TUPE applies in two situations:  

• Business transfers – when a business (or part of one) is transferred to a new employer  

• Service provision changes – when a service change takes place.   

Business transfers 

According to the Transfer of Undertakings (Protection of Employment) Regulations 2006, TUPE applies to a business transfer if there is the transfer of ‘an economic entity which retains its identity’. An economic entity means an organised group that is pursuing an economic activity.  

Deciding on whether TUPE applies can be broken down into two parts: 

• Is there a stable economic entity that is capable of being transferred? 

• Will the economic entity retain its identity after the transfer in question? 

Examples of business transfers include mergers, sales of a business by sale of assets, a change of a franchisee, and a sole trader’s business or partnership being sold or transferred. Other examples include the transfer of a lease (such as a hotel), a management buyout or an intra-group transfer. 

Service provision changes 

When service provision changes happen, employees of the business (or relevant part of the business) automatically transfer to the new employer immediately before the transfer. Many organisations contract out services, invite tenders and assess bids to undertake services, and many of these situations will be TUPE transfers.  

Service provision changes arise where contracts are reassigned. For example, when:  

• a contractor takes over activities from a client (known as contracting out or outsourcing)  

• a new contractor takes over activities from the old contractor (known as retendering)  

• a client takes over activities from a contractor (known as bringing work in-house or insourcing).  

Examples of service provision changes include changes to the provision of office cleaning, catering, security and other labour-intensive services. Other examples include professional business services, such as legal and accountancy services and PR account managers. 

Some transfers will fall into both categories, so there can be both a business transfer and a service provision change at the same time. Where there are two or more transferee employers following the transfer, there can be an extra layer of complexity (see the section on multiple transferees).  

If there is a business transfer (such as a merger or acquisition), whether TUPE applies is likely to be apparent at an early stage; input from HR can help to ensure the transaction proceeds with less legal and commercial risk. In a service provision change, HR will be able to help identify if TUPE applies at all and help manage any disputes regarding this. 

The easiest way to understand TUPE is to imagine the position without the regulations. Without the rules, if a business changed hands, the incoming business could, in theory, treat employees in the same way as any other asset. The new business could pick and choose the employees it wanted to keep, and the outgoing business could simply dismiss any employees who were not wanted, while complying with any other legal requirements such as contractual notice periods. 

When TUPE applies, the buyer steps into the seller’s shoes, taking on the rights, responsibilities and liabilities of the seller towards the employees.  

This means that following a business transfer or service provision change:  

• All employees are automatically transferred to the buyer.  

• Employees are protected against having their terms and conditions changed.  

• Employees can claim automatically unfair dismissal if they are dismissed on account of the transfer.  

• The seller and the buyer both have an obligation to inform and consult representatives of affected employees. 

Transfer of liabilities  

The employee’s contract of employment automatically transfers to the new employer.  

Liabilities that transfer from the outgoing employer to the new one include all statutory and contractual rights, including:  

1 Current terms and conditions of employment.  

2 Continuity of service.  

3 Redundancy payments, both statutory and contractual.  

4 Arrears of pay, holiday pay and sick pay, and any accrued holiday entitlement.  

5 Liabilities accruing prior to the date of transfer under employment protection legislation, including liability for unfair dismissal and discrimination.  

6 The terms of any collective agreement incorporated into the employment contract.  

7 Some other existing liabilities that are non-employment-related, such as the old employer’s liability for other wrongdoings known as tort (for example, for personal injury).  

8 Share options that will be lost and that should be compensated by an equivalent provision or payment.  

9 Similar private medical insurance and health insurance.  

10 Indemnities under employer’s liability insurance.  

There are special provisions for dealing with pensions. Criminal liability and liability to third parties for civil wrongs will not automatically transfer.

If you want to know about the legal accountabilities of TUPE as the employee, transferee or transferor, please consult our legal information on this matter. 

Throughout this guide, we use a case study based on a fictional medium-sized business, Broadway Lettings Limited (Broadway). This company is a national firm of commercial estate agents. It offers expert advice and managing agents’ services to those looking to buy, rent, sell, let or manage business premises in urban areas across the UK.  

Ava is the HR director at Broadway and is based at its head office in Birmingham. She is assisted by an HR team, including a senior HR manager, Liv.  

Several potential TUPE situations arise at Broadway, both at head office and in some of the regional offices. The situations arise because of some acquisitions of smaller businesses and premises. Additional TUPE problems result from obtaining new property management service contracts and from putting some services out to tender.  

