Hi, my name’s Louise Keenan and I’m an Associate in the employment team at Clarkslegal.
TUPE can be a very complicated area of law to navigate and so we have designed a series of short podcasts to give you a really good overview of the basics.
In this podcast we will be focusing on what TUPE is and when it applies.
So, what is TUPE?
TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. It’s a piece of European legislation which aims to safeguard the rights and contracts of employees where there’s a transfer of a business or service from one entity to another.
Now, just to flag, when looking at TUPE you’ll hear reference being made to the transferor and transferee. Put simply, the transferor refers to the current employer and the transferee refers to the incoming employer.
TUPE applies where there is a ‘relevant transfer’. This covers two types of events:
- a business transfer; and
- a service provision change.
It’s important to highlight at the outset here that the intentions of the parties are not relevant when deciding if TUPE applies or not. The transferor, transferee or indeed the affected employees, cannot decide between themselves whether or not TUPE applies, this is a matter of law. However, Parties can vary the effects of TUPE in their commercial agreements which we’ll examine in more detail in a later podcast in this series.
Let’s look first at business transfers.
The definition of a business transfer is the ‘transfer of an undertaking, business or part of an undertaking or business, situated immediately before the transfer in the UK to another person where there is a transfer of an economic entity which retains its identity.’
So that’s a complicated test and let’s break it down and look at key aspects of the test:
- Firstly, is there a transfer of an undertaking or business (or part thereof) to another person?
This will usually be very clear cut but a point to be wary of here is share sales. It is generally accepted that a simple share sale will not give rise to a TUPE transfer. This is because when a company’s shares are sold to new shareholders, the employer remains the same because there is no transfer of the business or undertaking. It’s just ownership of the shares in that entity that are transferring.
However, in some cases, a share sale can amount to a TUPE transfer. Perhaps the one that is most of note, relates to situations where following a share sale, the new shareholders assume day-to-day control of the company, taking on responsibility and making management decisions etc. In those cases, where the new shareholders go beyond what a shareholder would normally do on a simple share sale, there may well be a transfer under TUPE. So it is just something to be aware of.
- Secondly, is the undertaking or business (or part thereof) situated in the UK immediately before the transfer?
Again this should be clear cut. It captures business transfers within the UK and business transfers from the UK to other countries but not business transfers into the UK from elsewhere. However, of course, those countries may well have their own similar legislation that will apply to that transfer into the UK. So you’d have to be mindful of that.
- Next, is there an economic entity?
An economic entity is an organised grouping of resources (which can be people and/or assets) pursuing a specific objective on an ongoing basis.
The objective does not need to be commercial or in the pursuit of profit. TUPE transfers can therefore occur in the charitable or not-for-profit sectors.
When we talk about assets here, we mean not just physical plant and equipment, but also intangible assets such as goodwill and intellectual property rights.
The nature of the business will determine whether a particular grouping of people or assets amount to an economic entity.
If you take the example of a farm, it will be crucial that the farm itself transfers for there to be an economic entity – because you could not run a farm without the farm itself. However, for more labour-intensive services (such as cleaning) the transfer of the employees will be the more crucial aspect.
A mere collection of people or assets will not be sufficient; the people or the assets must be organised in such a way that they together pursue a specific objective, i.e. they must be sufficiently structured and autonomous. They must be a business unit. In essence, this means you should be able to pick the transferor’s business up, lift it across to the transferee, and drop it, and have it continue to function as normal.
- The next part of the test is whether there is a transfer of this economic entity?
Now again this is one part of the test that’s usually relatively straightforward. A transfer will occur when there is a change in the person responsible for operating the economic entity and who assumes obligations as an employer towards the employees who are working in the economic entity. And it’s usually quite easy to identify when there has been such a change there.
- Finally, does the economic entity retain its identity?
Here, you will need to look at the economic entity pre-and post-transfer and make comparisons to determine if the economic entity is still in existence.
In deciding this, all of the circumstances should be considered, including the following factors:
- The type of business
- The extent of transfer of machinery, factory premises, stock, equipment, plant tools etc
- The value of the seller's intangible assets and whether these transfer over
- The transfer of any employees
- Whether customers/clients are transferred
- The degree of similarity between activities carried on before and after the transfer. ; and
- The extent of any disruption of those activities as a result of the transfer
Employment tribunals tend to approach these cases by asking whether broadly the same economic activity is being carried on and, if it is, assuming that TUPE applies unless there is evidence to the contrary.
Now we move onto the second type of relevant transfer – the Service Provision Change
A service provision change can occur in three scenarios:
- The first is where the client outsources a service which it undertakes to a contractor for the first time;
- The second is where the client switches services between contractors; and
- The third is where the client terminates its outsourcing arrangements and brings a service back in house
For TUPE to apply to any service provision change scenario, the following conditions must all be satisfied:
- The client must remain the same, i.e. the person on whose behalf the activities are carried out must not change; This can be quite straightforward but usually becomes more complicated where sub-contractors have been engaged in the provision of the services.
- The activities must be fundamentally the same before and after the service provision change; This is a question of fact for the Tribunal which has led to some interesting case law. At present, the Tribunals tend to adopt a holistic approach to the services, preferring not to break them down into individual tasks but to look at the nature of the service as a whole.
- Immediately before the service provision change, there must be an organised grouping of employees situated in Great Britain, which has the relevant activities as its principal purpose. This essentially involves two elements, identifying the organised grouping and then determining the principal purpose of that organised grouping.
It’s also important to note that TUPE will not apply if:
- The client intends that the activities will relate to a single specific event or task of short-term duration. By way of example, if a client engages a contractor to provide one-off security services for a specific sporting event then it may not be caught by TUPE.
- TUPE will also not apply if the activities constitute, wholly or mainly, the supply of goods for the client’s own use – for example, if a client engaged a contractor to supply sandwiches and drinks to its staff canteen – however there is a fine because it would be a different story if the contractor was also providing the canteen service itself.
Service Provision Changes are very complicated and there’s extensive case law on the conditions and exceptions we’ve touched upon here. We’ll be exploring these in more detail, including some of the relevant case law, in later podcasts.
That brings us to the end of this podcast but please do watch out for our future podcasts in this series and remember that you can get in touch with the employment team at Clarkslegal any time for any TUPE advice you may need.
