The transfer of undertakings rules have a reputation for complexity and uncertainty and there are a number of potential risks that HR professionals should be aware of, whether they are dealing with the sale of a business or a service provision change during outsourcing, re-tendering or bringing a service back in-house.
1. Identify problems as soon as possible
Forewarned is forearmed and HR professionals dealing with TUPE need to think about the practical steps they need to take at an early stage. Conducting effective due diligence (the care a reasonable person should take before entering into a legal agreement) as quickly as they can will help.
2. Employee liability information
The new employer (transferee) is entitled to receive employee liability information from the outgoing employer (transferor). If a transferor employer fails to do the job properly, in terms of collating and updating the information, it could face a significant penalty. The potential award will be the financial loss suffered by the transferee with a minimum penalty of £500 per employee (unless that is not ‘just and equitable’).
3. Check who transfers
Only those employees assigned to the work activities in question or employee group transfer. This test may sound simple but in practice there may be disputes about who is actually ‘in scope’. What percentages of employees’ time is spent on these work activities is relevant but will not determine the outcome. Who transfers has to be decided by looking at all the circumstances.
4. Obtain relevant employment information
Getting clarity on the contractual position of the employees transferring, backed where appropriate by suitable warranties and indemnities (used in law to reallocate risk between buyers and vendors) could prove essential. Not getting full disclosure of pre-transfer promises to employees, undisclosed employees or employment terms can create unexpected problems and liabilities post transfer.
5. Be prepared for key people to walk out
Employees can choose not to transfer. If this happens, their employment terminates immediately and they don’t need to serve a notice period. This can potentially jeopardise the new employer’s ability to enforce restrictive covenants in those employees’ contracts and is a risk that may need to be addressed commercially to ensure key employees are retained.
6. Think about bonuses and other benefits
Sometimes an employee entitlement transfers with the employees which cannot be replicated by the new employer (for example, a bonus scheme based on the previous employer’s financial situation or a discount concession that cannot be continued). HR will need to work out how put in place a ‘substantially equivalent’ arrangement.
7. Find out about agency workers
Employers must provide details of the transferor’s agency workers to the representatives of the employees affected by the transfer under TUPE’s information and consultation requirements. If this information is not provided, employers will be in breach of the rules which could lead to an award of up to 90 days’ pay per employee.
8. Watch out for hidden TUPE transfers
Share sales are not covered by TUPE but the rules could apply in this context. For example, there could be a reorganisation pre-transfer to ensure certain work activities are transferred to the company being sold, or a reorganisation post-transfer to integrate the newly acquired business into the share buyer’s existing activities. Failing to spot a TUPE transfer can cause problems, such as an employer having to pay a financial penalty of up to 13 weeks’ pay per employee for failing to inform and consult employee representatives prior to the transfer.
9. Expect disputes over whether the rules apply
For TUPE to apply, the activities in question must remain the same. Where a service contract is retendered, the outgoing contractor may want TUPE to apply so it can offload employees it no longer needs and avoid termination costs, whereas the incoming contractor may not want to inherit those employees. Contractors may also argue there is no service provision change because the service has been too fragmented across various new suppliers, or maintain that certain work activities have ceased during the changeover in contractors, or that the contractor has only been appointed for a short-term task or event.
10. Other potential problems
Employers will also need to think about how they will harmonise the terms and conditions of transferring employees with their existing workforce; ensure collective information and consultation duties are conducted with properly constituted employee representatives; and how they can limit the risks of claims arising from dismissals caused by the transfer process.
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