Forthcoming changes to the TUPE Regulations: TUPE checklist

Sarah-Marie Williams of Clyde & Co concludes her series of articles on TUPE with a general checklist on what transfers under TUPE and what does not.

1. What transfers under TUPE?

The employees

The employees that are employed in the undertaking immediately before the transfer will transfer to the new employer, the transferee.

The transferee should ensure that it identifies the employees that are assigned to the undertaking being transferred at the earliest opportunity. It must be noted that the transferring employees include full-time and part-time employees, and those on fixed-term contracts.

If just part of an undertaking is to transfer, only those employees dedicated to that part of the undertaking will transfer. In such circumstances consideration should be given to the amount of time that each employee spends in the part of the undertaking that is being transferred, and the employee's job title, job description and particular duties, in order to assess whether he or she will be a transferring employee. It is common practice in a business transfer to agree a list of the transferring employees.

The transferee should assess whether there are any employees that are likely to be critical to the business and seek to ensure that such employees are tied into the business moving forward. Consideration should be given as to whether there are any independent contractors/contract workers and whether their services will be retained.

The transferor should consider whether there are any employees that will not transfer. If it wishes to retain certain employees it should ensure that they are transferred to a part of the business that is not part of the transferring undertaking well in advance of the transfer taking place. Ideally this should take place prior to the bidding/tendering stage.

Terms and conditions of employment of the transferring employees

The terms and conditions of employment, both expressed and implied, of the transferring employees transfer to the transferee, together with any collective agreements relating to them.

The transferee should conduct a due diligence exercise in order to review its employment obligations. This should include the terms and conditions of the transferring employees, contractual benefits, terms of any collective agreements, industrial relations documentation and details of any pending or actual claims. Some benefits such as share option schemes cannot, by their nature, be transferred, and the transferee should look to provide a benefit or scheme that is substantially equivalent.

As indicated below, the benefits of the transferor's occupational pension scheme do not transfer. However, it must be noted that any benefits linked to the pension scheme, such as life assurance, permanent health insurance, enhanced redundancy and early retirement benefits will transfer.

If circumstances permit, the transferee should consider obtaining warranties and indemnities from the transferor, for example a warranty that the information provided in respect of the transferring employees is accurate.

When providing information to the transferee, the transferor should ensure that it is acting in compliance with the Data Protection Act 1998. The transferor is advised to provide only information that has been anonymised and therefore does not require the individual consent of each employee. The exception is where it is seeking to rely on the specific exemption that the processing of the data is necessary for the purposes of the legitimate interests pursued by the data controller or the third party to whom it is being disclosed. It must be noted that the Data Protection Act 1998 also imposes restrictions on the transfer of data to a country outside the European Economic Area.

Rights and liabilities of the transferring employees

All rights and liabilities of the transferring employees will transfer to the transferee, together with all rights and liabilities of the employees employed in the undertaking but dismissed before the transfer for a reason connected to it (unless there is an economic, technical or organisational reason for the dismissal).

This includes all existing claims and liabilities under their employment contracts and any statutory claims (such as equal pay or maternity pay), together with any personal injury claims. In addition, the benefit of any employer's liability insurance covering the employees while employed by the transferor will transfer to the transferee (unless it is a transfer of public sector employees). Therefore it is advisable for the transferee to have an indemnity in place in respect of any personal injury sustained during the transferor's employment. The recognition of any union in relation to the transferring employees will transfer if the undertaking maintains a distinct identity after the transfer.

The transferee and transferor should consider how any accrued liabilities will be apportioned (for example accrued holiday entitlement). A mirrored indemnity is usually sought whereby the transferee seeks an indemnity from the transferor in respect of any liabilities that arise from any acts or omissions by the transferor prior to the transfer, and the transferor seeks an indemnity from the transferee in respect for any liabilities arising from the acts or omissions by the transferee after the transfer.

Liability for failure to inform and consult

Although there are conflicting decisions, the preferred view amongst practitioners is that liability for failure to consult will, at present, transfer to the transferee. However, under the Transfer of Undertakings (Protection of Employment) Regulations 2005 (coming into force in April 2006), the transferee and the transferor will be jointly and severally liable for any such failure.

As regards information and consultation, the affected employees should be informed of the fact that a transfer is to take place, when it is to take place and the reasons for it, the implications that it will have on them and the measures (if any) that will be taken in relation to them. Measures would include plans or proposals that are foreseen by the transferee in respect of the transferring employees, including any material changes in existing working practices or working conditions. This would include redundancies, whether voluntary or compulsory. Consideration should be given to the extent of the information and consultation required, and to the timing of compliance with the obligations.

The Transfer of Undertakings (Protection of Employment) Regulations 2005 will impose higher obligations on the transferee to provide information, with a potential penalty of £75,000 for non-compliance.

2. What does not transfer under TUPE?

Objecting employees

The employees who object to the transfer will not transfer to the transferee. These employees are deemed to have resigned. However, some investigation into the reason for the objection should be undertaken.

Occupational pension scheme rights

The rights of the employees to an occupational pension scheme in respect of old age, invalidity or survivors' benefits will not transfer.

Criminal liabilities

Any criminal liabilities relating to the transferring employees will not transfer to the transferee.

Other liabilities

Any liabilities in respect of national insurance contributions, PAYE liabilities or liabilities relating to the transferee's pension scheme will not transfer.

Next week's article will be the first of four on sex discrimination and will look at the new definition of harassment.

Sarah-Marie Williams is a solicitor at Clyde & Co (sarah-marie.williams@clydeco.com)

Further information on Clyde & Co can be accessed at www.clydeco.com