Weekly dilemma: Outsourcing and TUPE

This week's dilemma concerns an employer's TUPE obligations on outsourcing part of its business. 

 I’m about to outsource most of my company’s sales function. I’m vaguely aware of TUPE. What do I need to watch out for, and what happens to my sales staff?

 Practically speaking, nothing much will happen to your sales staff. Under TUPE all the employees who spend more than 50% of their time in sales will (unless they object) automatically transfer to the employment of the new supplier under the same terms and conditions of employment as they have with you.

If employees do object then they do not move across to the transferee, but equally they do not stay with you - instead the transfer itself terminates their employment and they usually have no rights against anyone in consequence. There is not much of an option for them in reality, therefore, though this dramatic step can sometimes be used to escape the clutches of any non-competition clauses they may have in their contracts. But if you think as a result that you can rush through the deal and offload your staff to the new supplier without doing anything else, you are underestimating the protection afforded to employees by TUPE. The key steps you should take are as follows.

Identify which employees will be "affected" by the transfer. This group includes not only all the transferring employees but also anyone whose work will be affected by the transfer (eg remaining employees who may be taking on additional work or facing redundancy post-transfer). You should then invite this group to elect representatives for information and collective consultation purposes (roughly one representative per 50 employees). If your organisation only has a handful of affected employees then employee representatives should technically still be elected, but if you don't carry out elections, it is unlikely you will face any sanction provided that the employees are informed and consulted directly. If your organisation has a recognised trade union, the trade union will be the employees' representative.

Once your representatives are in place, your next job is to inform and consult them about the who, what, when, why and how of the transfer. This must take place in "good time" before the transfer (ie not at 10 to five the day before - it will depend on what there is to inform and consult about and the structure of the workforce, and may take longer for a geographically disparate workforce). To enable you to do this you will need to invite the new supplier (best done in writing) to supply you with details of any measures it proposes to take in connection with your incoming staff. There may be some changes for them in the offing such as proposed redundancies, relocation or changes to pension arrangements. If so, you need to communicate these to the representatives. Any failure to carry out this step could cost you up to 13 weeks' gross pay per affected employee. It is no defence that full information or consultation would make no difference to the end result, or that the staff suffered no loss as a result: truly a triumph of form over substance.

You then need to give the new supplier certain "employee liability information" about the transferring employees, essentially detailing the financial, legal and contractual baggage that comes with each. The information must be given no later than 14 days before the transfer and must include each transferring employee's name, age, terms and conditions, as well as information on any grievances they have lodged, claims they have brought or disciplinary action taken against them. As this is required by TUPE, you can suppress any faint sense of unease you might otherwise have as to where this puts you regarding data protection issues. The penalty is a minimum of £500 in respect of each employee for whom the required information was not provided or was defective, in addition to which the transferee can bring proceedings against you to recover any loss arising from its reliance on that duff information.

You should resist the temptation to dismiss any employees for reasons connected to the outsourcing as this dismissal may be automatically unfair. Instead, let the new supplier dismiss them post-transfer as it may have a safer legal footing for doing so. Also, ensure that the outsourcing agreement adequately and clearly divides up the financial risks associated with this transfer (including any penalties for falling foul of TUPE) between you and the new supplier.

Andrew Peters is an associate at the London employment department of Squire Sanders Hammonds.