The Transfer of Undertakings (Employment of Employment) Regulations 2006 (“TUPE”) provide employees with certain rights and protections when the business they are working for is acquired by another business. It implements the Acquired Rights Directive in England and Wales.
TUPE provides employees with four particular broad rights when a “relevant transfer” takes place. It also provides the transferee (the business which is purchasing the other business) with the right to be provided with certain information regarding the transferring employees. There are also specific regulations which apply when an insolvent business is being acquired.
This post will tackle the circumstances in which a “relevant transfer” takes place (and therefore the TUPE regulations ‘kick in’). This will involve an examination of the law but will also include the use of examples to illustrate and simplify the potentially complex law involved.
When does a “relevant transfer” take place?
A relevant transfer can take place if one of two circumstances occur:
- A business transfer takes place; or
- A service provision change takes place
To test whether a business transfer has taken place three fundamental questions must be asked:
- Was the undertaking (the business) a stable economic entity prior to the transfer?
- Was there a transfer?
- Was the undertaking transferred in a recognisable form?
Was the undertaking (the business) a stable economic entity prior to the transfer?
This ultimately involves the question of whether the transferor was an ongoing economic enterprise at the time of the transfer. In order to determine whether an ongoing economic enterprise exists a number of factors are looked at (among others):
- Was there a stable group of wage earners at the transferor?
- Is the whole or part of the business being transferred?
There normally must be a stable group of wage earners present for there to be deemed an ongoing economic entity to exist. TUPE can apply to both whole businesses and parts of businesses – but whether it applies to parts of businesses depends on the type of business that is being transferred and the “framework” of the part of the business. TUPE doesn’t also necessarily have to apply to just private industry – it can also include non-commercial ventures: the NHS, local education or non-profit organisations.
Has the undertaking been transferred?
The courts will look at the particular facts of the case to determine whether a transfer has taken place. However, the transfer doesn’t have to take place in one transaction – it can take place over a number of transactions and doesn’t necessarily have to be proximate in time (i.e. it can take place over a long period of time).
Was the undertaking transferred in recognisable form?
Again, the courts will look at the facts of the particular case to determine whether the undertaking has been transferred in a recognisable form. The first question to ask is: does the business retain its identity? The greater the similarities between the business prior to and after the transfer, the more likely it will pass the test. For example, if a chocolate factory is converted to a nightclub after the transfer then it is probable that it will not be deemed to have transferred in recognisable form. Relevant factors which determine whether the business retains its identity include (among others):
- The type of business or undertaking involved
- Whether the transferor’s tangible assets (buildings, equipment etc.) have been transferred
- The degree of similarity between activities carried out before and after the transfer
Service provision change
Services provision changes (or “contracting out”) can also be covered by TUPE if the majority of its employees are transferring, the intention of the parties is that the provision of services will transfer, and that the transferee has tendered on the basis that TUPE applies. Should these three conditions apply then the normal rules related to above apply: has the business actually transferred?
Examples of service provision changes include, for example, the transfer of hospital cleaning services from one contractor to another or an educational college terminating a catering contract in order to provide its own services.