Test TUPE

Updating author: Patrick Brodie, consultant: John McMullen.

On this page:
Summary
Future developments
Key references
The Transfer of Undertakings (Protection of Employment) Regulations 2006
Meaning of "relevant transfer"
Timing of a transfer
Assignment to the transferred undertaking
Effect of a relevant transfer on contracts of employment
Effect of a relevant transfer on pension arrangements
Effect of a relevant transfer on collective agreements
Effect of a relevant transfer on trade union recognition
Dismissal of an employee because of a relevant transfer
An employee's refusal to transfer
Duty to inform and consult representatives
Duty to notify employee liability information
Territorial application
Effect of bankruptcy and insolvency on a relevant transfer
Code of practice on workforce matters in local authority service contracts (withdrawn)
Principles of good employment practice and Code of practice on workforce matters in public sector service contracts (withdrawn)

Summary

• When the whole or part of an employer's business or undertaking is sold or transferred as a going concern to another employer, which can include a "service provision change" such as the outsourcing of an ancillary function to an outside contractor, a TUPE transfer is said to occur. The term "TUPE" is an acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246). (See The Transfer of Undertakings (Protection of Employment) Regulations 2006)
• The seller of the business is referred to as the "transferor", while the recipient of the business is known as the "transferee". In the case of a service provision change, a client engaging a contractor will be the transferor and the contractor the transferee. When a contract changes hands, the outsourcing contractor will be the transferor and the incoming contractor the transferee. If the client takes the service back in-house, the outgoing contractor will be the transferor and the client will be the transferee. (See The Transfer of Undertakings (Protection of Employment) Regulations 2006)
• A TUPE transfer is referred to in the Regulations as a "relevant transfer". (See The Transfer of Undertakings (Protection of Employment) Regulations 2006 and Meaning of "relevant transfer")
• A transfer takes place at a single point in time, which is the date on which responsibility as an employer for carrying on the business of the transferred unit moves from the transferor to the transferee. (See Timing of a transfer)
• Whether an employee is assigned to the transferring undertaking is a question of fact in each case. (See Assignment to the transferred undertaking)
• When there is a relevant transfer, the transferee inherits the contracts of employment of the persons employed by the transferor immediately before the transfer took place. The transferee also inherits the transferor's rights, power and duties and most of the transferor's liabilities in respect of those employees. (See Meaning of "relevant transfer" and Effect of a relevant transfer on contracts of employment)
• Where there is a relevant transfer, and the transferor operated an employer-contributed pension scheme for transferred employees, the transferee is legally bound to offer them a prescribed level of pension provision. (See Effect of a relevant transfer on pension arrangements)
• An employee who is dismissed where the sole or principal reason is the transfer is treated in law as having been unfairly dismissed. (See Dismissal of an employee because of a relevant transfer)
• However, that rule does not apply to an employee dismissed for an "economic, technical or organisational reason entailing changes in the workforce". Such a dismissal will be treated by an employment tribunal as having been for "some other substantial reason" or redundancy, as the case may be. (See Dismissal of an employee because of a relevant transfer)
• Employers contemplating the sale or transfer of the whole or any part of their business or undertaking (or the acquisition or purchase of another employer's business or undertaking) must inform appropriate employee representatives of certain matters. If measures are envisaged in relation to the affected employees, the employer that envisages the measures must consult the employee representatives about them. A failure to do so will lead to the imposition of a punitive award. (See Duty to inform and consult representatives)
• An employer that is the transferor of a business must notify the transferee of certain specified items of employee liability information not less than 14 days before the transfer. Failure to do so can lead to a complaint to tribunal and a compensation award subject to a minimum of £500 per employee in respect of whom the transferor has failed to provide the information. (See Duty to notify employee liability information)
• Regulations 4 and 7 of the TUPE Regulations 2006, which deal with the effect of a relevant transfer on contracts of employment, and the dismissal of an employee because of a relevant transfer, do not apply where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner. (See Effect of bankruptcy or insolvency on a relevant transfer)
• The "Code of practice on workforce matters in local authority service contracts" was withdrawn on 23 March 2011 with immediate effect but remains relevant to local authority service contracts in existence prior to that date. (See Code of practice on workforce matters in local authority service contracts)
• The Government's "Principles of good employment practice" sets out what it expects of its suppliers in their employment practices. Compliance with the principles is voluntary. The "Code of practice on workforce matters in public sector service contracts" still applies to public sector contracts in existence prior to 13 December 2010. (See Principles of good employment practice and Code of practice on workforce matters in public sector service contracts)

Future developments

Review of TUPE provisions: In May 2011, the Government announced its intention to consider the case for reforming the current TUPE provisions stating that some businesses believe that they are "overly bureaucratic" and "gold plated", ie that the UK went further than was required by the Acquired Rights Directive (2001/23/EC) when transposing it into national law. In November 2011, the Government launched a call for evidence on the effectiveness of the current TUPE provisions and how they might be improved (Call for evidence - Effectiveness of Transfer of Undertakings (Protection of Employment - TUPE) Regulations 2006 (on the UK Government website)). On 14 September 2012, the Government published its response to the call for evidence (Effectiveness of Transfer of Undertakings (Protection of Employment) Regulations 2006: Government response to call for evidence (PDF format, 215K) (on the UK Government website)).

On 18 January 2013, the Government launched a consultation on proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (Transfer of Undertakings (Protection of Employment) Regulations 2006: Consultation on proposed changes to the Regulations (PDF format, 521K) (on the UK Government website)). The consultation seeks views on a number of proposals to amend the TUPE Regulations 2006, which are set out below:

• Service provisions changes: The Government proposes to repeal the provisions on service provision changes. The TUPE legislation was amended in 2006 to bring most service provision changes (ie outsourcing, insourcing and retendering) within the scope of the Regulations. The Government proposes reversing this change. It asks for views on the length of any "lead in" period that would be required before the change comes into effect.
• Employee liability information: The Government proposes to repeal the requirement for the transferor to provide employee liability information. However, it also proposes to amend the Regulations to make it clear that the transferor should disclose information to the transferee where it is necessary for purposes of information and consultation.
• Contractual changes, protection against dismissal and substantial changes to working conditions: The consultation document includes proposals to amend the provisions of the TUPE Regulations 2006 that restrict post-transfer changes to employment contracts, the provisions that give protection against dismissal and the provisions concerning a substantial change in working conditions to the material detriment of the employee so that they more closely reflect the minimum requirements of the Acquired Rights Directive and case law of the European Court of Justice.
• Dismissals arising from a change in the workplace: The Government proposes to amend the Regulations so that an "economic, technical or organisational reason entailing changes in the workforce" (ETO reason) can cover changes in the location of the workforce. Currently, the meaning of "changes in the workforce" is limited, as a result of case law, to changes in the number of employees or the functions they perform. The definition of an ETO reason would be aligned with the definition of redundancy under the Employment Rights Act 1996, so that dismissals arising from a change in the place of work following a transfer will not be automatically unfair.
• Collective redundancy consultation: To avoid uncertainty about whether or not two separate obligations to consult collectively arise from the TUPE Regulations and legislation on collective redundancy consultation, the Government proposes amendments to ensure that pre-transfer consultations by the transferee with staff who are due to transfer count for the purpose of the transferee's obligation to consult on collective redundancies.
• Micro businesses: The Government proposes allowing micro businesses to inform and consult employees directly regarding transfers, rather than through representatives, in cases where there is neither a recognised union nor existing representatives.
• Terms and conditions derived from collective agreements: The consultation document also asks for views on limiting the future applicability of terms and conditions derived from collective agreements to one year from the transfer.
• Pre-transfer dismissals: Views are also sought on whether or not a transferor should be able to rely on the transferee's ETO reason in respect of pre-transfer dismissals.