Sachin is a new assistant in Broadway’s business development division. He asks Liv for advice concerning a prospective new client of Broadway.  

The client owns several retail outlets and is unhappy with the service provided by the managing agents it has been using for the last six years. The client is impressed with Broadway and wants to change to Broadway as its new managing agents. Sachin asks Liv if she thinks TUPE would apply.  

Liv seeks further crucial information, including whether there is a dedicated team at the old managing agent who manage the properties. Sachin explains that there are a number of retail outlets and it takes three employees at the current managing agent who are specifically allocated to manage the properties which would transfer.  

Liv correctly advises that it is highly likely TUPE will apply. This is a service provision change (and it may also be a standard TUPE business transfer). Broadway will be obliged to take on the three employees of the old managing agent, even if it does not wish to do so, and even though the client has been unhappy with the service those employees have been offering. 

TUPE is not an optional piece of legislation. No organisation can decide to opt out of it. However, TUPE will not apply to the transfer of a business by the sale of a company’s shares, as the identity of the employer does not change. 

Where there is a sale of assets and goodwill, the TUPE regulations will often apply unless only limited assets or equipment are transferring to the new owner. 

Although TUPE can’t be avoided completely, the old and new employer can agree who will bear the financial costs resulting from failure to comply with TUPE and decide who will pay for any consequences of one party’s failure to comply with its obligations.  

TUPE will not apply to a service provision change if: 

• there is only a supply of goods for the client’s use,

• the service provided is a single event or task of short-term duration (such as an exhibition or a conference). 

Broadway has engaged an external contractor to supply drinks and sandwiches for staff working at the head office and for directors’ lunches and corporate entertaining when required. There have been problems with punctual delivery and the quality of the food supplied. Broadway decide to award that contract elsewhere. TUPE does not apply, as this is a contract for wholly or mainly the supply of goods. Even if there was an entire team dedicated to making sandwiches for that one contract, the staff at the sandwich company are not protected by TUPE. 

The pre-transfer period, if methodically planned, helps ensure the success of the transfer.  

• Identify any risk that TUPE will apply to the transfer. If there’s a potential service provision change, the simplest starting point is to assume there is a TUPE situation (unless one of the exceptions applies). If the transaction is proceeding by way of share sale, TUPE will not apply.  

• Consider whether assets, equipment, contracts, stock, work in progress, goodwill, employees, liabilities, debtors, creditors and premises are transferring.  

• Assess whether there are any alternative methods of proceeding with the transaction and make a commercial decision balancing the benefits and risks. The price of the contract or business will be dictated by balancing the potential profits and gains against actual and potential liabilities. 

Employers need to deliver the commercial aims of a transfer with minimal disruption to their business for both potential business transfers and service provision changes. If the core assets of a business transfer to an incoming employer who will operate essentially the same kind of business activity, TUPE is likely to apply. For labour-intensive businesses such as cleaning, a business transfer may just involve one member of staff. Structuring a transaction differently may enable TUPE to be avoided, but employers cannot just agree that the regulations will not apply. 

Multiple transferees 

TUPE does not actually set out what happens to an employment contract where there is a transfer to several companies. This area of law is evolving as the result of cases in which courts and tribunals have decided that the employment contract of a transferring worker can be split between multiple transferees. A summary of how cases have been seen in the court is provided here.

Faced with a transfer to multiple transferees, employers should carefully consider:  

• whether TUPE will apply at all or if the services will, in fact, lose their identity following the transfer  

• whether the employment contracts may be split between multiple transferees if the services remain fundamentally the same  

• how much of each employee’s contract transfers to which transferee  

• how each contract is split in proportion to the tasks performed, unless a proportionate division of work is not possible,

• which responsibilities each new employer inherits proportionate to the amount of work that is transferred. 
  

Employers should also:  

• discuss with transferring workers whether splitting their employment contract is practicable and whether they are happy for their employment to be split across multiple employers  

• check whether the proposals would result in a detrimental effect to the employees’ working conditions or rights. 

Key points: 

• In transfers involving multiple transferees, the contract will be split in proportion to the tasks performed by the worker, unless a proportionate division of work is impossible. Splitting employees’ contracts between transferees applies in the UK to service provision changes as well as to business transfers. Each new employer inherits responsibilities for the employees proportionate to the amount of work that is transferred. 

