Road Legal

Transfer of undertakings / TUPE

07 January 2007

This area of law is governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (and official Explanatory Memorandum), which is known as TUPE. It protects employees when businesses are bought and sold and when businesses outsource functions or bring them in-house.

Conditions for TUPE

When an organised group of people, e.g. employees - known as a stable economic entity - is transferred from one business to another and retains its identity after the transfer, the transfer falls under the scope of TUPE.

TUPE preserves employees' terms and conditions when a business or undertaking, or part of one, is transferred to a new employer.

TUPE applies equally to relevant transfers of large and small businesses, and to public and private undertakings. This means there would be a relevant transfer if you sold your business or partnership or if your business bought and operated another business.

On the transfer of a business where TUPE applies, you should be aware of the following:

All employees of the seller who are employed immediately before the transfer automatically become the employees of the buyer on their existing terms of employment without breaking their continuity of service.
All rights, powers, duties and liabilities under the employment contract pass to the buyer.
Any dismissal will be automatically unfair where the sole or principal reason for the dismissal is the transfer itself or a reason connected with the transfer that is not an economic, technical or organisational (ETO) reason entailing changes in the workforce. It will also be necessary to show that the dismissal was procedurally fair.
Employees may refuse to transfer to the buyer, but the effect is to terminate their employment without any right to compensation.
The seller and the buyer must inform and consult elected employee representatives or trade union representatives of their own affected employees in relation to the transfer. If these obligations are breached an employment tribunal can award up to 13 weeks' actual pay for each affected employee.

Exceptions to TUPE

However, not all transfers are relevant transfers. TUPE does not apply in the following instances:

Transfer by share takeover. When a company's shares are sold to new shareholders, there is no transfer of the business - the same company continues to be the employer.
When a business transfers assets only, e.g. if equipment is sold.
Transfers of undertakings situated outside the UK - although similar provisions apply in the EU.
Change of business identity, e.g. if the work or organisational structure changes radically.

Whether TUPE applies in any particular case depends on all relevant circumstances. In the event of a dispute, only an employment tribunal or a higher court can decide this.