The Government has decided not to go ahead with a proposal for joint liability between the transferor and transferee for pre-transfer employment obligations, which was considered in its response to the call for evidence. The position will remain the same, ie liability transfers to the transferee.

The consultation closed on 11 April 2013. According to the Government's report, Employment law 2013: progress on reform (PDF format, 511K) (on the UK Government website), it will bring any necessary changes into force in October 2013.

Pension rights: On 25 February 2013, the Government launched a consultation seeking views on draft Regulations aimed at clarifying two issues related to TUPE transfers and pension rights in the Transfer of Employment (Pension Protection) Regulations 2005 (SI 2005/649). The draft Regulations include an amendment that aims to clarify that transferred employees who are pension scheme members should be able to choose their level of contribution (subject to any minimum levels set in the scheme rules). Another amendment aims to align more closely than at present the pension protection requirements following a TUPE transfer with the provisions on auto-enrolment. The consultation document and draft Regulations are on the DWP website (Transfer of Employment (Pension Protection) (Amendment) Regulations 2013). The consultation closed on 5 April 2013.

Possible replacement of withdrawn code of practice on workforce matters in local authority service contracts: Following the withdrawal of the Code of practice on workforce matters in local authority service contracts (PDF format, 197K) (on the Local Government Employers website) on 23 March 2011, the Department for Communities and Local Government announced that it will consult with employers, employee representatives and others on whether or not anything else, such as a statement of good employment principles, should replace the code.

Review of Acquired Rights Directive: In May 2007, the European Parliament passed a resolution urging the European Commission to take action to strengthen European law, including the Acquired Rights Directive, in the field of information and consultation of workers. The Acquired Rights Directive remains under review for this reason, although the Commission has not yet acted to progress the resolution.

The Transfer of Undertakings (Protection of Employment) Regulations 2006

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006) came into force on 6 April 2006, replacing the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) (TUPE Regulations 1981). They are to be interpreted in light of the Acquired Rights Directive (2001/23/EC), which consolidated the previous Acquired Rights Directive (77/187/EEC) and the amending Directive (98/50/EC). The Department for Business, Innovation and Skills (BIS) has issued guidance on the Regulations. A guide to the 2006 TUPE Regulations for employees, employers and representatives (PDF format, 188K) is available on the UK Government website. The guidance was revised in June 2009.

The TUPE Regulations 2006 apply to the transfer of a UK-based undertaking (or part of such an undertaking) to another person, whether effected by sale or by some other disposition (other than by the sale of shares), or by operation of law. This could be, for example, an outsourcing from a local authority to a private company or a sale or outsourcing from one company to another.

The Acquired Rights Directive does not preserve a lease of commercial premises across a transfer, even though termination of the lease may result in dismissals (Kirtruna SL and another v Red Elite de Electrodomésticos SA and others Case C-313/07).

In Holis Metal Industries Ltd v GMB and another [2008] IRLR 187 EAT, the Employment Appeal Tribunal (EAT) held that the TUPE Regulations 2006 have the potential to apply to the transfer of a business that, after the transfer, is based outside the UK, and, as in Holis Metal Industries Ltd, outside the EU.

As a TUPE transfer requires a change in the identity of the employer (a transfer from one employer to another), the acquisition of a company by way of purchase of shares in the company is not a TUPE transfer. This is because, on a share acquisition, the identity of the employer remains the same; it is only the ownership of the share capital of the company that changes. This was confirmed by the EAT in Print Factory (London) 1991 Ltd v Millam [2006] IRLR 923 EAT. This is the case even if the employer has made a positive decision to choose a share-sale method of acquisition of a company in order to avoid the effects of TUPE (see Brookes and others v Borough Care Services and CLS Care Services Ltd [1998] IRLR 636 EAT, which was approved in Millam). In Millam v Print Factory (London) 1991 Ltd [2007] IRLR 526 CA, while approving the principle that a share sale, of itself, does not amount to a transfer, the Court of Appeal emphasised that this rule is merely a reminder that the question is whether or not, as a matter of fact, the business in which the employee was employed has been transferred from one company to another. It is possible for a TUPE transfer to take place alongside or after a share transfer, if the facts permit. In Mr Millam's case another company bought the shares of the company for which he worked. Because the parent company in effect took over the running of the business of the subsidiary, the Court of Appeal held that the employment tribunal had been entitled to find, as a matter of fact, that control of the subsidiary's business had passed from it to the parent company, and there had been a TUPE transfer after the share sale.

Such a transfer, which may be effected by a series of two or more transactions, and may take place whether or not any property is transferred, is referred to in the TUPE Regulations 2006 as a "relevant transfer". The meaning of this expression has produced many confusing and contradictory decisions in the courts, although it is expected that in time the changes concerning outsourcing introduced by the TUPE Regulations 2006 will, to a certain extent, insulate the parties from fluctuating European Court of Justice (ECJ) case law (see Meaning of "relevant transfer"). The expression "undertaking" includes any trade or business (reg.2 of the TUPE Regulations 2006).

The seller of the business is referred to as the "transferor", while the recipient of the business is known as the "transferee". In outsourcing, a client engaging a contractor will be the transferor and the contractor the transferee. When a contract changes hands, the outsourcing contractor will be the transferor and the incoming contractor the transferee. If the client takes the service back in-house, the outgoing contractor will be the transferor and the client will be the transferee.

In Albron Catering BV v FNV Bondgenoten and another Case C-242/09 ECJ, the ECJ concluded that, for the purposes of a transfer of an undertaking under the Acquired Rights Directive, "it is also possible to regard as a 'transferor' ... the group company to which the employees were assigned on a permanent basis without however being linked to the latter by a contract of employment, even though there exists within that group an undertaking with which the employees concerned were linked by such a contract of employment".

Additional resources on the Transfer of Undertakings (Protection of Employment) Regulations 2006 FAQs What constitutes a transfer of an undertaking under the TUPE Regulations 2006? In a TUPE situation which employer is the "transferee" and which the "transferor"?

Meaning of "relevant transfer"

The standard definition: The standard definition of a relevant transfer, contained in reg.3(1)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006), is where there is a transfer of an economic entity that retains its identity. For this purpose, economic entity is defined in reg.3(2) as "an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary". This test of a transfer, which applies to all transfers other than service provision changes (see below), consolidates European Court of Justice (ECJ) case law, and in particular Spijkers v Gebroeders Benedik Abbatoir CV 24/85 [1986] ECR 1119 ECJ.

In Spijkers, the ECJ held that the decisive criterion for establishing the existence or otherwise of a relevant transfer is whether or not the whole or part of the undertaking transferred retains its identity after the change of ownership. In other words, did the transferee carry on the acquired business or undertaking in essentially the same way as it had been carried on by the transferor before the transfer took place?

It urged that national tribunals and courts consider certain factors when deciding whether or not that condition had been fulfilled, these being:

• the type of undertaking (trade or business) in question and the activities carried on by that business;
• whether or not tangible assets (including furniture and equipment, raw materials, stock in hand and finished product) were transferred to the new owner of the business;
• the value of intangible assets (such as goodwill) at the time of the alleged transfer;
• whether or not the majority of persons working in the business were taken over by the new employer;
• whether or not the new owner continued to do business with the same customers or clientele after the alleged transfer took place; and
• the degree of similarity between the activities carried on before and after the transfer, and the period (if any) during which those activities were suspended.