• In service provision changes where the activities carried out by the original contractor are fragmented following a retendering, TUPE may not apply, especially if the employment contract cannot be divided, or it is hard to see which new contractor the employee transferred to. If the transferred services no longer retain their identity after the transfer, TUPE may therefore be avoidable. This will depend on the way services are being performed and whether they are no longer fundamentally the same as the pretransfer services because they are now too fragmented. However, case law increasingly suggests splitting the contract should be possible even in complex cases. 

• Allocation of liabilities may be difficult, and if the division results in an adverse change to the employees’ working conditions or rights, there may be terminations of employment and unfair dismissal claims. If full-time employees become part-time employees for different employers after the transfer, addressing all terms and conditions fairly, including matters such as annual leave, will be critical. 

Employers should consider the following at the preparation stage: 

• Allocating realistic timeframes to the transfer: For example, a service provision change that involves a tender process may take many months from the initial invitation to submit tenders.  

• Staff: Managers with sufficient experience and administrative support are essential.  

• The role of HR: As part of the transfer team, HR will normally scrutinise proposals, advise on TUPE compliance and effects of staffing and workforce issues.  

• Cost: All likely expenditure relating to the transfer must be calculated.  

• Employment liabilities: Assess which staff are likely to transfer, and the total potential employment liabilities. If there is a risk of redundancy payments or other claims, the cost of these must be added. What are the incoming and outgoing employers’ responsibilities? Are new equipment and premises needed for transferring employees?  

• Softer aspects: What is the effect on morale likely to be and how do you manage this? Will there be disruption to clients or customers? Will training or additional skills be needed?  

• Draft agreement: HR should have a supervisory role checking the drafting of any business transfer agreement to ensure workforce issues are addressed correctly.  

Employee engagement is ongoing throughout the whole TUPE process. There are specific legal requirements that set out the information that must be supplied, both to the incoming business, the trade union representatives and/or the staff themselves.  

Employees who feel involved in the process from an early stage are less likely to resist the transfer, disrupt business activity or bring TUPE-related claims. 

Employers should:  

• Allocate who is responsible for each aspect of the information exchanges throughout the TUPE process, for example, between the incoming and outgoing businesses and between the employer, unions and employee representatives. Meaningful employee engagement from an early stage until after the transfer will optimise the transfer’s success. It may be necessary to involve employee representatives at an early stage on a confidential basis.  

• Check if any special rules apply, for example, listed companies restrict disclosure of sensitive information that could affect the company’s share price. This is only likely to apply to very large TUPE transfers.  

• Contact any recognised trade union or employee representatives. An appropriate number of employee representatives may need to be elected following fair confidential elections. Employees with fewer than 10 employees must be consulted directly. From 1 July 2024, direct consultation is also permitted where a business has fewer than 50 employees and the transfer affects less than 10 employees (where there is no existing representation).

• Submit a written notification to the affected employees, which triggers the formal communication process (although it is good practice to speak to them collectively first). A more detailed letter then needs to be sent to employee representatives.  

• Provide trade union and employee representatives with enough information to participate fully in the consultation process. Employers must consult about any measures they anticipate the transfer will trigger in respect of their own employees.  

• Follow the precise legal requirements surrounding information and consultation, including due diligence and the supply of employee liability information to the incoming employer at least 28 days before the transfer.  

• The incoming employer should engage with their existing staff before a transfer takes place. Most focus is on consultation meetings between the outgoing employer and trade union or employee representatives.  

• The outgoing employer should invite the incoming employer to collaborate over employee matters. For example, the incoming employer could meet with the affected employees and their union or other representatives.  

• Keep careful records throughout. Failure to inform and consult with affected employees results in a potentially expensive tribunal claim and financial penalty, so it is prudent to document every stage of communication with employees.  

In most TUPE transfers, the outgoing employer will usually determine which employees are affected. Although, if the transfer results from a service provision change (rather than a standard business transfer, for example, a merger or business sale), the outgoing employer may not have identified which employees transfer, or in some cases a TUPE situation may not yet have been identified at all.  

Whether or not staff are part of the dedicated team who transfer under TUPE depends on the specific facts of who worked where prior to each transfer: 

• Employees on short-term absences, holiday and parental leave are likely to be included in the transferring group.  

• Employees on fixed-term contracts are included in those who may transfer, but agency workers are not.  

