The Transfer of Undertakings (Protection of Employment)
Regulations 2006 (TUPE) and previous versions of the regulations
have been in force in the UK since 1981. The purpose of TUPE is to
safeguard employee rights in the transfer of a business.
This inbrief summarises the main aspects of TUPE, how and when
it applies, and the obligations of the outgoing and new
employers.
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inbrief.
Inside
What is TUPE?
The purpose of TUPE is to protect employees’ rights when the
business in which they work changes hands. Its general thrust is to
switch staff and liabilities from the transferor (the
employees’ employer before the transfer) to the transferee (the
entity that acquires the business or takes over providing
services). In outline, if TUPE applies:
staff employed in the undertaking or assigned to the grouping
providing the services transfer automatically to the transferee on
their existing contracts and their continuous service with the
transferor is preserved
liabilities in respect of staff transferring (e.g. for unpaid
wages or claims such as for injuries or harassment) pass over to
the transferee
dismissals because of a transfer are unfair unless they are
justified by an economic, technical or organisation reason
entailing a change in the workforce (an “ETO reason”).
The transferee is liable even if the transferor carries out the
dismissal
the transferor (and, in some cases, the transferee) has a duty
to give information to elected staff representatives and must
normally consult over the implications of the transfer
the transferor is required to give the transferee information
about the staff transferring, their contracts of employment and any
associated liabilities
When does TUPE apply?
TUPE applies to any:
transfer from one employer to another of an economic entity (an
organised grouping of resources which has the objective of pursuing
an economic activity)
service provision change, when there is an organised grouping
of employees whose principal purpose is carrying out activities
which are switching from one employer to another
A transfer of an economic entity occurs most clearly when there
is a sale of business, which typically comprises assets such as
premises, equipment, customers, staff and goodwill. In determining
whether TUPE applies, it is necessary to identify the operation and
what it comprises and then to consider whether it has transferred
with its identity retained. In general, if the activities are the
same, the customers are the same and staff are still required (even
if not the same staff) that will often be enough for there to be
retention of identity. However, all relevant factors will be taken
into consideration when assessing each case and the weight given to
different factors will depend on the nature of that particular
business.
In practice, a service provision change is more common and
easier to identify. A service provision change occurs when: (a) a
service is contracted out from a client to a contractor for the
first time (outsourcing); (b) a service is moved from one
contractor to a new contractor (second generation outsourcing); or
(c) the service is brought back “in house” by the client.
After identifying the service and whether it is actually
transferring, it is then necessary to identify the organised
grouping of employees (which must be situated in Britain), identify
its principal purpose, consider whether that organised grouping
provides the whole of the service, and whether the services being
performed by the organised grouping are transferring in their
entirety. After that it is necessary to identify which employees
are permanently assigned to the organised grouping and whether they
will transfer.
A “one-off” buying-in of services from a contractor
“of short-term duration” will not normally be covered.
For example, the hiring of security staff to protect athletes
during a major sporting tournament would be a short-term buying-in
of services and so excluded from TUPE, whereas a contract for the
provision of security advice to the event organisers over a period
of several years would potentially be covered.
In addition, activities mainly related to the supply of goods
rather than services will not normally be covered. Examples are a
contract where a business purchases components for machinery it is
producing or buys sandwiches for re-sale in its canteen.
Who and what transfers?
TUPE applies only to employees who are permanently assigned to
the relevant undertaking or organised grouping of employees – this
is not a simple percentage utilisation test. The question of
whether an employee is “assigned” will depend on the
particular facts including, for example, whether the employee was
intentionally or formally allocated to the grouping (for example in
the job description), how the costs of employment are allocated,
whether the employee could work or does work on other activities in
practice (and the importance of such activities), physical
proximity to other employees in the grouping, whether the employee
is permanently or temporarily allocated to the grouping, and other
evidence of organisation into that grouping such as team lists,
email groups, meeting attendances, etc.