Further, for a transfer to be a relevant transfer, there has to be a transfer of a going concern or of a stable economic entity, as indicated, among other things, by the purchaser continuing or resuming the business. Goodwill is often included but is not essential.

In Wood v Caledon Social Club Ltd and another EAT/0528/09, the Employment Appeal Tribunal (EAT) held that an economic entity's temporary cessation of operations did not prevent a relevant transfer under the TUPE Regulations 2006.

In Jouini and others v Princess Personal Service [2007] IRLR 1005 ECJ, the ECJ stated that the Acquired Rights Directive (2001/23/EC), in accordance with art.1(1), applies to "any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger". The ECJ confirmed the flexible interpretation of the requirement of a "legal transfer" in keeping with the objective of the Directive, which is to safeguard employees in the event of a transfer of their undertaking. The flexible interpretation extends to the form that the legal transfer must take. With regard to the requirement of the transfer of a stable economic identity set out in art.1(b) of the Directive, the ECJ stated that, in accordance with previous ECJ case law, the concept of an economic identity refers to an organised grouping of persons and assets enabling the exercise of an economic activity that pursues a specific objective. The entity is not required to have significant tangible or intangible assets, and, in labour intensive sectors, those assets are often reduced to their most basic form, and the activity is essentially based on the labour force.

In Schmidt v Spar- und Leihkasse der Früheren Ämter Bordesholm, Kiel und Cronshagen [1994] IRLR 302 ECJ, the ECJ added that an economic entity could comprise only one person.

In Klarenberg v Ferrotron Technologies GmbH Case C-466/07 ECJ, the part of the undertaking that was transferred was incorporated into a number of different units following the transfer, and its functions were integrated into a different organisational structure. As a consequence the transferred part of the undertaking lost its "organisational autonomy". The ECJ held that the Acquired Rights Directive may still apply where the part of the undertaking transferred does not retain its organisational autonomy following the transfer, so long as a functional link between the various elements transferred is preserved thereby allowing the transferee to pursue an identical or analogous economic activity.

The extended definition: Since the coming into force of the TUPE Regulations 2006 many putative transfers will continue to be governed solely by the standard transfer definition. However, service provision changes receive preferential treatment, as they are also governed by an extended definition, which exceeds the protection given by the Acquired Rights Directive (2001/23/EC).

This is a supplementary definition: if the putative transfer does not fulfil the test in the extended definition it may still pass as a TUPE transfer if it nonetheless qualifies under the standard definition.

The extended definition of a transfer under reg.3(1)(b) of the TUPE Regulations 2006 means that, as long as service activities cease to be carried out by one person (the transferor) and are taken up by a new person (the transferee), and, prior to the changeover, there was an organised grouping of employees with the principal purpose of carrying out those activities on behalf of the client, there will be a transfer. This is in contrast with the requirements under the general law, and the standard definition, as laid down in Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice and Lefarth GmbH [1997] IRLR 255 ECJ, in which the ECJ stressed that a mere changeover of contractors is not a transfer and that what is required is an accompanying transfer of assets or the taking-over of a major part of the workforce.

The Süzen test tended to require analysis of whether a function being transferred is labour intensive (in which case importance is attached to whether or not there is a transfer of the workforce) or asset reliant (where the determining factor may be whether or not assets are transferred). Süzen demonstrates the labour intensive test, and Oy Liikenne Ab v Liskojärvi and Juntunen [2001] IRLR 171 EC the asset reliant test. The problem with this analysis is that some functions are not easily categorised into either asset reliant or labour intensive functions. In addition, employees' rights to transfer under TUPE - especially in low-paid, labour intensive sectors such as cleaning - have been subject to a circular and unpredictable test of whether or not the transferee is prepared to take the employees on.

In the UK, the courts - well meaningly - preferred to take into account additional material, using the argument that the richness of the Spijkers test allows a multi-factor approach permitting a tribunal, in its fact-finding exercise, to draw on other factors where appropriate - see, for example, RCO Support Services and another v Unison and others [2002] IRLR 401 CA.

In McCormick and others v Scottish Coal Company Ltd [2005] All ER (D) 104 (Sep) CS, the Scottish Court of Session queried if it is necessary to characterise a function as either asset reliant or labour intensive to the exclusion of other possibilities. Its view was that there will be a "range of intermediate possibilities". This approach was adopted by the Court of Appeal in England and Wales in Balfour Beatty Power Networks Ltd and another v Wilcox and others [2007] IRLR 63 CA. While this was an improvement on the "all or nothing" approach of the ECJ, it did not entirely remove the uncertainty for employees in this area of the law. This is why the rules on service provision changes in the TUPE Regulations 2006 were so welcome.

It should be noted that reg.3(1)(b)(i) covers client-to-contractor changeovers, reg.3(1)(b)(ii) covers contractor-to-contractor changeovers and reg.3(1)(b)(iii) covers contractor-to-client changeovers, as long as the changeovers satisfy the conditions set out in reg.3(3).

Under reg.3(3), the extended service provision definition will apply only where:

• there is an organised grouping of employees in Great Britain, which has as its principal purpose the carrying out of the activities concerned on behalf of the client (reg.3(3)(a)(i));
• the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration (reg.3(3)(a)(ii)), eg a conference; and
• the activities concerned do not consist wholly or mainly of the supply of goods for the client's use (reg.3(3)(b)), eg a company changes the factory from which it buys its component parts.

Regulation 2(1) makes it clear that a reference to an "organised grouping of employees [includes] a single employee", making it compliant with Schmidt v Spar- und Leihkasse der Früheren Ämter Bordesholm, Kiel und Cronshagen [1994] IRLR 302 ECJ.

In Eddie Stobart Ltd v Moreman and others [2012] IRLR 356 EAT, the EAT considered the meaning of reg.3(3)(a)(i) and found that the condition will be satisfied only "where the employees in question are organised by reference to the provision of services to the relevant client" and by that client's requirements. The employees should be identified as members of the client's team.

In Argyll Coastal Services Ltd v Stirling and others EATS/0012/11, the EAT commented, obiter, on the requirements of reg.3(3)(a)(i), stating that "the phrase 'organised grouping of employees' connotes a number of employees which is less than the whole of the transferor's entire workforce, deliberately organised for the purpose of carrying out the activities required by the particular client contract and who work together as a team". It noted that while an organised grouping of employees must be situated in Great Britain, reg.3(4)(c) means that the grouping may include employees who work outside the UK. It also stated that the words "principal purpose" should be given their ordinary meaning. Therefore the carrying out of relevant client activities need not be an organised grouping of employees' "sole purpose" but should be its "principal purpose". Finally, the EAT commented that the word "activities" required a consideration of "what it was that the client required of the transferor or employer".