• Seconded employees and those on sick leave may transfer but it will depend on the circumstances, including the length of the secondment or absence. 

Four years ago, Broadway entered into an ongoing contract with DPC Maintenance Limited (‘DPC’). The company aims to provide repairs to letting agencies and landlords in the south London area. DPC employs a team of 20, including gas safe engineers, plumbers and electricians.  

As DPC has become more expensive, Broadway is contemplating terminating the contract and employing similar workers directly. Five of the DPC team have recently been dedicated exclusively to Broadway maintenance matters, although they have worked for other DPC clients previously.  

Assuming there is a risk of a TUPE transfer, which seems likely, would the five employees be assigned to an organised grouping of employees that would have to transfer to Broadway?  

Ava and Liv will have to assess DPC’s organisational structure to decide if each employee is assigned to the organised grouping of employees carrying out relevant activities. This will entail looking at how it was organised when the five employees were working for more than one client. They will have to consider what the employees’ duties are under their contracts, and the overall arrangement with Broadway. The entire period of time immediately before the proposed transfer is relevant, as an employee’s workload varies from time to time. A quick snapshot of the recent picture may not give a true impression of the overall position.  

If Broadway had said from the outset that they did not want the same employees, and that they wanted tradespeople who continued to work for a variety of clients, the situation is less likely to have arisen. 

Employers need to bear in mind that the TUPE legislation apparently provides protection to both those with employee status and other workers such as casual staff. Employers may decide, as a matter of caution, to consider workers as being protected by TUPE. This means: 

• Workers (as well as employees) would automatically transfer from a transferor employer to a transferee employer in the context of a TUPE transfer.  

• Information and consultation with employees who are affected by a TUPE transfer may need to include workers too. Failure to do so could lead to a claim for up to 13 weeks’ pay per person.  

• The employee liability information provided at least 28 days prior to the transfer of staff to the new, incoming employer may need to include workers as well as employees.  

The protection from unfair dismissal for those with employee status in the context of a TUPE transfer would not be extended to workers. 

Percentage of time worked is a practical indicator of whether an employee is likely to transfer, but it is much better to take a multi factorial approach.  
 

Old and new employers, the union or representatives will often negotiate about which employees should transfer. Employers should keep a record, considering two steps:  

1 Is there an organised grouping of employees that had as its principal purpose the carrying out of the services for the client?  

2 Is the employee assigned to such a grouping?  

The cost and value of the employee to each part of the business, and any managerial responsibilities, should also be considered. UK case law increasingly supports the division of employment contracts between multiple transferees. 

Service provision changes can present particular difficulties when deciding which employees transfer. HR can prevent these difficulties arising by being consulted at an early stage on every outsourcing, insourcing and retendering that takes place.  

Employees who bring tribunal claims following a service provision change must show the tribunal they were part of the dedicated team assigned to the service in order to show that they are protected and transfer under TUPE. The best way for HR to approach this is to do what a tribunal would do and examine whether there is a clear organised grouping of employees designated to that contract.

If the transfer is a standard business transfer (for example, a merger or business sale), the employees assigned to the part of the business that is transferring to a new employer will transfer. It is often obvious who these employees are. As indicated above, case law has developed guidance applicable in both business transfers and service provision changes which confirms that:  

• looking at the percentage of time spent on the transferring activities and duties carried out can help identify which employees should transfer  

• it may be possible to transfer only part of an employee’s employment when their working time is split.  

If it is not clear, HR will need to examine the work different employees do in different areas of the business. For example, there may be an office branch that is transferring, but someone in accounts at head office who spends most of their time on activities for that branch is likely to transfer as well.  

If HR are advising the new business, the mechanisms to achieve protection include indemnities for claims arising from employees who transfer but are not really wanted and are dismissed. Other strategies include ensuring that the employees work for a variety of clients; then it is less likely there will be an organised grouping that transfers. 

Prior to the transfer, the outgoing employer should consult with all affected employees, communicating the fact that the transfer is happening and how they can object. 

Once it is established that TUPE applies and which employees are affected, certain information has to be given to the new employer and transferring employees. There are no set timescales for the consultation, but the relevant information set out below must be provided ‘in good time’ for sufficient consultation to take place. The consultation will be with either:  

• union representatives: if the employer recognises an independent trade union in relation to all or some of the affected employees  

• employee representatives: if there is no union representation; in many cases employee representatives must be elected  

• the employees directly: but only for micro businesses with fewer than 10 employees where there is no independent trade union or existing appropriate representatives. 

