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UK

Transposition of the EU Directive1: The rules on transfer of undertakings are contained in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), as amended (“TUPE”).

Scope

Covered Employees.
In the UK, individuals can provide their services as employees (with full employment rights under English law), workers who are not employees (individuals whose employment relationship with their employer is looser than employees, but who still benefit from limited core employment rights), or as independent contractors who are in business on their own behalf. TUPE covers employees, including full-time, part-time, indefinite-term or fixed-term employees2. TUPE does not cover workers who are not employees or self-employed individuals.

Covered Transactions.
TUPE applies to a “relevant transfer”, which means:

  • A business transfer: broadly tracking the Directive, TUPE covers a transfer of a business (or part of a business) which constitutes an “economic entity”. An “economic entity” requires resources that are deliberately organized to pursue an economic activity, and must have a degree of structure, autonomy and stability. In asset-light businesses, an economic entity may be made up only of the employees (or even an individual employee) that form part of it.; or
  • A service provision change (“SPC”): building and expanding on the Directive, TUPE covers outsourcing of services, insourcing of services or a transition from one service provider to another (“on-sourcing”). Broadly, this captures situations where an organized grouping of employees is carrying on an activity for a client, and that client intends that, following the SPC, these activities will be carried out by a (different) service provider or (in an insourcing) by the client. The service provider’s employees must be operating as a dedicated team, but need not necessarily be devoting the whole (or even the majority) of their working time to the client’s work. Whether a change in service provider will constitute and SPC under TUPE will be highly fact-sensitive and legal advice should be sought on a case by case basis.

Excluded Transactions.
TUPE does not generally apply to:

  • Businesses (or the relevant part) or, in relation to an SPC, organized groupings of employees not situated in the UK immediately prior to the transfer.
  • An intra-governmental transfer, which may involve any public body whose functions involve the exercise of public authority: it need not necessarily be a public sector organisation.

In relation to a business transfer:

  • Stock sales.
  • A transfer of a business not constituting an economic entity or where the economic entity does not retain its identity. However, the analysis of whether the transfer of assets constitutes an economic entity is fact-specific, and legal advice should always be sought before concluding that UK rules do not apply.

In relation to an SPC:

  • Supplies of goods.
  • An SPC where the nature of the activity carried out by the service provider (or client) after the change is fundamentally or essentially different from the activity carried out prior to the change.
  • Activities which the client intends to be carried out in relation to a single specified project or a task of short duration.
  • An on-sourcing where the client changes.

Transfer of Employment and Certain Rights and Obligations by Operation of Law

  • In General. Employees assigned to the business (or, in relation to an SPC, to the organized grouping of employees) transfer automatically by operation of law to the transferee at the same time as the business or service provision arrangement is transferred, and on their existing terms and conditions of employment.3 Employees who are assigned to the business or organized grouping of employees on a purely temporary basis, or whose employment with the putative transferor would not be terminated as a result of the transfer, are excluded under TUPE. The transferee becomes the new employer. As a result, all rights and obligations arising from the employment contracts of those transferred employees, or from the employment relationships more broadly, are also transferred to the transferee, and (subject to certain exceptions, covered below) the transferor is released from those obligations by operation of law.
  • The Pension Exception. Employees’ rights under occupational pension schemes which relate to old age (i.e. retirement), invalidity or survivors benefits do not transfer automatically by operation of law to the transferee, and so remain with the transferor. Notably, liability to provide enhanced redundancy benefits will transfer. Under separate UK pensions legislation, transferees may be required to provide a minimum pension benefit to transferring employees who, prior to the transfer, were members of an occupational pension scheme.
  • Liability. As set out above, the transferee will “step into the shoes” of the transferor and take on all liabilities associated with the employees’ pre-transfer employment. Liabilities incurred in connection with the transfer and with failures to inform and consult (see below) are dealt with separately: where the liability arises as a result of the transferee’s failure to inform and consult, the transferee will be solely liable. However, where the liability arises as a result of the transferor’s failing, the transferor and transferee will be jointly and severally liable.
  • Collective agreements. The transferee is required to continue to observe the terms and conditions agreed in any collective agreement applicable to the transferred employees on the same terms as the transferor, subject to the following caveats:
    • The transferee will not be bound to observe terms and conditions introduced to a collective agreement subsequently to the transfer where the transferee has not been involved in the (re-)negotiation of those terms; and
    • As an exception to the general prohibition on making changes to employees’ terms and conditions by reason of the transfer (see below), a transferee will be permitted under TUPE to make a change to terms that are derived from a collective bargaining agreement so long as (i) changes are not made within one year of the transfer, and (ii) the changes, viewed as a whole, are not unfavourable to the employees in question.
  • Employee Representative Recognition. If the transferred business (or part) preserves its autonomy and is maintained as a separate operating unit after the transfer, then the recognition of any trade union will also be preserved following the transfer. TUPE does not, however, place restrictions on a trade union being derecognized in accordance with applicable contractual or statutory procedures following the transfer.