In Seawell Ltd v Ceva Freight (UK) Ltd and another [2012] IRLR 802 EAT, the EAT found that the employment tribunal had wrongly concluded that the fact that Mr Mofatt, who had been employed as a logistics co-ordinator with Ceva Freight (UK) Ltd, spent 100% of his time on the Seawell Ltd contract meant that he carried out 100% of the "activities concerned" and thereby constituted an organised grouping of employees. On the tribunal's own findings the activities concerned were carried out not by Mr Moffat alone but by several people, including Mr Mofatt. Under reg.2(1) of the TUPE Regulations 2006, a single employee may constitute an organised grouping of employees. However, the EAT held that the fact that an individual spends all of his or her time on a contract will not mean automatically that he or she is an organised grouping of employees. The tribunal had also wrongly concluded, in the alternative, that the existence of a group of employees that ensured an "effective service" was provided to Seawell Ltd meant that the group's principal purpose was to carry out the activities concerned. The EAT stated that "the description 'organised grouping of employees' connotes a deliberate putting together of a group of employees for the purpose of relevant client work - it is not a matter of happenstance".

In Department for Education v (1) Huke (2) Evolution Resource Ltd [2012] EAT/0080/12, the Department for Education took a telecommunications and IT service provision contract with Evolution Resource Ltd in house when the contract terminated on 31 July 2010. By July 2010, Mr Huke was the only person still assigned to the contract and he spent no more than the equivalent of 25% of a full-time employee's time working on it. Rejecting Mr Huke's argument "that TUPE works best if volume of work is ignored", the EAT stated that "changes in volume of work are relevant when considering whether or not 'the activities' carried out by the client on [its] own behalf from the point of transfer are 'the activities' which were, immediately before the transfer, being carried out by the 'organised grouping of employees'". Further, the EAT stated that a decrease in the volume of a particular activity could mean that, prior to the transfer, the organised grouping of employees (which in this case was Mr Huke) had "reached the stage where carrying out the relevant activity was no longer its principal purpose" in which case TUPE will not apply.

In Pannu and others v (1) Geo W King Ltd (in liquidation) (2) Premier (3) IBC Vehicles Ltd EAT/0021/11, the EAT considered the meaning of reg.3(3)(b), stating that whether or not the exclusion in reg.3(3)(b) applies is a question of fact. The EAT stated that although Mr Pannu and the other claimants were employed by the first respondent (until it went into liquidation) as part of an organised grouping of employees on its X83 axle assembly line, which was dedicated to the production of parts for use in the third respondent's van manufacturing process, the first respondent's activity consisted of the supply of finished goods to the third respondent, not the supply of a service. The EAT preferred the second and third respondent's argument that the "activities concerned" are those of the contractor rather than those carried out by the employees of the contractor. Accordingly, it held that the exclusion set out in reg.3(3)(b) applied and the claimants' employment did not transfer to the third respondent, nor did it transfer to the second respondent (with which the third respondent entered into a contract for the provision of the same goods after the first respondent went into liquidation). The EAT likened the case to an example provided in the Government's Guide to the 2006 TUPE Regulations for employees, employers and representatives (PDF format, 188K) (on the UK Government website) in which "a contractor [is] engaged to supply sandwiches and drinks to a client's canteen for sale by the client's own staff. That would not give rise to a [service provision change] when the contract is awarded elsewhere, even where the first contractor has a dedicated team assigned to making sandwiches for that particular contract". The guidance states that the situation may be different where the contractor provides the canteen staff to dispense the goods as well as the goods themselves.

The first employment tribunal case on reg.3(1)(b) was Hunt v (1) Storm Communications Ltd (2) Wild Card Public Relations Ltd (3) Brown Brothers Wine (Europe) Ltd ET/2702546/06. Although the decision is not binding on other tribunals, it provides useful guidance on the approach taken to the extended definition of a relevant transfer. Storm is a public relations services provider, and Brown Brothers was its client. In June 2006, Brown Brothers told Storm that it was re-tendering for the provision of its public relations services. Storm lost the pitch and the work went to Wild Card. The claimant was employed as an account manager who worked on the Brown Brothers account throughout her employment, spending some 70% of her working time each year on the account. When the account changed hands, Storm said that TUPE applied and the claimant would transfer to Wild Card, which, in turn asserted that she did not have the right to transfer. The claimant's employment was therefore terminated. The tribunal found that there was a service provision change under reg.3(1)(b) of the TUPE Regulations 2006, and given the amount of time that the claimant dedicated to the Brown Brothers account, she constituted an organised grouping of employees and the conditions in reg.3(3)(a) were satisfied.

In Ward Hadaway Solicitors v Love and others EAT/0471/09, the Nursing and Midwifery Council (NMC) moved its work from Ward Hadaway Solicitors to Capsticks Solicitors. Ward Hadaway continued to work on the cases that it already had but all new work went to Capsticks. The EAT upheld the tribunal's decision that there was no service provision change under reg.3(1)(b) because Capsticks did not take over any work previously undertaken by Ward Hadaway. The activities being performed by Ward Hadaway before the transfer (construed by the tribunal as carrying out the NMC's work in progress) continued to be carried out by Ward Hadaway after the transfer.

An undertaking may be transferred to more than one transferee even if there is only one transferor. Although a tribunal may find that a service provision change under reg.3(1)(b) of the TUPE Regulations 2006 has not taken place where a service that was being provided by one contractor to a client subsequently becomes so fragmented between several different service providers that TUPE cannot be applied (Kimberley Group Housing Ltd v Hambley and others; Angel Services (UK) Ltd v Hambley and others [2008] IRLR 682 EAT). While the EAT stated that this had not happened in Kimberley Group Housing Ltd, it held that it had occurred in Clearsprings Management Ltd v Ankers and others EAT/0054/08. In Clearsprings Management Ltd, the National Asylum Seekers Service re-tendered national contracts for the provision of accommodation and support services to asylum seekers. In North-West England the service had been provided by Clearsprings and three other private contractors. Following the re-tender in 2005, Clearsprings lost its contract and the asylum seekers covered by its contract were randomly reallocated to the incoming contractors. The EAT held that the activity carried on by Clearsprings had become so fragmented that no relevant transfer had taken place.

In Metropolitan Resources Ltd v Churchill Dulwich Ltd (in liquidation) and others [2009] IRLR 700 EAT, the EAT held that, when deciding whether or not there has been a service provision change for TUPE purposes, tribunals should ask themselves if the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor, taking into account any material differences. Minor differences between the alleged transferor and transferee in the nature of the activites, or the mode of performance of those activities, will not disapply the definition of a relevant transfer under the extended service provision definition. The EAT went on to state that the use of different locations, or the assumption of an additional duty or function by the alleged transferee, is unlikely to preclude a finding that a service provision change under reg.3(1)(b) of the TUPE Regulations 2006 has occurred.

In OCS Group UK Limited v Jones and another EAT/0038/09, the EAT found, in determining whether or not there had been a service provision change for the purposes of reg.3(1)(b), the tribunal had adopted the approach set out in Metropolitan Resources Ltd. The EAT went on to hold that the tribunal had been entitled to conclude that the mutation of a full canteen service that involved the preparation and service of hot food by employees, into dry-food kiosks, which essentially sold pre-prepared sandwiches and salads, constituted a substantial change in the activities being carried on by the alleged transferee, thereby precluding the occurrence of a relevant transfer.

In Nottinghamshire Healthcare NHS Trust v (1) Hamshaw and others (2) Perthyn (3) Choice Support EAT/0037/11, the residents of a care home operated by the trust were rehoused in individual homes. The trust, which formerly employed the claimant care workers at the care home, informed them that the transfer of the care of the residents to the second or third respondents constituted a relevant transfer for the purposes of TUPE. The claimants were offered employment by either the second or third respondents, which in most cases required sleeping at the service users’ homes. The EAT upheld the employment tribunal decision that there was no relevant transfer under the standard definition in reg.3(1)(a) because the economic entity did not retain its identity, and nor was there a relevant transfer under the extended service provision definition in reg.3(1)(b) because the services provided were not "fundamentally or essentially the same" after the change in provider.