• From 1 July 2024, direct consultation is also permitted where a business has fewer that 50 employees and the transfer affects fewer than 10 of these employees (where there is no existing representation).

The employer must provide the recognised union, or the employee representatives, with:  

• the fact that the transfer is to take place  

• the date or proposed date of the transfer  

• the reasons why it is to take place  

• the legal, economic and social implications of the transfer for the affected employees  

• any measures proposed in connection with the transfer that will affect the employees; if there are no measures to be taken, this must be made clear too.  
   

The law states that the outgoing employer must also mention the ‘measures’ the new employer may take that will affect the transferring employees. TUPE does not define measures, but they are likely to include changes to existing work practices such as amount of pay, job descriptions, hours of work, collective bargaining and even the mechanics of salary payment.  
 

If any employer doesn’t comply with these requirements, it could be ordered to pay compensation to each affected employee of up to a maximum of 13 weeks’ pay each.  

Unlike many other tribunal awards, any compensation is based on the employee’s actual gross (rather than net) pay and is not subject to a statutory cap.  

Either the old or new employer can be liable to pay the compensation, or it could be split between them.  

Some employees may not like the look of the new employer and may try to refuse to transfer before the transfer date. In this case, their contracts would simply end as they have effectively resigned and cannot claim a redundancy payment.  

The outgoing employer may choose to keep objecting employees, negotiating a new contract with them, but does not have to.  

If the employees are objecting because of changes to their terms and conditions that are not permissible under TUPE, they will have an automatically unfair dismissal claim.

Broadway are acquiring a large commercial lettings business (Manchester Prestige Property Limited) with offices in Manchester, Liverpool, Leeds and Sheffield. Employees at Manchester Prestige do not have union representation and will need to elect employee representatives. The senior management at the company liaise with HR and decide on the number of representatives to be elected and announce a process for receiving nominations. They correctly:  

• help candidates communicate their election message to all the employees entitled to vote  

• print ballot papers and arrange for ballot boxes that are adequately confidential 

• count the votes cast for each candidate  

• announce and publicise the results.  

However, Manchester Prestige is under time pressure to start their consultation and make some technical errors. The election took place at 2pm with voting to be completed by 5pm the same day. Several employees were on holiday on this day. The votes were exactly tied for one of the posts. To speed matters up, senior management chose from the tied candidates, rather than telling the employees about this.  

This election of employee representatives is inadequate. The employees should have been allowed to vote at a convenient time and absent employees should have been allowed to submit their votes by an alternative method. Employers must make reasonably practicable arrangements to ensure the election is fair, so the election should have taken place over a longer timescale. It was also reasonably practicable to tell employees about the tied vote and allow them to resolve it by voting again if necessary.  

Manchester Prestige would be in breach of its duties to inform and consult, and the affected employees would be entitled to compensation of several weeks’ pay assessed by the tribunal if any claims are brought. Manchester Prestige should disclose these potential claims to Broadway as part of the due diligence exercise and employee liability information disclosures. Under TUPE, Broadway is liable jointly with Manchester Prestige for their failure to consult transferring employees, so Ava makes enquiries about the potential claims. 

Any organisation buying a business, or bidding for a contract to provide services, must undertake due diligence regardless of whether TUPE applies. Employee liability information forms part of this exercise. 

This information must be supplied in writing and basically details the rights and obligations of the employees who will transfer. 

The following information must be supplied at least 28 days before the date of the transfer, although it is helpful to provide it at an earlier stage:  

• The identities of the transferring employees and their ages  

• All the information contained in the transferring employees’ written contracts of employment (also known as statements of particulars) 

• Information about any collective agreements (if any) 

• Details of any formal disciplinary action taken against any transferring employees in the previous two years 

• Details of any formal grievances raised by any of the transferring employees in the previous two years. 

• Details of any legal action brought against the old employer by any of the transferring employees during the last two years. 

• Details of any potential legal action that the old employer reasonably believes may be brought. 

Key points: 

• The total number of temps and agency workers working temporarily for the employer must always be expressly mentioned, including where they work and the type of work they do. 

• For incoming businesses – due diligence before the transfer may reveal things over and above the minimum employee liability information. For example, legal issues surrounding whether a Christmas bonus is or is not contractual should be revealed by due diligence but may not emerge as part of employee liability information unless it is a potential legal action. 