Changing terms and conditions
TUPE restricts the ability of employers to change employees’
terms and conditions in the context of a transfer, even where the
employees consent to the variation. The basic rule is that no
variation of any contractual term is permitted where the reason is
the transfer. However, the variation is permitted if:
made for an ETO reason and agreed by both employer and
employee
the contract expressly permits the change
the change is entirely unconnected with the transfer
TUPE does not prevent changes to terms incorporated from
collective agreements if the change is made more than one year
after the transfer and the changes leave the employee in no worse
position overall.
Notwithstanding these exceptions it is still necessary to
consider whether the variation to any contractual terms would be
effective anyway under normal legal principles (which will usually
require employee consent). Variations made with the intention of
harmonising terms and conditions will normally be viewed as
“by reason of the transfer” and therefore void. The
employer must be able to point to some extenuating circumstances to
distance its reasons as far as possible from the transfer.
The ETO exemption is rarely helpful in the context of
contractual variations given the need for the employer’s reason
to “entail changes in the workforce”. This requires the
existence of a clear link between the contractual variations and
other changes to the numbers, functions or workplace locations of
the affected employees.
An economic reason may be a reason relating to the profitability
or market performance of the new employer’s business. A
technical reason may relate to the nature of the equipment or
production processes operated by the new employer. An
organisational reason may relate to the management or organisation
or structure of the new employer’s business.
In many cases employers will be unable to make legally binding
changes to terms and conditions following on from a TUPE transfer,
even if employees would agree to the changes – although in practice
changes which benefit the employee or which are broadly neutral are
unlikely to be challenged.
Dismissals because of a transfer
Where the sole or principal reason for an employee’s
dismissal is the transfer, TUPE deems the dismissal to be
automatically unfair. An employee is still required to have the
necessary qualifying service to bring such a claim and the normal
compensatory award limits still apply.
A dismissal occurring in the context of a transfer will not be
automatically unfair when either:
the reason for it is entirely unconnected with the transfer
(e.g. misconduct)
the sole or principal reason for it is an ETO reason entailing
changes in the workforce (e.g. redundancy caused by a change of
workplace location)
However, even when the dismissal is not automatically unfair, it
may still be unfair if the employer does not have a good reason and
does not follow a fair process.
Information about employees and liabilities
TUPE requires transferors to give transferees employee liability
information. This is information on:
the identity and age of the employees within the scope of the
transfer
the statutory “statement of employment particulars”
(i.e. all the information an employer is obliged to give an
employee in a statement of terms and conditions of employment)
any relevant collective agreement
any disciplinary action or grievances instigated within the
preceding two years
any legal proceedings brought by the relevant employees against
the transferor in the preceding two years
any legal claim which the transferor has reasonable grounds to
believe an employee may bring
Although this does not require a transferor to provide as much
information as would be normal on a due diligence exercise before a
transfer, it goes a long way to requiring disclosure of the most
important information. Transferors will be required not only to
identify who will transfer, but also many of their contractual
terms.
The transferor must supply employee liability information at
least four weeks before completion of the transfer, unless there
are “special circumstances” which make it not reasonably
practicable to provide it in this time frame (a very limited
exception in practice). It can be given in instalments and must be
updated if there are changes.
If a transferor fails to comply with the rules on providing
employee liability information, an Employment Tribunal may order it
to pay the transferee compensation. In deciding how much
compensation to award, a tribunal will take into account various
factors including any loss sustained by the transferee. The award
must be a minimum of £500 per employee, unless the Tribunal
considers it just and equitable to award less than this.
Obligations to inform and consult
TUPE requires the transferor to inform and (if appropriate)
consult “appropriate representatives” of employees who
are affected by a transfer. These are either recognised trade union
or elected employee representatives.
The transferor must supply the following information:
the fact that the transfer is to take place, when it will occur
and the reasons for it
the implications of the transfer for the affected
employees
any “measures” (i.e. material changes) that it is
envisaged will be taken in connection with the transfer in relation
to the affected employees. This might include any unavoidable
changes to incentive arrangements, payroll date or benefit
providers, consequential redundancies, a change to the workplace
location, participation in a different pension scheme, the fact
that the transferee’s policies will apply in future, etc
the transferor’s use of agency workers.
