilities under TUPE are increasingly seen as commercial considerations, and where required, the contract price should reflect any additional costs and risk in these areas.

For more information, please contact Stephanie Craig or another member of the commercial contracts team at Stevens & Bolton LLP.

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