In the UK where a business is transferred from one economic entity to another then the employees will be protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the TUPE Regulations)
The effect of the TUPE Regulations is to preserve the continuity of employment and terms and conditions of those employees who are transferred to the new employer. Effectively, the new employer (the transferee) “steps into the shoes” of the transferor with regard to those employees. The TUPE Regulations also contain special protections for employees in relation to changing terms and conditions or dismissals where these are connected with the transfer. There is also an obligation to inform and consult with employee representatives. The TUPE Regulations apply where a business or part of a business is sold or on an outsourcing.
All employees who are employed by the transferor immediately before the transfer and are assigned to the undertaking or part of the undertaking, transfer automatically by operation of law to the transferee. Almost all rights, powers, duties and liabilities which arise under or in connection with the contract of employment of a transferring employee will transfer to the transferee. Where a contractual provision is dependent on the identity of the transferor (such as a share plan), the term will not transfer but the employees will benefit from a substantially equivalent benefit going forward. The TUPE Regulations do not have the effect of assigning criminal liabilities and rights relating to occupational pension schemes which relate to benefits for old age, invalidity or survivors (although a contractual obligation to contribute to a personal pension scheme does transfer).
Dismissals of employees after a transfer are effective. The general law on unfair dismissals and redundancies will continue to apply, but employees will be entitled to enhanced protections. Under the TUPE Regulations, any dismissal is automatically unfair where the sole or principal reason for dismissal is the transfer itself unless there is “an economic, technical or organisational reason entailing changes in the workforce”(an ETO reason).
The TUPE Regulations also protect employees from the imposition of new terms by reason of a transfer. Any purported variation of a contract of employment of an employee who transfers under TUPE is void if the sole or principal reason for the variation is the transfer, even if the employee agrees to the change and regardless of how long after the transfer the variation takes place. However, a contractual variation is allowed if the sole or principal reason for the variation is an ETO reason, provided that the employer and employee agree that variation. Variations are also permitted where the variation is allowed by the employment contract, for example where there is a mobility clause. Finally, the restriction on varying contracts will also not apply to terms incorporated from a collective agreement provided that the variation takes effect more than one year after the date of the transfer; and following the variation the terms in the employee’s contract “when considered together” are no less favourable to the employee than those which applied immediately before the variation.
The TUPE regulations also impose obligations to inform and consult with employee representatives. There are two separate obligations that arise: Firstly an obligation to provide appropriate representatives of affected employees with information about the transfer and secondly an obligation, where measures are to be taken, to consult with those representatives. In practice, a transfer is likely to bring some change for at least some employees and therefore an obligation to consult will usually arise. Where there has been a failure to inform and consult then a complaint can be made to an employment tribunal. Where a complaint succeeds, the tribunal makes a declaration to this effect and may order the employer to pay compensation to the affected employees. The maximum payable is 13 weeks’ pay for each employee affected. The transferee can be jointly and severally liable with the transferor in respect of compensation payable.