• For the incoming employer – it is critical to verify that the correct information in relation to the numbers of affected employees and their associated cost has been supplied. 

• For the outgoing employer – failure to provide this information can result in the new employer applying to the tribunal for compensation. This penalty is paid to the new employer but is calculated on the basis of a minimum award of £500 for each employee whose information was incorrect or not provided at all. There is no maximum cap, so awards can be expensive.  

Incoming employers should get as full a picture as possible of the pension rights of transferring employees at the due diligence stage.  

Most occupational pension scheme rights are completely excluded from TUPE, so pension rights do not automatically transfer with transferring employees. Employers do have to arrange certain minimum pension provision under pension legislation that is separate from TUPE.  

Where transferring employees are members of an occupational pension scheme (or are entitled to join one), incoming employers do not have to contribute to occupational schemes but must provide a reasonable alternative and match an employee’s contributions to a stakeholder scheme up to a minimum of 6%. 

The exclusion from the automatic transferring of all rights that normally happens under TUPE only applies to benefits under occupational pension schemes. Incoming employers must check the type of scheme.  

If the pension rights are not old age, invalidity or survivors’ schemes, some pension obligations do transfer to the new employer. In public sector service provision situations, specific government guidance and other rules may apply as well. 

Consultation  

Consultation obligations must be taken seriously – a tribunal can award up to 13 weeks’ pay per employee for a failure to consult.   

Employers should consider the following points prior to consultation:  

• Consultations must be meaningful and conducted with a view to seeking the agreement of the union or employee representatives.  

• Employers must respond to any representations made by the representatives, and if the employer rejects what they have to say, the employer must explain the reasons. 

They need to verify any measures that are being considered by the incoming employer in respect of the affected employees.  

• They should invite the incoming employer to visit and speak individually with any transferring employees about the transfer and their current terms and conditions. 

• Information and consultation obligations arise under TUPE even if only a few employees are involved in the transfer.  

• Consultation must cover measures the new employer is envisaging in relation to the employees. Measures include many things, for example, an entire business reorganisation, changes in pension rights and even minor adjustments such as a change of salary payment date. The consultation must be with a view to reaching agreement on the measures. 

Always check and resolve any discrepancies with the outgoing employer. The incoming employer will also need permission from the outgoing employer to consult with any recognised trade union or elected representatives about the transfer. The incoming employer may also need warranties and indemnities to cover their back if the information provided by the outgoing employer was incorrect.

Almost a year ago, Broadway took over a small commercial lettings business in Nottingham.  

The business employed only two staff: Mrs Williams (the office manager) and a colleague; both were informed they would transfer under TUPE to Broadway. Even though there were only two employees, there had to be TUPE consultation with both of these employees (if this had been a redundancy rather than a TUPE transfer, there would have been no need for the redundancy collective consultation measures).  

At the point of transfer to Broadway, the previous employer paid wages for the first week of the month up to the transfer date. So the employees were paid early rather than at the end of the month, which would be the employees’ normal pay day. This just happened and was not consulted on.  

The Nottingham business also did not properly deduct tax and National Insurance on this last week’s payment, which would require adjustment at the end of the month.  

While this is a trivial, minor matter, the change to pay arrangements is a measure that Mrs Williams found worrying as she was concerned about the deduction of tax.  

This is a matter that should have been included in the consultation and would in theory give grounds to a claim for compensation for failure to inform and consult about the revised arrangements.  

Even very minor departures are measures within the meaning of TUPE and should be subject to formal consultation with the employees.  

Broadway should have considered agreeing who should carry liability for any such failures under TUPE as part of the sale agreement.

Employers cannot get out of TUPE by ‘contracting out’ of the provisions. However, incoming and outgoing employers can agree to apportion risks and financial costs of TUPE between them. The usual way of doing this is by the use of warranties and indemnities. 

• Warranties are contractual statements by the outgoing employer as to the condition of the business. If the promise is breached, the incoming employer may be able to claim damages. For example: 

• A common warranty given to the incoming business is that any information the outgoing business provides about transferring employees will be full and accurate. 

• A common warranty given to the outgoing business is that the incoming business will not take any steps towards any transferring employees that could result in any of those employees claiming constructive unfair dismissal against the outgoing employer prior to the transfer. 

