Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

If the chosen model of shared service involves moving the responsibility of providing a service to another employer, then it is likely that TUPE will apply. If TUPE applies, its impact on the implementation plan and any proposed changes to staff numbers or terms and conditions of employment will need to be considered.

• What is TUPE?
• Does TUPE apply?
• Transfer in the public sector
• Code of practice on workforce matters – including pensions
• Who transfers?
• Can staff be seconded?
• What transfers?
• Changing terms and conditions and dismissal
• An economic, technical or organisational (ETO) reason
• Employee liability information
• Information and consultation
• Process and timing of the consultation
• Failure to inform or consult

What is TUPE?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protects employees' terms and conditions when a business or undertaking, or part of one, is transferred to a new employer.

Further information:

• 'Employment rights on the transfer of an undertaking: a guide for employees, employers and representatives'  from the Department for Business Enterprise and Regulatory Reform (DBERR)website.
  
  
• 'Employers e-guide no. 5: a guide to the 2006 changes to the law on TUPE' from the Local Government Employers (LGE) website.

Does TUPE apply?

A 'relevant TUPE transfer' can occur in the following situations: 

• A business undertaking (or part of one) is transferred from one employer to another as a going concern. This is known as a ‘business transfer’
• A client engages a contractor to carry out work on its behalf, or where it reassigns such a contract – including bringing the work back ‘in-house’. This is known as a ‘service provision change’.

There will be a transfer where the 'activities' in question cease to be carried out by one employer and are carried out in future by another. This is as long as those changes in service provision involve "an organised grouping of employees, which has as its principal purpose the carrying out of those activities on behalf of the client".

The regulations apply where the transferor has a dedicated team of employees that carry out the service activity that is to be transferred – although ‘dedicated’ does not mean that the employees must be working exclusively on those activities.

An ‘organised grouping of employees’ can consist of just one person.

Transfer in the public sector

Under TUPE, the reorganisation of a public administrative authority, or the transfer of administrative functions between public administrations, is not a relevant transfer. Although the meaning of ‘administrative’ is not defined, the Government guidance reinforces the established view that the principles of TUPE should be adhered to in any intra-governmental reorganisations.

To avoid any doubt, the Cabinet Office Statement of Practice ‘Staff transfers in the public sector’ (January 2000) sets out the Government’s policy that TUPE should apply where the public sector is the employer or client in a contracting exercise.

View the Cabinet Office statement of staff practice at the Civil Service website.

The Local Government Act 2003 gave the Secretary of State the power to require best value councils to deal with transferred staff in accordance with directions. In July 2007, the Government decided that it was not necessary to issue directions under section 101 because there was adequate protection for transferring staff in the broad definition of a ‘service provision transfer’ in TUPE.

Code of practice on workforce matters – including pensions

In March 2003 the Government issued the 'Best value and performance improvement circular'. This contains statutory guidance on best value and the code of practice on workforce matters in council service contracts.

The code of practice specifies that the transferee service provider must offer employment to new recruits on "fair and reasonable terms and conditions which are, overall, no less favourable than those of transferred employees", and which offer reasonable pension arrangements.

The Local Government Act 2003 (sections 101 and 102) conferred powers on the Secretary of State to issue directions requiring best value councils to, in effect, comply with the code.

In June 2007, the Secretary of State issued directions requiring contractors to secure pension protection to transferring employees.

The Local Government Pensions Committee (LGPC) has previously issued an information guide for councils entitled 'The pensions implications of transferring employees to an external provider'. The guide has been removed from the site as it was not wholly up to date and could, therefore, have been misleading.

For a bit more information on the LGPC guidance visit the Local Government Employers (LGE) website.

The Department for Communities and Local Government is, with the help of key stakeholders, currently reviewing the effectiveness of the current regulatory framework governing 'admitted body' status so as to ensure that arrangements:

• work well
• are not disadvantageous to employees or members
• continue to support the best value regime

Once that review has been completed the guide will be updated and reissued.

In the meantime, employers should make early contact with their relevant Local Government Pension Scheme (LGPS) administering authority when considering out-sourcing.

The Government did not issue similar directions with regard to terms and conditions because TUPE already provides the necessary protection.  

Visit the LGE website for further information on the 'Code of practice on workforce matters in local authority service contracts'.

