TUPE (sellers & buyers)
Whether you’re a buyer or a seller, if a business or part of a business is being transferred to a new owner, then you need to be aware of The Transfer of Undertakings (Protection of Employment) Regulations 2006, know as TUPE. These in effect provide protection for the employees of the affected business and put in place a number of “hoops” that both the seller and buyer have to jump through.
TUPE can even apply when a business stops or starts using a third party to provide certain services, or if the business changes which third party provides those services.
By following these steps, these regulations provide everyone with a manageable process for the transfer of employees. However if the process is not followed, then there are potentially severe penalties for the party at fault.
TUPE: The Basics
The law is quite involved and is an area where advice should be sought well in advance of any transaction which may involve TUPE. However, the following may provide you with a flavour of the key considerations for both parties.
TUPE Key Principles
TUPE introduces three key concepts into UK Law:-
- Protection for employees from dismissal in connection with a TUPE transfer
- The principle that the buyer inherits all the rights, obligations and liabilities in relation to the transferring employees
- An obligation to inform and consult with the representatives of the affected employees
Issues for the Seller
The seller needs to comply with a number of steps before the transfer takes place and it is important that these are carried out within the required deadlines. In summary the seller must:-
- Provide employee liability information to the buyer for each transferring employee
- Invite the affected employees to elect a representative
- Inform the affected employees and their representatives in writing of the transfer details
- Consult with the employees where he intends, to “take measures” in respect of some of the affected employees. The courts have held that “measures” is to be given a very wide interpretation and could mean virtually any action, step or arrangement
Failure to carry out these steps can result in the seller being liable to the buyer for a minimum of £500 for each employee about whom he did not provide accurate information. Further, the seller and the buyer can both be liable for uncapped compensation claims from affected employees for up to 13 weeks of pay if they did not comply with the duty to inform and consult.
Issues for the Buyer
These include an obligation on the buyer to inform the representatives of any of their employees who are affected by the transfer and also to consult with the representatives of any of their employees for whom he believes he will need to take measures in respect of the transfer. Again if the buyer fails to comply with his obligations, he can be ordered to pay substantial compensation.
He is also obliged to inform the Seller if he envisages taking measures with regards to the transferring employee after the transfer has taken place.
The legislation around TUPE transfers can be quite involved and there are a number of potential pitfalls for the unwary around managing the consultation process and managing any employee dismissals that may legitimately arise due to redundancy, for example. It is also important to note that whilst TUPE does not apply to the sale of shares of a company, the new owners will of course inherit the existing workforce and all their associated rights and obligations.
The TUPE process is a sensible and robust approach to the transfer of employees and if managed efficiently will pose few difficulties for buyers or sellers. Problems only tend to arise if this area of a transaction is overlooked or has to be addressed retrospectively and as such the key is to seek advice and clarification of your obligations before the process begins.
The TUPE rules require consultation by the seller before the business is transferred and, frequently, impose obligations on the buyer as well.
If rhw can help with any issues connected with TUPE or any other matter discussed in this series or Company/Commercial matters in general then please email rhw Solicitors on firstname.lastname@example.org or call our Guildford office on 01483 30200