A business can change ownership for a variety of different reasons. If the reason for a change in ownership is financial difficulties, redundancies may follow.
This will inevitably change working life for those employed by the old ownership. This is because employees will automatically transfer to the new employer.
This is when TUPE (Transfer of Undertakings Protection of Employment Regulations 2006) applies. It protects employee’s terms and conditions of employment (apart from occupational pensions) and continuity of service transfer.
With the exception of occupational pensions, employees receive certain protections around dismissal and redundancy.
Failure to inform and consult affected employees, including the lack of opportunity for an employee representative, makes this unlawful. Could merit an unfair dismissal , if the employee is eligible to bring a claim. Staff may also have been automatically unfairly dismissed if the dismissal is purely related to a TUPE.
Peninsula explores how to avoid this, as well as how to handle TUPE and redundancies.
TUPE and redundancy scenarios
When considering TUPE and redundancy scenarios, the new employer must follow a fair redundancy process. However, before the transfer, if the old employer agrees then the new employer can consult about redundancies.
This includes seeking redundancy legal advice and considering TUPE and redundancy with ACAS regulations.
These regulations apply when there are:
- Business transfers
- Service provision changes
The regulations state that a business is not determined by its name alone. Instead, the assets themselves define the business.
These assets include:
- The premises/building of the business.
- Any equipment, standard or specialised.
- Intellectual-property of a business, including brand name and any work in progress.
- All levels of employees within the business.
In the event of business transfers, the identity of the employer must change to be protected under redundancy and TUPE regulations. In either case, it applies when:
- An employee’s job transfers over to a new company
- An employee’s employment terms and conditions transfer
- Maintaining continuity of employment
The only exceptions are if you make an employee redundant. Or where the business is insolvent, in some cases.
However in TUPE law and redundancy, following transfer, the transferee may have a defence against automatic unfair dismissal if there was an 'economic, technical or organisational reason entailing changes in the workforce' ('ETO' defence).
This defence requires there to have been either a genuine redundancy situation as a result of the transfer or a business reorganisation. One of the most common examples of an ETO defence is where headcount needs to be reduced due to duplications of staff on transfer.
TUPE and redundancy terms state that if the reason for redundancy is primarily because of the employee originally being under the previous employer, it is unlawful.
TUPE regulations and redundancy
ACAS states that a new employer must minimise or prevent redundancies and other dismissals before, during or after transfers.
If the sole or principal reason for the dismissal is the transfer, it will be automatically unfair.
This includes a substantial change to an employee’s terms and conditions. A new employer must notify employees or these changes before the transfer.
If the changes drastically change their employment unfavourably , employees have the right to terminate their employment. They can claim constructive unfair dismissal at a tribunal.
Under TUPE, ACAS classifies resignations of this nature as dismissals.
TUPE and redundancy rights do not apply to all employees or transfers of ownership. Some cases of ownership transfer aren’t protected under these regulations, such as if the contract is:
- Non-UK businesses - the businesses being transferred must be situated in UK.
- Share sales - importantly, Tupe does not apply to a sale of shares in a company since this does not involve a change in employer.
- Supply of goods - one of two specific exceptions to a service provision change dictates that there will be no relevant transfer if the activities concerned consist wholly (or mainly) the supply of goods for the client's use.
- ‘One-off' or very short term events - the second of two specific exceptions to a service provision change dictates that there will be no relevant transfer if the activities are connected with a single specific event or task of short-term duration.
- Purely administrative functions - administrative functions as between public administrative authorities.
- Transferor changes - if there is a change of both client and contractor (the same client must act as transferor).
- Loss of identity - if the undertaking is, or in the case of a service provision change the activities are, substantially different or fragmented in the hands of the transferee/s so as to lose identity.
Examples of these contracts include catering roles, or food supplies changing for a restaurant. Protection during transfer only applies to clearly identified employees that provide the service.
Regulations state that transfers within the public sector aren’t covered. However, transfers from the public sector into the private sector are. TUPE law and redundancy rarely apply to public-sector employees, though sometimes they can get similar protection.
TUPE and redundancy payments explained
Employers must make redundancy payments to employees made redundant for reasons involving changes to the workforce.
These reasons include:
- Economic reasons
- Organisational reasons
- Technical reasons
If you make an employee redundant, they will likely receive statutory redundancy pay. Unless their contract states otherwise, standard statutory redundancy pay calculations will apply.
This includes factors such as the number of an employee’s year's service to the previous employer.
The new employer is responsible for making redundancy payments to any employees made redundant.
TUPE redundancy and restructuring
The regulations aim to preserve the continuity, terms, and conditions of employees transferring from an old employer to a new employer. This includes reorganising or restructuring during a transfer.
If a new employer is considering redundancies following the transfer, they need to follow appropriate procedures. In the event of major restructure that calls for over 19 employee redundancies, TUPE and collective redundancy rules apply.
These include allowing employees to seek representation and to appeal against any stage of the process.
If the new employer knows they will restructure with collective redundancies, they may choose to do so before or during the transfer.
However, the old employer doesn’t have any legal obligation to provide assistance to the redundancy procedure. Without this aid, the new employer can face difficulties surrounding employment law and redundancies.
The new employer should consider redundancies carefully before restructuring. The process must be fair, legal, and keep employee’s rights intact.
Get help with TUPE and redundancy with Peninsula
Whether it’s a restructure or a transfer of ownership, these regulations exist to protect employees. Understanding how to handle redundancies while transferring from an old employer to a new employer requires expertise.
This is particularly true when considering the new employer is solely responsible for them. This includes both the responsibility of fairly deciding redundancies and making the appropriate actions during the process.
Without proper planning, a new employer can incur employment tribunals for unfair dismissal. Considering that restructuring can often call for collective redundancy, mishandling TUPE and redundancy can result in many employment tribunals and many hefty fines.