Who transfers?

The following people can be transferred:  

• employees (excluding people who cannot demonstrate that they are employees)
• those employed by the transferor
• those assigned to the organised grouping of resources that is to be transferred

In most cases, it will be clear which employees are ‘assigned’ to the service that is to be transferred. It may be more difficult where an employee works in more than one service.

An employee is ‘assigned’ if they are part of the organisational framework of the transferring service. It is not sufficient that the employee works part of the time for the service. Conversely, the fact that the employee may work part of the time for another service does not preclude a finding that they are nevertheless assigned to the transferring service.

There is no formal percentage test that helps employers determine whether an employee is assigned. However, the Employment Appeals Tribunal (EAT) has provided a non-exhaustive list of relevant factors that could be taken into consideration depending on the facts of the particular case. They include:

• the amount of time spent in the transferred undertaking and the rest of the business
• the amount of value given to each part by the employee
• the job description and what the employee is contractually required to do
• how the cost of employee’s services are allocated between different parts of the business

Employees who are only temporarily assigned to the service do not transfer. This will exclude people on secondment or any other form of temporary arrangement.

TUPE also allows an employee to object to the transfer.

Can staff be seconded?

Until recently, it has been expedient in some cases to populate the new shared service with staff on secondment from their host employers, rather than transfer them to the transferee. This can often overcome the reservations of staff and their trade union representatives about moving out of local government employment.

However, in the recent Celtec case, it was confirmed that employees who are assigned to the service automatically transfer to the transferee at the point of the transfer, notwithstanding the wishes and intentions of the parties. So, even if staff and both employers prefer a secondment model rather than a TUPE transfer, the secondment will not be effective if there is a relevant TUPE transfer. 

The Celtec case is only relevant where there is a TUPE transfer. There is nothing to prevent a secondment if there is no relevant TUPE transfer. 

What transfers?

All the transferor’s rights, powers, duties and liabilities under or in connection with the employee’s contract of employment transfer to the transferee. Also, anything done by the transferor in respect of the employee’s contract before the transfer.

In practical terms, the transferee will inherit:

• all existing contractual terms (other than pension rights – see later)
• terms incorporated from a collective agreement at the time of the transfer (if the transferor is not a party to the National Joint Council (NJC) agreement, it will be bound by the NJC terms and conditions at the point of transfer, but will not be bound by any subsequent changes to the national agreement, such as pay rises)
• liability for past breaches of contract (such as arrears of wages) and statutory liabilities (such as unfair dismissal, redundancy pay and any claim under the range of discrimination legislation)
• continuous employment with the transferor
• liability for any course of action instigated by the transferor, for example disciplinary proceedings or acts that might result in a claim of constructive dismissal or discrimination

Changing terms and conditions and dismissal

TUPE preserves the transferring employee’s employment and terms and conditions of employment.

It is automatically unfair to dismiss a transferred employee if the sole (or principle) reason for the dismissal is the transfer.

Any variation in a transferring employee’s terms and conditions of employment will be ineffective if the sole (or principle) reason for the variation is the transfer.

A dismissal or variation may be lawful if the sole or principal reason for the dismissal or variation is unconnected with the transfer, or is connected with the transfer and is an economic, technical or organisational (ETO) reason entailing a change in the workforce.

According to Government advice, a dismissal or variation that is by reason of the transfer is one where there are no extenuating circumstances. Government guidance and a recent case suggests that any variation designed to achieve post-transfer harmonisation will be by reason of the transfer itself and, therefore, not effective.

A potential consequence of being unable to harmonise terms and conditions is the emergence of possible equal pay problems. However, the creation of discriminatory disparities in pay does not detract from the protection afforded by TUPE, and it is possible that equal pay claims could be defended because the disparity was created by TUPE.  

It is possible to agree changes in terms and conditions where it is to the employee’s advantage.  

If there is an ETO reason, then normal employment law rules apply. Therefore, a dismissal for an ETO reason will still have to fair (it is normally by reason of redundancy) and any variation in contract must be achieved by individual agreement, collective agreement (where the individual contract allows for it) or, after careful consideration, by dismissal and re-engagement.

