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TUPE Tips: Know the Risks

Posted on Aug 20, 2012 by Hayley Anderson  | 0 Comments

Last week it was announced that Virgin had lost its franchise of the West Coast Mainline to FirstGroup. Richard Branson publicly expressed his ‘bitter disappointment’ and view that the decision making process was ‘flawed’. No doubt thousands of Virgin employees will be wondering and worrying what this will mean for them. Are their jobs safe? Will their jobs change? Will they need to reapply for their job?

Whilst there have been no decisions made as yet, it is expected that the employees will transfer to First Group under the Transfer of Undertakings Regulations (TUPE) but there have already been rumours of significant job cuts in light of the allegedly high premium payments which FirstGroup has agreed to pay for the Franchise under the deal.

The aim of TUPE is to protect employees if the business they work in is changing hands. Where the Regulations apply, all the transferor’s (the outgoing employer’s) rights, obligations and liabilities under or in connection with the transferring employees’ contracts of employment are transferred to the transferee. The employee will then transfer over with the preservation of these rights and their continuous service, and if any dismissals or unlawful treatment occur(s), employees will have recourse to make a claim. The application of TUPE and the possible resulting penalties if companies fall foul of the Regulations can pose a significant risk for both outgoing and incoming businesses and it is important to be aware and prepared for these.  

Below is a short summary detailing when TUPE can be triggered and the main risks to watch out for:

Situations where TUPE may apply:

  • Sale or purchase of all or part of a business as a going concern (a “business transfer”)
  • A ‘service provision change’ which may include (a) initial outsourcing of a service; (b) a subsequent transfer from the first contractor to a second and so forth; or (c) bringing services back in-house.

In the case of a ‘business transfer’, the test is whether there has been a transfer of an economic entity which retains its identity after the transfer. For ‘service provision' changes, the test is whether there was an organised grouping of employees which has as its principal purpose the carrying out of the relevant activities on behalf of the client. 

There is a wealth of case law covering the possible interpretations of these tests and their definitions and, in summary, some of the relevant factors to consider in determining what will qualify as a ‘Relevant Transfer’ include :

  • the nature/size/extent of the business transferred;
  • how many, if any, employees the transferee has taken on;
  • whether customers have transferred;
  • whether the activities subsequently carried out are the same or similar;
  • whether there was any temporary cessation in the activities being carried out;Whether any assets transferred?

The Regulations provide enhanced protection for employees affected by ‘relevant transfers’ and both outgoing and incoming employers will be limited in their ability to dismiss employees. In many situations, an employee will be deemed to have been automatically unfairly dismissed and so will have fewer hurdles and procedural arguments to overcome in a Tribunal. The liability for any dismissals will often be shared between the transferor and the transferee, however, it is possible in some cases for all liability to transfer to the transferee. Any changes to an employee’s terms and conditions of employment will also be void if these are made as a result of the transfer.

Both the transferor and transferee will also have obligations to ‘inform and consult’ each other and affected employees. A failure by either party to do so may result in awards of up to 13 weeks’ pay for each individual employee affected being made (often with joint and several liability). Transferors are also required to provide ‘Employee Liability Information’ to the transferee, setting out the terms on which employees’ are employed. If this is not provided or is inaccurate, a tribunal will have discretion to award compensation of a ‘just and equitable’ amount, being at least £500 per employee, to the transferee.  

TUPE is complex area of the law, with serious consequences.  Should you require any further information on the implications of TUPE, please do not hesitate to get in touch with myself or Hannah.

Hayley Anderson

@hayleylanderson

hayley.anderson@mbmcommercial.co.uk

0131 226 8220

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