• Indemnities are promises to pay compensation if a type of liability arises. Whereas a warranty is a promise that one company has complied with its TUPE obligations, the indemnity deals with who bears the financial consequences of the default or non-compliance. For example, an indemnity given to the incoming business could be that the outgoing business will pay for any liability for compensation and legal costs from claims by transferring employees that were not disclosed as a potential issue in the employee liability information. 

The warranties and indemnities that end up being included in any agreement will depend upon the parties’ respective negotiating strengths. 

The warranties and indemnities that are needed should become apparent after due diligence disclosure of information. These provisions in any transfer agreement should cover who pays for failures resulting from the obligation to inform and consult, as TUPE introduced joint liabilities for a failure to do this. The parties can agree to take joint responsibility, or the old employer may agree to take sole responsibility. 

The incoming employer will inform and consult on any planned measures towards the employees after the transfer, considering any implications of the employees’ terms and conditions of employment including pensions.  
 

Information about TUPE often mentions post-transfer ‘harmonisation’. However, this slightly misrepresents the legal position, because employees are strongly protected against harmonisation. 
  

The rule is that terms and conditions must not be varied by the outgoing or incoming employer if the only or principal reason for the variation is the transfer. Rights given by statute are more important than any contractual agreements, and so employees may not ‘sign away’ their statutory rights. Even though any variations can appear to be agreed by the employee, the changes will still be legally ineffective.  

The HR team of an employer who has acquired employees by reason of a TUPE transfer will often be asked by management at some stage to try and harmonise the terms and conditions of the new staff with the existing ones. Harmonisation by adapting the terms of transferring employees to those of existing staff is prohibited by TUPE and is always unlawful unless it falls within one of the exceptions explained below. 

As mentioned above, almost a year ago Broadway took over a small commercial lettings business in Nottingham and two staff – Mrs Williams (the office manager) and a colleague – both transferred to Broadway. They have settled in and have been working happily for Broadway until now. Broadway has just undertaken a review of the terms and conditions of all staff across the group with a view to reducing costs and harmonising terms.  

Mrs Williams is quite a difficult employee anyway, despite the fact she is more highly paid than other office managers across the group. The new area manager, who has never dealt with TUPE before, has identified (without consulting HR) the need for her to take a substantial pay cut. Mrs Williams has refused and, following an acrimonious exchange of emails, the area manager issued her with a new contract with the reduced terms and conditions, saying she has to take the pay cut or she will be ‘made redundant’. Mrs Williams has agreed under protest to continue working on the new terms but has expressly said she reserves the right to bring an unfair dismissal claim based on her original contract. She says the new contract is unfair under TUPE and that the changes are because of the transfer.  

Ava correctly advises that Mrs Williams is correct; the reason for her salary change can be traced directly to the transfer. Broadway is exposed to an automatically unfair dismissal for insisting Mrs Williams should accept the harmonised terms. Ava calculates the likely unfair dismissal award for Mrs Williams to use as a basis for negotiating a settlement agreement with her. 

There are a number of exceptions to the rule that terms and conditions must not be varied by transferor or transferee, as follows:  

• where the reason for variation is completely unrelated to the transfer  

• where the variation is favourable to the employee  

• where there is an economic, technical or organisational (ETO) reason entailing changes in the workforce and the employer and employee agree the variation  

• when the terms of the employment contract permit variation, for example, a mobility clause  

• some insolvency situations  

• a change to the place where employees are employed after the transfer can be an ETO reason  

• If there has been a collective agreement that incorporates terms and conditions, those may be varied after more than a year from the transfer, as long as the employee’s terms are no less favourable overall than they were before the variation. 

The main legally permissible route to implement changes to the transferred employees’ contracts is to show an ETO reason. The reason must also ‘entail changes in the workforce’, which means a change in the number of employees or in the functions that they perform. If there is a general reorganisation of the entire workforce, the ETO definition of a reason entailing changes in workforce is more likely to be met.  

TUPE does not define an ETO reason, but examples are:  

• Economic: essential cost-saving requirements, for example, output has fallen to such a level that the business cannot continue trading without dismissing employees.  

• Technical: increased computerisation or mechanisation of activities.  

• Organisational: restructuring or that it is impractical for the employees to transfer to the new business because of where it is located. 

Employers who wish to change contractual terms of the transferred staff have limited options including:  
 

Waiting  

The best way to change contractual terms of the transferred staff is to wait for time to pass. The more time that passes since the transfer, the less likely the changes will be seen to be linked to the transfer. The EAT has held that the link can still be effective after at least two years though. 