An economic, technical or organisational (ETO) reason

There is no statutory definition of an ETO reason, but Government guidance suggests it is likely to include:

• a reason relating to the profitability or market performance of the transferee’s business (an economic reason)
• a reason relating to the nature of the equipment or production processes used (a technical reason)
• a reason relating to the management or organisational structure of the transferee’s business (an organisational reason)

In many cases, redundancy can be a valid ETO reason where there is a genuine need for redundancies.

Following a recent decision in the Court of Session (not binding on English tribunals) it is likely that the ETO reason must belong to the employer making the dismissal or variation. This will prevent transferors borrowing the ETO to make redundancies or changes to terms and conditions before the transfer takes place.

Employee liability information

In a TUPE transfer, the transferor has an obligation to provide the transferee with a specified set of information that will enable the transferee to understand the rights, duties and liabilities in relation to the transferring employees.

The information required is:

• the identity of the employees who will transfer
• the age of those employees
• information contained in the ‘statement of particulars’ for those employees (the information required by section one of the Employment Rights Act 1996)
• information relating to any applicable collective agreements
• instances of disciplinary action within the preceding two years taken by the transferor in respect of those employees in circumstances where the statutory dispute resolution procedures apply (oral and written warnings and suspension on full pay are excluded)
• instances of any grievances raised by those employees within the preceding two years in circumstances where the statutory dispute resolution procedures apply
• instances of any legal action taken by those employees against the transferor in the previous two years, and instances of potential legal action that may be brought by those employees where the transferor has reasonable grounds to believe such actions might occur

The information should be given at least two weeks before the transfer takes place, except in special circumstances.

The information may be given in instalments, as long as all of the information is provided and the two-week deadline is met.

The information can be given by a third-party, for instance a council could pass the information from the existing contractor to the new contractor in circumstances where the contract is awarded to a new employer following a second-generation tender.

The information must be provided by the transferor in writing, or in other forms that are accessible to the transferee. This would include electronic data, such as email, so long as the transferee can access the information.

If any of the information changes between the time it is originally provided and the date of the transfer, the transferor is required to give the transferee written notification of the changes.

If the transferor does not provide the employee liability information, the transferee can complain to an employment tribunal. If the complaint is upheld, a declaration to that effect will be made and the transferee will be awarded compensation for any loss that it has incurred because of the failure to provide the information. The level of compensation will be at least £500 for each employee for whom the information was not provided, unless it would be just and equitable to award a lower sum.

Information and consultation

TUPE places an obligation on both the transferor and transferee to provide information to, and to consult, the representatives of their respective employees who may be affected by the transfer.

This can include employees who are not part of the transfer, but who are affected by the transfer.

TUPE also has the effect of transferring trade union recognition agreements, as long as the transferring group of employees maintains a distinct identify from the rest of the transferee’s business.

The transferor and transferee must inform and consult the recognised trade union. If there is no recognised trade union, the employees must be given the opportunity to elect their own representatives.

The following information must be provided in writing long enough before the proposed transfer to allow meaningful consultation to take place:

• the fact that the transfer is to take place
• approximately when it is to take place
• the reasons for it
• the legal, economic and social implications for any affected employees
• the measures the employer envisages it will take in relation to the employees in connection with the transfer (or indicating that no such measures are envisaged)
• the transferor must give information as to the measures the transferee envisages it will take (this involves the transferee giving the necessary information to the transferor – pragmatically, it is often easier for the transferee to liaise directly with the trade union or employee representatives)

The term 'envisaged' normally means only those measures that can be anticipated or foreseen as likely to happen, and not merely contemplated as theoretically possible.

Process and timing of the consultation

If the employer envisages that it will be taking relevant measures, it must enter into consultation with the appropriate employee representatives “with a view to seeking their agreement”.

Although TUPE does not impose a specific time scale for consultation, they must be meaningful and allow sufficient time for the representatives to consider the proposals. 

The employer must consider any representations and, if it rejects them, state its reasons.

Employers may also have to consider their statutory consultation obligations if they are making at least 20 employees redundant.

For more, see information and consultation on redundancy.

Failure to inform or consult

An employment tribunal may award 'appropriate compensation' if an employer fails to provide the required information or to undertake meaningful consultation.

The failure of the transferor does not automatically transfer to the transferee. They are jointly and severally liable. In practice, this means that any award will be made against the employer who failed to meet its obligations.