In Department for Education v (1) Huke (2) Evolution Resource Ltd [2012] EAT/0080/12, the EAT summarised the approach to identifying activities set out in Metropolitan Resources Ltd v Churchill Dulwich Ltd (in liquidation) and others [2009] IRLR 700 EAT, namely, assessing whether or not the relevant activities performed by the alleged transferee immediately after the transfer are fundamentally or essentially the same as those performed by the alleged transferor immediately prior to the transfer. The EAT in Department for Education went on to state that the assessment should include the tribunal considering the quantity of activities as well as their character and type. It noted that a substantial change in the volume of the activity required by the client can "show that the post-transfer activity is not the same as it was pre-transfer" with the result that TUPE will not apply.

In Hunter v McCarrick [2012] IRLR 274 EAT, the EAT held that, in order to satisfy the definition of a contractor-to-contractor service provision change within the meaning of reg.3(1)(b)(ii), "the activities carried out by [the] different contractors before and after the transfer must be carried out for the same client". The Court of Appeal upheld the EAT decision (McCarrick v Hunter [2012] EWCA Civ 1399 CA). The Court of Appeal confirmed that the wording in reg.3(1)(b)(ii) should be read literally not purposively and stated that the language of reg.3(1)(b) and reg.3(3) is consistent only with the situation where the client is the same throughout.

In Enterprise Management Services Ltd v Connect-Up Ltd and others [2012] IRLR 190 EAT, the EAT, drawing on some of the decisions referred to above, summarised the principles applicable to service provision transfers. The EAT, which was dealing with a contractor-to-contractor changeover, stated that the employment tribunal's first task is to "identify the relevant activities carried out by the original contractor". The tribunal's second task is to determine whether or not the activities carried on by the subsequent contractor "are fundamentally or essentially the same as those carried out by the original contractor. Minor differences may properly be disregarded". The EAT went on to state that there may be cases where the fragmentation of the service among a number of different contractors results in such cases falling outside the definition of a service provision change before warning that, even where the activities stay the same before and after the transfer, the conditions set out in reg.3(3) must be satisfied if the extended service provision definition is to apply.

To satisfy the extended service provision definition set out in reg.3(1)(b), the client must intend that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration (reg.3(3)(a)(ii)). In SNR Denton UK LLP v Kirwan and another EAT/0158/12, the EAT noted that the wording in reg.3(3)(a)(ii) could be interpreted in two ways. It either refers to one category, ie events or tasks that are single, specific and of short-term duration, or it refers to two categories, ie single specific events and tasks of short-term duration. The EAT commented, obiter, that the former interpretation is preferable but that the essential issue for the tribunal is the client's intention. However, the EAT in Liddel's Coaches v Cook and others EAT/0025/12 disagreed with the obiter comments of the EAT in SNR Denton UK LLP, instead holding that the term "single specific event" stands alone and is not qualified by the requirement that it is also of short-term duration; the short-term duration qualification applies only to a task. The EAT added that a "single specific event" is by its definition of short-term duration. In Liddel's Coaches, the EAT considered whether or not there was a service provision change when Liddel's Coaches won a one-year local authority contract to provide transport for school children in a context where it was usual for such contracts to have a term of between three and five years. The EAT upheld the employment tribunal decision that the services provided were in connection with a single specific event (which in any case happened to be of short-term duration) and, as a result, TUPE did not apply.

Additional resources on the meaning of "relevant transfer" FAQs What constitutes a transfer of an undertaking under the TUPE Regulations 2006? Is there a minimum number of employees that must be affected before a transfer under TUPE can take place? If a client changes supplier because it is not happy with the performance of the supplier’s employees, can those employees be prevented from transferring to the new supplier if the contract change amounts to a TUPE transfer? Good practice guides TUPE

Timing of a transfer

The European Court of Justice (ECJ) held in Celtec Ltd v Astley and others [2005] IRLR 647 ECJ that a transfer cannot take place over a period of time. It takes place at a single point in time, which is the date on which responsibility as an employer for carrying on the business of the transferred unit moves from the transferor to the transferee. That date is a particular point in time, which cannot be postponed to another date at the will of the transferor or transferee.

In Astley, vocational training and enterprise activities in England and Wales were transferred from the Government to the Training and Enterprise Councils (TECs) in 1990. Civil service staff did not transfer at that time but were seconded to the TECs. Mr Astley was seconded from 1990 to 1993, at which point he joined Celtec as an employee. He argued that he transferred under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) on the basis that the transfer had taken place over the period of time from 1990 to 1993. However, the Court ruled that the transfer had taken place on a single date in 1990 when responsibility as an employer for carrying on the business of the unit moved from the transferor to the transferee.

When the case came before the House of Lords to interpret the ECJ's ruling (Celtec Ltd v Astley and others [2006] IRLR 635 HL), the employees' new argument was that, in accordance with the ruling, they had transferred on the 1990 date when the transfer had taken place. The majority of the House of Lords agreed. Despite the intentions of the parties concerned, the seconded employees had transferred to the new undertaking on the date when employer responsibility for carrying on the business transferred. The only exception to this rule is where employees freely choose not to continue the employment relationship with the transferee. The ruling in Celtec Ltd increased the likelihood of seconded employees being found to be employed by the transferee notwithstanding the existence of an agreement that they are to remain employees of the transferor. The ruling therefore created uncertainty about the effectiveness of certain secondment arrangements. This uncertainty was subsequently reinforced by Capita Health Solutions Ltd v McLean and another [2008] IRLR 595 EAT, where the Employment Appeal Tribunal (EAT) held that an employee who resigned after raising a grievance about a transfer, but agreed to work for the new employer for a limited period, had not validly objected to the transfer, and her employment had transferred to the transferee. The EAT went on to state that, even if the employee had validly objected, TUPE would not have permitted her to continue to be employed after the date on which she would have transferred.

Assignment to the transferred undertaking

Only an employee who is assigned to the undertaking being transferred transfers under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246). Under reg.2(1), "assigned" is defined as "assigned other than on a temporary basis". This is not, however, a comprehensive definition of the word "assigned". There are, however, tests in case law. In Botzen v Rotterdamsche Droogdok Maatschappij BV [1986] Case C-186/83 ECJ, the European Court of Justice held that the employment relationship is "essentially characterised by the link existing between the employee and the part of the undertaking or business to which he is assigned to carry out his duties". This is essentially a question of fact for the employment tribunal, as was emphasised in Williams v Advance Cleaning Services Ltd and another [2005] All ER (D) 215 (Jun) EAT. The amount of time spent by a person on certain duties is not definitive of whether or not a person is assigned to the undertaking. The employment relationship as a whole must be considered.

Effect of a relevant transfer on contracts of employment

When a relevant transfer takes place, the transferee inherits the contracts of employment of the persons employed by the transferor immediately before the transfer took place. The transferee also inherits the transferor's rights, powers, duties and liabilities (other than any criminal liabilities) under, or in connection with, those contracts.

An extreme example of the fictional transfer of employment rights from transferor to transferee is provided by G4S Justice Services v Anstey and others [2006] IRLR 588 EAT. Here, individuals were dismissed for gross misconduct. Although their employment ended, they lodged appeals against their dismissal. In the meantime a transfer of undertaking took place. The employees' appeals were held by the original employer and the outcome was that their dismissals were overturned. The Employment Appeal Tribunal (EAT) held that the new employer was bound to reinstate them, even though they had been dismissed before the transfer took place. The employees' right to have their appeals heard arose under the employment contracts of the transferor. As that right transferred under TUPE, the employees were deemed to have been employed at the time of the transfer when they were reinstated following their appeal.