For the transferring employees, employers should:  

• Provide an induction package including company handbook.  

• Provide factsheets for customers about the transfer, who to contact and any impact.  

• Check the payroll and HR systems accommodating the transferred employees.  

• Confirm any initial training needs for the new employees and organise training where required.  

• Check for any employees who have requirements for reasonable adjustments.  

• Establish a mentoring or other system to help new employees settle into the organisation.  

• Provide an appropriate physical working area and equipment. 

A post-transfer plan is necessary to monitor the effect and consequences of the transfer. Employers should consider the following:  

• Employee engagement and consultation about how relationships can be maintained during and after the transfer can help ensure that morale is preserved, and the transferred employees successfully integrate. Customers or clients may need to meet new members of staff and may require reassurances too.  

• Proactively manage staff morale – as there may be difficult dismissals, redundancies or attempts to change terms and conditions.  

• Follow normal redundancy selection and consultation procedures if redundancies are proposed – an employer has an ongoing duty to consult with unions or employee representatives.  

• An organisational restructure may be necessary to integrate the new service and employees into the existing organisation, although changes to terms and conditions may still be subject to TUPE limitations. 

It is automatically unfair to dismiss employees because of a TUPE transfer. For example, on a business sale, if employees are sacked because the incoming business doesn’t want some of the workforce, this would be an automatically unfair dismissal in breach of TUPE. Employees need one or two years’ service to bring a claim.  

The main defence for employers is that if the employer can show an ETO reason entailing changes in the workforce, the dismissal will not be automatically unfair.

Broadway is also acquiring the freehold of some premises and the accompanying commercial lettings businesses with offices in Bath and Bristol. The business currently employs a team of eight staff, three of whom were engaged in chasing up rent and service charge payments. Broadway has better automated IT systems for chasing payments and debt recovery; there are too many employees to do the work after the transfer, and genuine redundancies are needed. One employee will be able to operate the new system and, provided Broadway follows all the correct redundancy procedures (including exploring any possible alternative roles), Liv advises it will be able to objectively select two employees for dismissal. 

Even if there is an ETO reason for dismissal, all proper redundancy and dismissal procedures must be followed, and the employer must act reasonably, including attempting to find other roles within the organisation, and so on. If it is properly handled, TUPE need not stand in the way of necessary redundancies. 

Only if there is a genuine redundancy situation and an ETO reason involving changes to the workforce can redundancies be made after the transfer.  
 

The new employer can start consulting about redundancies before the transfer with the old employer’s co-operation. This will be unfair unless there is a clear ETO reason because of changes in the new employer’s combined workforce.  
 

A common TUPE pitfall is that, when acquiring a business, the new employer unwittingly asks the old one to ‘just make some quick redundancies before the transfer’. This is because the incoming employer doesn’t want the hassle of employees it does not really want. The outgoing employer may be prepared to comply in order to secure the deal it is keen to make.  
 

The problem with pre-transfer dismissals is that, to be fair, there must be an ETO reason entailing changes in the workforce. The reasons must relate to the future conduct of the business. The outgoing employer might not know enough about the future conduct of the business. Therefore, the pre-transfer dismissals may be automatically unfair. Liability for any claims for premature dismissals will pass to the transferee under TUPE.  
 

In many cases the best course of action is for the new employer to take on the transferring employees and then handle the redundancies itself. The new employer may also negotiate an indemnity for the cost of the redundancy payments. All proper redundancy procedures must be followed by the new employer, including selecting employees from an appropriate selection pool that includes employees from both the transferred and pre-existing workforce.  

The new employer must avoid methods that give their pre-existing workforce an unfair advantage. This can be difficult where the line managers assessing staff have worked closely with one group of employees for a long time. Consulting properly with employee representatives over the proposed selection methods and criteria can help reduce perceived bias. 

Government guidance suggests that employers should undertake fresh right to work checks on staff acquired because of a TUPE transfer. This is safer than risking liability for civil penalties if any employee is working illegally. Follow up checks by the new employer may be needed anyway for employees with time-limited permission to work in the UK.  

Ideally all checks should be undertaken before workers are acquired as part of a TUPE transfer but as this is difficult, there is a grace period of 60 days from the date of the transfer .  

If the employer is effectively the same entity and is only changing legal status, for example by changing from a partnership to a limited liability partnership, the right to work checks do not need to be repeated.