TUPE: frequently asked questions

Louise Westby of Steeles (Law) LLP continues a series of articles on TUPE with some frequently asked questions. Questions on changing terms in a TUPE situation, whether or not share transfers come within TUPE, and the information required to be given under TUPE are included.

Do the TUPE Regulations apply where an undertaking that is based in the UK transfers to an employer outside the UK?

The Employment Appeal Tribunal (EAT) recently considered this issue in Holis Metal Industries Ltd v GMB and another [2008] IRLR 187 EAT. It held that TUPE applies to transfers where the employer is situated in the UK immediately prior to the transfer, even where ownership transfers to an undertaking outside the UK and EU.

Is a transferee permitted to harmonise the terms and conditions of employees that transfer to it under TUPE (for example by reducing their pay or annual leave entitlement), to bring their terms into line with those of its existing employees?

The purpose of TUPE is to ensure that employees are protected against dismissal in connection with a transfer, and that their terms and conditions are protected following the transfer.

Employees' existing terms and conditions transfer to the new employer at the time of the transfer. Under reg.4(4) of TUPE employers are unable to vary contracts where the sole or principal reason for the variation is the transfer itself, or a reason connected with the transfer that is not "an economic, technical or organisational (ETO) reason entailing changes in the workforce". If an employer makes changes to the contracts for either of these reasons the changes will be void and unenforceable. Where there is a TUPE transfer and the employer makes changes to employees' terms and conditions, it is very likely to be found that the changes are by reason of the transfer itself.

There is no statutory definition of "an ETO reason". An economic reason could relate to the profitability or market performance of the employer. A technical reason could concern the nature of the production processes that it operates. An organisational reason might relate to its management or organisational structure. "Entailing changes in the workforce" has been interpreted by the Court of Appeal in Delabole Slate Ltd v Berriman [1985] IRLR 305 CA to include changes in the numbers employed or changes to the functions employees perform.

A guide to the 2006 TUPE regulations for employees, employers and representatives (PDF format, 175K) (on the BERR website) makes clear that changes to terms to effect harmonisation will amount to changes by reason of the transfer.

It is not possible for a transferor to agree to changes to employees' terms and conditions before they transfer, in anticipation of the transfer, as the same restrictions apply.

If the agreed changes to terms and conditions are entirely positive it is likely that they will not be prevented by TUPE. This is dealt with in more detail below.

Is there any time period following a transfer after which an employer can harmonise the terms of transferred employees with those of its existing employees?

There is no specific point at which a transferee can successfully argue that, as a result of the length of time that has elapsed since the transfer, the reason for changes to terms is not the transfer or a reason connected with it. TUPE does not define a specific time period. Nor have the courts set down any clear guidance concerning the point at which the transfer will be deemed to have had no impact on the employer's actions. This will be considered on a case by case basis. Therefore, the harmonisation of terms, even if it is carried out some time after the transfer, is likely to be impermissible under TUPE.

In Taylor v Connex South Eastern Ltd EAT/1243/99 (a case under the TUPE Regulations 1981, which were replaced by the TUPE Regulations 2006), the EAT held that an employee who was dismissed for not accepting a variation to his contract terms was dismissed for a reason connected with the transfer. This was despite the fact that the relevant transfer had taken place two years earlier.

Are there any exceptions to the general rule that a transferee cannot vary employees' terms and conditions after they have transferred to it?

TUPE does not prevent a transferee or transferor employer and its employees agreeing to a variation in terms and conditions if the sole or principle reason for the variation is unconnected with the transfer, or the reason is connected with the transfer but is an ETO reason entailing changes in the workforce.

Further, if the new employer agrees changes to employees' terms and conditions that are beneficial, employees may be entitled to rely on these more favourable terms. In Regent Security Services Ltd v Power [2008] IRLR 66 CA, the Court of Appeal held that an agreed variation to the contract that was beneficial to the employee was enforceable. The transferee was unable to rely on the rule that a variation made because of the transfer was void and unenforceable. However, it should be noted that this case was decided under the TUPE Regulations 1981, which made no specific mention of changing terms and conditions for reasons relating to the transfer. The 2006 Regulations specify (in reg.4(4)) that contractual variations are void where they are due to the transfer, or connected to it but not for an ETO reason entailing changes in the workforce. Whether or not variations to contracts that are beneficial to employees will be enforceable where the transfer takes place under the 2006 Regulations remains to be seen.

