The TUPE Regulations 2006: frequently asked questions

Sue Nickson, Partner and International Head of Employment at Hammonds, concludes this month's series of articles by answering frequently asked questions on the TUPE Regulations 2006.

When do the TUPE Regulations 2006 come into force?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 come into force on 6 April 2006. They will apply to relevant transfers that take place on or after this date. However, the new duty to supply employee liability information will apply only where the relevant transfer takes place after 19 April 2006.

What is a relevant transfer under the TUPE Regulations 2006?

A relevant transfer is defined as either a 'business transfer' or a 'service provision change'.

A business transfer is where the whole or any part of a business or undertaking is transferred from one employer to another as a going concern. It is essentially the same definition of a transfer as that set out in the TUPE Regulations 1981. A service provision change covers the contracting-out of in-house services, the switching of contractors and the transfer of services back in-house. Under this new definition most outsourcing situations will be covered. This is intended to clarify the position rather than represent any real change to the scope of the TUPE Regulations 1981.

The TUPE Regulations 2006 do not apply to share sales. This is because, in order for there to be a relevant transfer, there has to be a change in the identity of the employer. When a company's shares are sold to new shareholders the same company continues to be the employer and there is, therefore, no transfer within the meaning of the Regulations.

When is the duty to inform triggered?

The obligation to provide information is triggered whenever there is a TUPE transfer, regardless of how many employees are affected by the proposed transfer. An employer is required to provide certain information (see below) to the appropriate representatives of any affected employees. The 'employer' usually refers to the transferor but can also refer to the transferee. The 'affected employees' refers to the transferring employees and any other employees who may be affected by the transfer or by any measures taken in connection with it, even if they are not transferring or are already employed by the transferee.

Who does the transferor have to inform about the relevant transfer?

The transferor is required to inform 'appropriate representatives' of the affected employees. Appropriate representatives will be either trade union representatives, if the employees are of a description in respect of which an independent trade union is recognised or, in any other case, employee representatives elected by the workforce.

This means that if an employer recognises a union and has employee representatives, it must provide the information to the trade union representatives.

What information does the transferor need to provide?

The transferor must inform the appropriate representatives that the relevant transfer is to take place, of the date or approximate date of the transfer and the reasons for it, and of the legal, economic and social implications (see below) for all affected employees. In addition, it must detail both the measures that the transferor envisages will be taken in connection with the transfer in relation to the affected employees and the measures that the transferee will take in relation to the transferring employees. If the transferee does not envisage taking any measures, that fact must be stated.

This information must be provided in writing and 'long enough' before the transfer to enable consultation to take place. This is not a fixed period and will depend on the structure of the workforce and how much there is to consult about.

What is meant by the 'legal, economic and social implications' of a transfer?

Legal implications would include, for example, the effect of the transfer on the terms and conditions of the affected employees. The employees should therefore be informed that the identity of their employer will change and that their continuity of employment will be preserved after the transfer.

Economic implications would include, for example, any effect on pay and benefits.

Social implications are not clearly defined in the Regulations but would probably include matters such as pensions and national insurance.

When is the obligation to consult about a TUPE transfer triggered?

The obligation to consult (as opposed to inform) arises only if an employer envisages taking any measures in relation to any affected employees. This would include alterations to hours or benefits, a relocation and redundancies. 'Envisages' is not limited to definite plans and firm intentions, but equally would not cover vague ideas or mere speculation. For example, if the transferee envisages making a number of the transferring employees redundant immediately after the transfer, this would be considered to be a measure and the transferee would be under an obligation to supply this information to the transferor to pass on to the staff representatives.

Are there any penalties for failing to comply with the information and consultation obligations?

Under the TUPE Regulations 2006, there are penalties for both transferors and transferees who fail to comply with their information and consultation obligations. An employment tribunal may award up to 13 weeks' pay in respect of any affected employee (ie not just transferring employees).

It is important to note that the transferor and transferee may be held jointly liable for any award of compensation made by an employment tribunal in respect of a failure by the transferor to comply with its information and consultation obligations.

Do employees have to transfer or can they opt out?

An employee has the right under the TUPE Regulations 2006 to object to becoming employed by the transferee, but this would result in the termination of his or her employment contract with the transferor. As the employee would not be treated as having been dismissed by the transferor, he or she would not have the right to bring a claim for unfair dismissal or a redundancy payment. It would therefore be a very drastic step for an employee to take.

Where an employee finds that there has been or there will be a substantial change to his or her working conditions as a result of the transfer that is to his or her detriment, the employee will have the right to resign without notice and claim constructive dismissal.

Is there a period of time after which an employer can harmonise the contracts of transferred employees with those of its existing workforce?

There is no set period of time after which it is safe to alter employees' terms and conditions of employment in the context of a TUPE transfer where the main or only reason for changing them is to bring them into line with those of the existing workforce.

Under the TUPE Regulations 2006, the harmonisation of terms and conditions of employment after a TUPE transfer will generally be seen as transfer-related (and therefore ineffective to the extent detrimental to the employees) unless the changes can be shown to be genuinely for other reasons, eg operational/efficiency reasons or for an 'economic, technical or organisational reason entailing changes in the workforce'. There are always risks therefore in seeking to harmonise terms and conditions of employment following a TUPE transfer, especially if the new package is less favourable.

Can an employer harmonise the contracts of transferred employees with those of its existing workforce where the changes will be beneficial to them?

From a legal point of view, the fact that the changes will be beneficial to the employees does not in itself mean they will not be transfer-related and therefore void. From a practical point of view, however, there is clearly much less risk of tribunal claims and/or of the employees objecting to the changes.

Similarly, it is irrelevant whether or not the employees receive some form of financial payment in return for agreeing to the new terms and conditions of employment.

Where the changes are of mixed benefit and detriment, the transferred employees may accept the positives without being bound by the negatives.

What happens to occupational pensions on a TUPE transfer?

Any rights under, or in connection with, an occupational pension scheme that relate to old age, invalidity or survivor benefits will not transfer on a TUPE transfer. If, however, the scheme deals with other matters (such as enhanced redundancy entitlements) these will transfer.

Since 6 April 2005 transferees have been required to provide pension benefits for transferring employees in certain circumstances following a TUPE transfer. These changes were brought in under the Pensions Act 2004.

Next week's article will be the first of four looking at the Equality Act 2006.

Sue Nickson is Partner and International Head of Employment at Hammonds (Sue.Nickson@Hammonds.com).

Further information on Hammonds Solicitors can be accessed at www.hammonds.com