Any act or omission of the transferor in relation to any such contract before the relevant transfer took place will be treated in law as having been an act or omission of the transferee.

The transferee does not, however, inherit so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of s.1 of the Pension Schemes Act 1993 (reg.10 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006)). However, see Effect of a relevant transfer on pension arrangements. Further, the exclusion of occupational pension schemes under the TUPE Regulations 2006 applies only to such part of a scheme as relates to old age, survivors' or invalidity benefits. It has been held, for example, that the right to a lump sum and enhanced pension benefits on early retirement by reason of redundancy is not a matter relating to "old age" and is therefore a right that transfers under TUPE (Beckmann v Dynamco Whicheloe Macfarlane Ltd [2002] IRLR 578 ECJ and Martin and others v South Bank University [2004] IRLR 74 ECJ). In Procter & Gamble Co v Svenska Cellulosa Aktiebolaget SCA and another [2012] EWHC 1257 HC, Procter & Gamble (the transferor) sold its family care division to SCA (the transferee). The transferor operates a final salary defined-benefit pension scheme that provides employees with certain discretionary early retirement benefits (the benefits are classified as discretionary because they are contingent on the consent of the employer). The High Court held that the expectation of transferring employees to be considered fairly for such early retirement benefits transferred under TUPE. Therefore a discretionary benefit can transfer. The High Court went on to hold that a member of the pension scheme who transferred to the transferee could not opt for early retirement with the transferee (and thus receive an "early retirement pension" and a "bridging pension") and also receive a deferred pension from the transferor. The transferee was liable only to provide a pension until the relevant employee became eligible to receive his or her deferred pension from the transferor. The High Court noted that the intention of TUPE is to protect employees' existing entitlements under their contracts of employment and not to enhance them.

Once a relevant transfer has taken place it is not open to the transferee to presume to vary the contracts of employment of the transferred employees with a view to harmonising, for example, their working hours, rates of pay or holiday entitlement with those of its existing workforce. A purported variation of an employment contract is void if the sole or principal reason for the variation is either 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.

An employer and employee may agree a variation if the sole or principal reason for the variation is either a reason connected with the transfer that is an ETO reason entailing changes in the workforce, or a reason unconnected with the transfer. However, in Delabole Slate Ltd v Berriman [1985] IRLR 305 CA, in the context of transfer-connected dismissals, the Court of Appeal interpreted the phrase "entailing changes in the workforce" as meaning that there must be a change in the overall numbers or functions of employees comprising the workforce. Berriman was applied by the EAT in London Metropolitan University v Sackur and others EAT/0286/06. There was a merger of the University of North London and London Guildhall University to form London Metropolitan University. The new university wished to harmonise the employment contracts of the staff of both universities and terminated existing contracts in order to replace them with new contracts containing the harmonised terms. It was held that the employer could not rely on an ETO reason entailing changes in the workforce as there was no concomitant change in the overall numbers or functions of employees comprising the workforce. However, in Nationwide Building Society v Benn and others [2010] IRLR 922 EAT, the EAT held that the employer could rely on the ETO reason. The changes affected only a section of the workforce, namely the transferred employees. The EAT held that an ETO reason need not entail changes in the entirety of the workforce to fall within reg.7(2).

What is clear is that the variation of contract provision does not allow a transferee to change transferred employees' terms and conditions on the grounds that it wishes to harmonise their terms and conditions with those of its existing workforce. However, the Court of Appeal in Regent Security Services Ltd v Power [2008] IRLR 66 CA held that the employee was entitled to enforce a contractual variation that was beneficial. The purpose of TUPE was to protect the workforce and it would be inconsistent with that aim if an employee was not able to benefit from terms that were agreed with the transferee.

TUPE does not grant employees contractual rights that are additional to rights in place before the transfer, according to the Court of Appeal in Jackson v Computershare Investor Services plc [2008] IRLR 70 CA. In that case, the transferee's contractual redundancy terms were incorporated into the employee's contract. However, the terms were more generous to employees who commenced employment with the transferee before a certain date. The Court of Appeal held that the employee could not take her pre-transfer service into account to qualify for the more generous entitlement. This was determined by when she actually joined the transferee, regardless of the fact that her pre-transfer service was recognised for certain employment rights.

An agreed variation to an employment contract that is not connected to a TUPE transfer will be effective. In Smith and others v Trustees of Brooklands College EAT/0128/11, the EAT confirmed that an agreed variation of an employment contract following a transfer is effective where the transfer is not the sole or principal reason for the variation. In Smith, the EAT confirmed that an employer may "seek variations in the terms and condition of employment of employees even after a transfer, provided that the transfer or a reason connected with it is not the sole or principal reason".

Additional resources on the effect of a relevant transfer on contracts of employment FAQs What is the main effect of the TUPE Regulations 2006 for employees? Can the transferee change the contracts of the incoming employees following a TUPE transfer, to harmonise them with those of its existing employees? Can an employer harmonise the contracts of TUPE transferred employees with those of its existing workforce where the changes will be beneficial to them? Is there any obligation on employers to increase the holiday entitlement of TUPE-transferred staff to match that of their existing workforce? Where the transferor paid a particular mileage rate to transferred employees, is the transferee obliged to continue to pay them at this rate even though it is higher than its normal rate? Where an individual is TUPE transferred does his or her continuous service start from the date of the transfer or from the start of employment with the transferor? "How to" guidance How to harmonise terms and conditions following the acquisition of a business

Effect of a relevant transfer on pension arrangements

Sections 257 and 258 of the Pensions Act 2004, supplemented by the Transfer of Employment (Pension Protection) Regulations 2005 (SI 2005/649), came into force on 6 April 2005. They provide that, where there is a relevant transfer and the transferred employees were either active members of an employer-contributed occupational pension scheme, or were not active members but were eligible to join the scheme either immediately or on completion of a period of continuous service with the employer, the transferee must offer them a prescribed level of pension provision after the transfer.

This prescribed level of provision is membership of:

• a non money purchase (defined benefit) occupational pension scheme satisfying the statutory standard referred to in s.12A of the Pension Scheme Act 1993, or a scheme that provides benefits of equivalent value to those provided by the transferor's scheme; or
• a money purchase (defined contribution) occupational or stakeholder pension scheme to which the transferee must make contributions in respect of each period for which the employee contributes to the scheme, provided that the amount contributed by the transferee equals the employee's contribution to the scheme, subject to an upper limit of 6% of the employee's basic pay.

In calculating the amount of a transferee's pension contributions in the case of a money purchase occupational pension scheme, only payments made in respect of basic pay need be taken into account. Bonus, commission, overtime and similar payments should be disregarded.

Effect of a relevant transfer on collective agreements

If, at the time of the relevant transfer, the transferor has a collective agreement with a recognised trade union in respect of any employee whose contract is inherited by the transferee, the transferee inherits that collective agreement in respect of that same employee (and the rights and obligations that go with it) as if it had been made between the transferee and the trade union in question.

The transferee does not, however, inherit any term in a collective agreement as relates to an occupational pension scheme as defined in s.1 of the Pensions Schemes Act 1993 (reg.10 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)).