When there are measures envisaged in connection with the
transfer, the employer must consult appropriate representatives of
affected employees with a view to seeking their agreement to
them.
Note that employers with fewer than 10 employees may consult
with them directly if there are no existing employee
representatives. Where a transfer will take place on or after 1
July 2024, employers may also consult with affected employees
directly (provided there are no existing employee representatives
in place) where either:
the business employs fewer than 50 employees, irrespective of
the size of the transfer; or
the proposed transfer involves fewer than 10 transferring
employees, irrespective of the size of the business.
It should be noted that “affected employees” are any
employees – of either of the parties to the transfer – who may be
affected by the transfer or measures taken in connection with it.
This may include staff who do not transfer. Importantly, the
transferee must supply to the transferor information about any
measures it is proposing to take post transfer, long enough before
the transfer to enable effective consultation with representatives
to take place.
Where a transferor or transferee fails to comply with the rules
on information and consultation, a tribunal can order a penalty of
up to 25% of the annual payroll costs of employees affected by the
transfer (i.e. 13 weeks’ pay per affected employee).
Claims may be brought against either or both of the transferor
and the transferee for failure to inform and consult and they will
be jointly as well as individually liable to pay any penalty
incurred, whichever party was at fault. (In practice, it is likely
that a claim will be made against the person with the deepest
pocket).
Provided the transferor agrees, the transferee may begin
collective redundancy consultation with transferring staff even
before the transfer. However, TUPE stops short of allowing the
transferee to actually give notices of termination before the
transfer nor does it sanction the transferor doing this on the
transferee’s behalf.
Transfer of insolvent businesses
The government is committed to promoting a “rescue
culture” for businesses that are or are likely to become
insolvent. Consistent with this, TUPE contains two specific
measures, known as the “rescue provisions”, to encourage
the sale of insolvent businesses as going concerns:
certain of the transferor’s debts will not transfer to the
transferee transferors or
transferees and employee representatives – including union
representatives, if a union is recognised – may agree changes to
terms of employment (which would otherwise be void under normal
TUPE rules) if agreed with a view to safeguarding employment
opportunities by ensuring the survival of the business
(“permitted variations”)
These provisions will only apply if insolvency proceedings were
entered into under the supervision of an insolvency practitioner
and with a view to survival of the business or part of it, as
opposed to liquidation of assets. If the insolvency was instituted
with a view to liquidation, then the provisions of TUPE which
provide for automatic transfer of employees on existing contracts
and automatic unfair dismissal for transfer-related dismissals do
not apply. However, a transferee who employs the employees of a
business it has bought out of insolvency may find that those
employees still have continuity of service (and so unfair dismissal
rights) preserved under the Employment Rights Act 1996.
Future developments
Legislative change is on the horizon. The Employment Rights Act
2025 includes new powers to introduce regulations and a statutory
code of practice to ensure equitable employment terms between
workers transferring from the public sector and those working
alongside them. The aim is to avoid a two-tier workforce, with a
focus on provisions to be included in relevant outsourcing
contracts.
This could have significant implications for private sector
employers taking over public sector services. Consultation is
expected, followed by detailed regulations which are expected to
take effect in October 2026.
Other possible areas of reform include:
Changes to who is in scope: Labour have said they will consult
on plans to remove the distinction between employees and workers.
Whether TUPE currently applies to workers is an area of uncertainty
but, should Labour proceed with their plans, all workers could be
in scope to transfer under TUPE.
More radical reform: Labour have also promised to launch a Call
for Evidence to examine issues relating to TUPE and how it works.
This is arguably long overdue and could include, for example, a
review of the issues raised by the European Court of Justice ruling
in ISS Facility Services v Govaerts which held that an employment
contract of a transferring worker can be split between transferees
in proportion to tasks performed.
The extent of any changes and potential impact therefore remains
to be seen.
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