Does TUPE apply to the transfer of shares?

The general rule is that where there is a transfer of shares there is no change in the identity of the employer and no TUPE transfer. However, in Millam v The Print Factory (London) 1991 Ltd [2007] IRLR 526 CA, although the Court of Appeal approved this rule, it held that it is possible for TUPE to apply if a share transfer takes place at the time of a TUPE transfer. The key issue is whether or not the undertaking in which the employee is employed has transferred from one company to another. This will depend on the facts of each case.

Can an employee rely on TUPE to improve on the terms and conditions that were in place at the time of the transfer?

Employees cannot use the TUPE Regulations to assert rights to terms and conditions that are more generous than those that were in place at the time of a transfer. In Jackson v Computershare Investor Services plc [2008] IRLR 70 CA, the employee, who had started work with the transferor in 1999, argued that she should have benefited from enhanced redundancy terms that applied to staff who joined the transferee before 2002, which pre-dated her transfer to it in 2004. The Court of Appeal agreed with the EAT that TUPE cannot be used by employees to confer rights to terms and conditions of employment that are not available to them at the time of the transfer.

Should the transferee complete the statutory grievance procedure where a grievance is raised prior to a transfer but not dealt with prior to the transfer?

Liability for any ongoing claims transfers to the transferee, following a TUPE transfer. Transferees are therefore advised to complete the statutory grievance procedure even where the grievance was raised prior to the transfer taking effect. Failure to do so could result in an uplift in the compensation awarded by an employment tribunal.

A transferee in this situation needs the assistance of the transferor, as it will have had no involvement with the grievance, to date. Ongoing matters such as grievances should, ideally, be addressed in the purchase agreement. For example, a contractual obligation for the transferor to provide the transferee with reasonable assistance in dealing with any grievances should be included, as should an indemnity from the transferor in respect of costs arising from any acts or omissions by it before the transfer.

Transferee employers should try to obtain as much information about any employment disputes during the due diligence process, prior to the transfer taking place.

Are transferors obliged to disclose details about transferring employees?

Under reg.11 of TUPE "employee liability information" must be disclosed by the transferor to the new employer. This information should be provided at least two weeks before the transfer takes place, or if special circumstances make this not reasonably practicable, as soon as it is reasonably practicable.

What information does TUPE require transferors to provide?

The information that TUPE requires the transferor to provide in relation to transferring employees is:

• the identity and age of employees;
• the information that must be included in written statements of employment particulars (for example details concerning pay, hours of work and holiday);
• information regarding relevant collective agreements;
• details of disciplinary action taken against, or grievances raised by, employees in the previous two years, to which the statutory dispute resolution procedures apply; and
• details of any legal action brought by employees against the transferor, in the previous two years, and details of potential legal action.

Could providing employee liability information result in a breach of the Data Protection Act?

The Data Protection Act 1998 permits the disclosure of information that is required by law, therefore the provision of employee liability information will not result in a breach of the Act. However, the transferee and transferor should apply the data protection principles when handling personal and sensitive information. The information kept must be accurate, up to date and secure. The transferee must ensure that the information is used only for TUPE purposes, such as considering its liabilities and establishing how employees will be integrated.

If a transferee requires additional information this can be disclosed provided that safeguards are put in place to ensure anonymity. The employees' consent must be sought, and the employers must put in place safeguards to ensure that the information is used for transfer purposes only and then destroyed. Data protection good practice note - disclosure of employee information under TUPE (PDF format, 45K) (on the Information Commissioner's Office website) explains employers' obligations under the Act, in a TUPE situation.

The next article in this series on TUPE will be a checklist for transferees and will be published on 27 October.

Louise Westby is a trainee solicitor in the employment team at Steeles (Law) LLP (lwestby@steeleslaw.co.uk).

Further information on Steeles Law can be accessed at www.steeleslaw.co.uk.