In Parkwood Leisure Ltd v Alemo-Herron and others [2010] IRLR 298 CA, the Court of Appeal restored an employment tribunal decision that a transferee was not bound by the terms of a pay increase made under a collective agreement that was incorporated into the contracts before the transfer, where the increase was made under an agreement reached after the transfer in which the transferee played no part. This is a "static" interpretation of the TUPE Regulations 2006, meaning that the transferee is bound only by the terms and conditions already agreed at the date of the transfer. In contrast, a "dynamic" interpretation (which the Court of Appeal rejected) would bind the transferee in respect of changes to terms and conditions agreed by a third party after the date of the transfer. The employees in Parkwood Leisure Ltd appealed to the Supreme Court, which has referred to the European Court of Justice the question of whether or not the TUPE Regulations 2006 should be given a dynamic interpretation, in the context of a dispute over a transferee's failure to honour the terms of a pay increase made under a collective agreement that was incorporated into the contracts of employment before the transfer (Parkwood Leisure Ltd v Alemo-Herron and others [2011] IRLR 696 SC). The Advocate General has taken the view that the TUPE Regulations 2006 can be given a dynamic interpretation, suggesting that UK law can permit the survival after a transfer of a pay increase negotiated under a collective agreement signed by the transferor before the transfer (Alemo-Herron and others v Parkwood Leisure Ltd Case C-426/11 ECJ).

Additional resources on the effect of a relevant transfer on collective agreements FAQs Would any collective bargaining agreements be carried over to the transferee on a TUPE transfer?

Effect of a relevant transfer on trade union recognition

If, after a relevant transfer, the transferred undertaking (or part of that undertaking) maintains an identity distinct from the remainder of the transferee's undertaking, any independent trade union recognised to any extent or for any purpose by the transferor shall be deemed to be recognised to that same extent or purpose by the transferee. If the transferred undertaking does not maintain an identity distinct from the remainder of the transferee's undertaking, but is simply absorbed within that undertaking, the recognition agreement no longer applies.

Additional resources on the effect of a relevant transfer on trade union recognition FAQs What happens to trade union recognition when a business is transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006?

Dismissal of an employee because of a relevant transfer

If an employee of the transferor or the transferee is dismissed, before or after a relevant transfer, the employee will be treated in law as having been unfairly dismissed if the transfer is the sole or principal reason for the dismissal (reg.7(1) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006)).

However, if the transfer is not the sole or principal reason for the employee's dismissal, it will not be rendered automatically unfair under reg.7(1). In Enterprise Managed Services Limited v Dance and others EAT/0200/11, the Employment Appeal Tribunal (EAT) allowed an appeal against the decision of the employment tribunal, which was divided over whether the claimants were dismissed to harmonise conditions or as part of a continued drive for improvement, which was instituted prior to the transfer in respect of the transferee's existing workforce and therefore unconnected to it. The EAT remitted the case to a different tribunal but preferred the minority view of the employment judge, stating that: "It seems to us that since it is open to an employer to effect productivity changes in accordance with the ordinary law, this does not become unlawful when there has been a relevant transfer if the reason is connected to that drive for productivity changes."

Further, the rule that an employee who is dismissed before or after a relevant transfer will automatically be regarded as unfairly dismissed if the transfer is the sole or principal reason for the employee's dismissal does not apply if the sole or principal reason for the dismissal was an economic, technical or organisational (ETO) reason entailing changes in the workforce (reg.7(2) of the TUPE Regulations 2006). In Delabole Slate Ltd v Berriman [1985] IRLR 305 CA, the Court of Appeal interpreted the phrase "entailing changes in the workforce" as meaning that there must be a change in the overall numbers or functions of employees comprising the workforce. In Nationwide Building Society v Benn and others [2010] IRLR 922 EAT, the changes affected a section of the workforce only; namely the transferred employees. The EAT held that an ETO reason need not entail changes in the entirety of the workforce to fall within reg.7(2). In Miles v Insitu Cleaning Co Ltd EAT/0157/12, the EAT held that the changes in the workforce must apply to the particular employee and must be significant or substantive rather than minor or minimal. The EAT cited Green v Elan Care Ltd EAT/0018/01, in which the EAT stated that: "While a minor change in the functions of one employee or a small number of employees in a large workforce might not be sufficient" to fall within reg.7(2) where the change amounts to "a real change in functions in a substantial or key area of the workforce it is open to a tribunal to find that changes in the workforce are entailed".

In Meter U Ltd v Ackroyd and others; Meter U Ltd v Hardy and others [2012] IRLR 367 EAT, the EAT held that the word "workforce" in reg.7(2), which it noted is not defined in domestic or European TUPE legislation, does not include corporate franchisees or limited companies. The EAT stated that the employment tribunals had erred in holding that franchisees were included in Meter U Ltd's workforce. Since the tribunals' decisions that there was no change in the workforce (and Meter U Ltd had not established an ETO reason for the dismissal of the claimants) were based on the premise that a change from engaging employees to using corporate franchisees to carry out meter reading work did not constitute a reduction in the workforce, the decisions were set aside.

In The Manchester College v Hazel and another EAT/0642/11 & EAT/0136/12, the EAT held that the tribunal was correct to find that the employer did not have an ETO defence in respect of the two claimants, who were dismissed as a result of harmonisation following a post-TUPE transfer redundancy process.

An employee dismissed for an ETO reason will be treated as having been dismissed for some other substantial reason of a kind such as to justify the dismissal of an employee holding the position that the employee held, or for redundancy, if the dismissal falls within the statutory definition of redundancy. Whether or not such a dismissal was fair in the particular circumstances will be a matter for an employment tribunal to decide.

In Hynd v Armstrong and others [2007] IRLR 338 CS, the Court of Session held that a transferor cannot rely on a transferee's ETO reason for dismissal. As a result, when the transferor employer dismissed an employee, ostensibly on grounds of redundancy, on the basis that the transferee would have no need for the employee after the transfer, the dismissal was automatically unfair. The transferor did not have its own ETO reason entailing changes in the workforce, and it could not rely on the transferee's reason. For a dismissal by a transferor to be for an ETO reason, it must relate to the transferor's conduct of the business, which is a condition that cannot be met when the transferor has no intention of continuing the business. In such cases it would be safer for the employers to allow the transfer to go through and for the transferee to undertake a redundancy exercise, relying on its own ETO reason.

In Wilson and others v St Helens Borough Council; British Fuels Ltd v Baxendale and Meade [1998] IRLR 706 HL, the House of Lords held that a dismissal by reason of a TUPE transfer, while automatically unfair (unless for an ETO reason), is nonetheless legally effective and not a nullity - thereby overruling the Court of Appeal on that same point when the case came before it (Wilson and others v St Helens Borough Council; Meade and Baxendale v British Fuels Ltd [1997] IRLR 505 CA). Once an employee has been dismissed, whether fairly or otherwise, the contract of employment is gone and the employee's remedies are limited to a claim of unfair dismissal or wrongful dismissal.

In Spaceright Europe Ltd v Baillavoine and another EAT/0339/10, the EAT held that it is not necessary for the transferor to have identified an actual prospective transferee at the time of dismissal, for a dismissal to be automatically unfair under TUPE. The Court of Appeal upheld the decision of the EAT (Spaceright Europe Ltd v Baillavoine and another [2011] EWCA Civ 1565 CA).

If a dismissal is wrongful or unfair, the employee may seek redress from the tribunals and courts. In a TUPE situation, responsibility for paying any subsequent award of damages, and/or compensation for unfair dismissal, usually rests with the transferee.