Specific Employee Protections

  • Protection Against Dismissal. The dismissal of an employee (by the transferor or the transferee), where the sole or principal reason for the dismissal is the transfer, will be automatically unfair under English law. This rule does not apply where the employer can show that the dismissal was carried out for an economic, technical or organizational reason entailing changes in the workforce. This will depend on the facts of each case.
  • Changes in Terms and Conditions of Employment. Changes made to the contractual terms of employees’ employment will generally be void and unenforceable by an employer4 if (i) the transfer is the sole or principal reason for the change, and (ii) the employer cannot show that the change was made as a result of an economic, technical or organizational reason entailing changes in the workforce. This rule is relaxed where the transfer is taking place in the context of the transferor’s insolvency.
  • Substantial Changes in Working Conditions. If the transfer involves a substantial change in working conditions to the detriment of an employee and the employee resigns in response prior to the transfer, the employee will be treated as having been dismissed and may be entitled to remedies for unfair dismissal.
  • Right to Object to the Transfer. Under TUPE, an employee is entitled to object to the transfer of their employment. Their employment will then be treated as terminating at the time of the transfer. The employee will have no remedy in connection with the termination of their employment and will effectively be treated as having resigned.
  • Contracting Out. Parties cannot contract out of the application of TUPE.

Employee Engagement

  • Obligation to Provide Information. Both the transferor and the transferee must provide representatives of their respective affected employees5 (or, in certain circumstances if there are no representatives, the employees themselves) with specified information about the transfer long enough before the transfer to allow meaningful consultation to take place. The information required to be provided is (i) the date or proposed date of the transfer, (ii) the reasons for the transfer, (iii) the “legal, economic and social implications” of the transfer for the employees, (iv) any measures envisaged in relation to the employees (by either the transferor or the transferee), and (v) certain information in relation to the number and roles of temporary agency workers within the organisation. The concept of a “measure” is interpreted very widely and may include changes or adjustments to terms and conditions of employment (for example, in relation to benefit or pension provision), changes to work locations or practices, redundancies or administrative changes such as changes to the date an employee is paid. Separately, there is an obligation on the transferor to provide certain information about transferring employees (referred to as “employee liability information” or “ELI”) at least 28 days before the transfer.
  • Obligation to Consult6. Where the transferor or the transferee envisages taking “measures” in relation to its respective affected employees, it must consult representatives of those employees on such measures with a view to reaching an agreement. There is no specific timeframe prescribed for the consultation period, but sufficient time must be allowed to allow meaningful consultation to take place.
  • Parent Decisions. The obligations to inform and consult apply irrespective of whether the decision resulting in the transfer is taken by the employer or by a parent.
[1] Directive 2001/23/EC.

[2] Note that this will include employees of associated companies (for example group service companies) who have an employment relationship with the transferor of a business or, in relation to a service provision change, with the service provider or client.

[3] There is no statutory definition of “assigned”, and the determination of whether an employee is assigned to the business (or part), or the relevant organized grouping of employees, will be based on the relevant facts and circumstances and the applicable case law of the European Court of Justice and the English courts.

[4] Note that where changes have been made in breach of TUPE, an employee may “cherry-pick” by enforcing a newly introduced term that is otherwise void under TUPE, while still relying on the terms that applied prior to the amendment where it suits the employee to do so.

[5] If the workforce is unionised, employers will be required to engage with union representatives. If no appropriate representative body is in place, the employer will generally need to arrange a ballot to allow employees to elect representatives.

[6] Note that, where large numbers of redundancies are envisaged, separate collective consultation requirements may apply.