Today’s commercial law post will examine the “Transfer of Undertakings (Protection of Employment) Regulations 2006” (“TUPE”) and examine the potential consequences for businesses when TUPE applies.
What is TUPE?
“TUPE” is the acronym commonly used to identify the “Transfer of Undertakings (Protection of Employment) Regulations 2006”.
What is the effect of TUPE?
TUPE applies on the occurrence of two potential happenings:
- A relevant business transfer
- A service provision change
A relevant business transfer occurs when a stable ongoing economic entity transfers in a recognisable form from one business (the “transferor”) to another business (the “transferee”). There are issues involved within such a transfer which are not covered in this post, such as the definition of a “stable” economic entity and whether the undertaking was transferred in a recognisable form from the one business to the other.
A service provision change occurs if a business outsources an aspect of its services to a third party, or if the responsibility for the provision of services relating to a contract changes hands from one contractor to another. This would cover, for example, the contracting out of cleaning services by a bank which previously employed a single cleaner. Again, there must be the transfer of a recognisable entity from one business to the other, whether this be in the form of a group of (or single) employees working on the contract, or the equipment used in the contract.
If and when TUPE applies the contracts of employment of the transferor business’ employees transfer automatically to the transferee business on their existing terms (with a few exceptions). The rights and duties of the employees transfer, including the right not to be unfair dismissed under s.94 of the Employment Rights Act 1996.
If the employee has more than one year’s continuous service and is dismissed because of or for a reason connected to the transfer of the provision of the service contract then he or she may choose to sue the transferee company for unfair dismissal. The dismissal will be automatically unfair unless the transferee business can show that the reason for the dismissal was an extenuating reason that was connected to the transfer which falls under the Economic, Technical or Organisation (“ETO”). An ETO reason can include the profitability or market performance of the business or because of the business’ management or organisational structure. If an ETO reason applies then the dismissal of the employee is not automatically unfair but it still may be unfair under the ordinary unfair dismissal procedure.
What can be done to mitigate this effect?
Businesses should think carefully about whether they are accruing liabilities as a result of their taking on a contract and, if they are, what the extent of the liability is. Thorough due diligence is an absolute must in such circumstances as failure to do so may result in the assumption of liabilities which negate or outweigh the profitability of the contract itself.