A situation that may arise when a business or part of a business (the transferor) changes ownership and staff transfer to the new owner (the transferee). If the change of ownership falls within the scope of the Transfer of Undertakings Protection of Employment (TUPE) Regulations 2006, amending 1981 Regulations, then there is an automatic transfer of an employee's contract of employment. The Regulations resulted from EC Directive 77/187, known as the Acquired Rights Directive, the main objective of which was to safeguard employees' rights in the event of a change of employer. This is now Directive 2001/23. Employees are protected via TUPE where there is a relevant transfer but this is not always a straightforward issue to determine. Because the Acquired Rights Directive is very wide in its scope, both the European Court and national courts have taken a wide view of what situations amount to a relevant transfer. The situations in which a relevant transfer has been held to operate are numerous. The simplest situation is where one company acquires another and staff transfer. More complex situations that may qualify as relevant transfers include contracting out services, the transfer of contracts and franchises, and the transfer of leases. The 2006 Regulations explicitly state that a relevant transfer will include a “service provision change” provided certain conditions are met. This will give greater protection to workers where services have been subject to outsourcing.
There are a number of important issues where a relevant transfer occurs. First there is an automatic transfer of the transferor's rights and obligations arising from the employment relationship they have with their staff. Because of this the employee's terms and conditions (with very limited exceptions in the area of pension rights) must be maintained by the new employer (the transferee). There are some circumstances in which changes to the terms and conditions may be agreed by employer and employee, in particular where the transferor employer is subject to insolvency proceedings.
Secondly, a relevant transfer cannot be the basis for dismissal unless an employee can be shown to have been dismissed for economic, technical, or organizational reasons. Where an employee, being aware of a proposed transfer, informs either the transferor or the transferee that he objects to the transfer, his transfer does not take effect and his contract of employment is terminated, but he has no claim for unfair dismissal. If a dismissal occurs as a direct result of the transfer this is automatically unfair. If an employer seeks to argue a dismissal was for an economic, technical, or organizational reason, it is not automatically unfair but it can still be found unfair depending on the employer's procedure.
Finally, TUPE puts in place the need for a consultative process to ensure the free exchange of information between the transferee, the transferor, and the staff who may be affected. The transferor has a duty to inform and consult with a recognized independent trade union when any of its members may be affected by the transfer. The employer must inform union representatives in writing, long enough before the relevant transfer to enable consultations to take place, of the fact that a transfer is to take place; when this is to occur and the reasons for it; the legal, economic, and social implications of the transfer for the affected employees; and the measures the employer is to take (if any) in relation to those employees. If there are no employee representatives, information must be given to all employees. The transferee has a duty to provide the transferor with sufficient information to enable him to give these facts. During consultations the employer has a duty to consider any representations made by trade union or staff representatives and reply to them; if he rejects them he is obliged to give his reasons for doing so. If any employer fails to inform or consult, a complaint may be presented to an employment tribunal within three months of the completion of the relevant transfer. The employer can argue that his failure to perform a particular duty was due to special circumstances but that he took all reasonably practicable steps to inform and consult. Although this is a potential defence, tribunals interpret it very narrowly. Insolvency does not amount to special circumstances. If the complaint is upheld, the tribunal can order the employer to pay appropriate compensation not exceeding 13 weeks' pay for the employee(s) in question.