In Kimberley Group Housing Ltd v Hambley and others; Angel Services (UK) Ltd v Hambley and others [2008] IRLR 682 EAT, where a service provision contract performed by one company was taken over by two companies, and the six claimants lost their job as a result, the tribunal ruled that the liability for their unfair dismissal claims should be apportioned between the two transferees. However, the EAT disagreed. The tribunal should have adopted the approach set out in Botzen v Rotterdamsche Droogdok Maatschappij BV [1986] Case C-186/83 ECJ to establish which transferee had taken up the activities to which each employee was assigned. Had it done so, it would have been bound to find that all six had transferred to Kimberley Group Housing Ltd, which had taken on the vast majority of the activities previously performed by the transferor.

In Pressure Coolers Ltd v Molloy and others [2011] IRLR 630 EAT, the EAT held that it is the transferee, rather than the Secretary of State, that is liable to pay the unfair dismissal basic award and notice of an employee who is dismissed after a "pre-pack" administration and TUPE transfer of the business as a going concern.

To qualify to pursue a complaint of unfair dismissal, the employee must have been continuously employed for the required period ending with the effective date of termination of his or her contract of employment (ie at least two years if the employee's period of continuous employment commenced on or after 6 April 2012 or at least one year if it commenced prior to that date).

In F&G Cleaners Ltd v Saddington and others [2012] IRLR 892 EAT, the claimants were informed by F&G Cleaners Ltd, the transferee, that it could not offer them a TUPE-based transfer as it considered the information provided prior to the transfer by Actual Support Services Ltd, the transferor, was sparse and misleading. The transferee offered to take on both claimants on a self-employed basis but they declined the offer and claimed unfair dismissal. The transferee argued that the claimants had failed to mitigate their losses by rejecting the offers of self-employment. Applying the principles in Savoia v Chiltern Farms [1981] IRLR 65, the EAT confirmed that because the offers were made before the claimants' contracts of employment had ended, the duty to mitigate losses had not arisen.

Additional resources on dismissal of an employee because of a relevant transfer FAQs Can an employee be dismissed before or after the transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006? Where employees are dismissed as a result of a TUPE transfer, will the dismissals be unfair? If a client changes supplier because it is not happy with the performance of the supplier’s employees, can those employees be prevented from transferring to the new supplier if the contract change amounts to a TUPE transfer? Under the TUPE legislation, where an employee has a bad attendance or disciplinary record, is the transferee obliged to accept the employee? Where a transferee has no need for the employees transferred to it under TUPE, can the selection pool for redundancy include only the transferred employees, or must it also include the transferee's existing workforce? Does an employee need a minimum period of service to bring a claim of unfair dismissal when dismissed by reason of a TUPE transfer?

An employee's refusal to transfer

There is no transfer of an employee's contract of employment (or of the transferor's rights, powers, duties and liabilities under, or in connection with, that contract) if the employee in question informs the transferor (or the transferee) that he or she objects to becoming employed by the transferee.

In such a situation, the employee's contract of employment with the transferor comes to an end and the employee will not be treated, for any purpose, as having been dismissed by the transferor.

The employee may, however, pursue a complaint of unfair constructive dismissal if there is an actual or threatened fundamental breach of contract on the employer's part. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) introduced an additional right of complaint. Under reg.4(9), where the transfer involves, or would involve, a substantial change in the employee's working conditions to his or her material detriment, the employee can treat the contract as being terminated by the employer. There is no need for the employee to show breach of contract on the employer's part. In Tapere v South London and Maudsley NHS Trust [2009] IRLR 972 EAT, the Employment Appeal Tribunal (EAT) held that the employment tribunal erred in using an objective test when determining whether or not there had been a "substantial change in working conditions" under reg.4(9); it is the impact of the proposed change from the employee's point of view that has to be considered. The employment tribunal ought to have asked whether or not the employee regarded the impact as detrimental and, if so, whether or not that was a reasonable position for her to adopt. In Abellio London Ltd (formerly Travel London Ltd) v Musse and others; Centrewest London Buses Ltd v Musse and others [2012] IRLR 360 EAT, the EAT held that employees who resigned after being faced with a change of place of work to a different part of London because of a TUPE transfer were constructively dismissed and subjected to a material detriment under reg.4(9). The EAT confirmed that the phrase "working conditions" in reg.4(9) is wider than "contractual conditions". While the phrase is capable of relating to contractual conditions, it can also relate to physical conditions such as the place of work. The EAT stated that the tribunal had correctly followed the approach set out in Tapere in considering whether or not the change in working conditions created a "material detriment" and had been entitled to find that the move across London, which involved an extension of the working day by around two hours in some cases, was a "substantial change in working conditions" to the employees' material detriment.

In Hay v George Hanson (Building Contractors) Ltd [1996] IRLR 427 EAT, the EAT said that an employee who had expressed unhappiness about the prospect of working for the transferee could not be said to have objected to (or refused) the transfer. Although the Regulations are not specific on this point, an employee who refuses outright to transfer should, said the EAT, inform his or her employer in clear and unequivocal terms (whether by word or deed, or by a combination of the two) that he or she refuses to work for the transferee.

The High Court held in New ISG Ltd v Vernon and others [2008] IRLR 115 HC that an employee's resignation two days after the transfer was a valid objection to the transfer. The employee did not know the identity of the transferee prior to the transfer, therefore to deny the objection would undermine the employee's fundamental right to choose his employer. As a result the employee's contract of employment had not transferred and the transferee could not enforce a restrictive covenant against him.

In Capita Health Solutions Ltd v McLean and another [2008] IRLR 595 EAT, the EAT held that an employee who resigned after raising a grievance about a transfer, but agreed to work for the new employer for a limited period, had not validly objected to the transfer. The employee's agreement to work for the transferee, albeit for a limited period, was inconsistent with her objection.

Additional resources on an employee's refusal to transfer FAQs Can an employee refuse to transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006? If an employee in a TUPE situation refuses to transfer, to which employer should his or her resignation be submitted? If an employee in a TUPE situation refuses to transfer, will he or she be entitled to a redundancy payment?

Duty to inform and consult representatives

Employers contemplating the sale or transfer of their business or undertaking (or a part of it) have a duty to inform and consult "appropriate representatives" (reg.13(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)). The same duty extends to employers contemplating the acquisition of another employer's business or undertaking.

The term appropriate representatives means employee representatives elected by employees likely to be affected by the proposed transfer or acquisition, or, if there is a recognised independent trade union representing the interests of those employees, the relevant shop stewards or works convenors.

In an undertaking in which there are both employee-elected and recognised trade-union-appointed representatives, the employer must give priority to the trade union representatives.

If there is no trade union representation, the employer must either consult with existing employee-elected representatives (who may have been elected for other purposes but who have authority to receive information and be consulted on behalf of affected employees) or invite the affected employees to elect one or more of their number to represent their interests in consultations.

If the employees have been invited to elect representatives and they fail to do so within a reasonable time, the employer must give the required information to each affected employee (reg.13(11)). In Seawell Ltd v (1) Ceva Freight (UK) Ltd v (2) Mofatt EATS/0034/11, the EAT stated that "It is only in those circumstances that, under reg.13, the employer has a duty to consult directly with the affected employees and provide information directly to them." In Howard v Millrise Ltd t/a Colourflow (in liquidation) and another [2005] IRLR 84 EAT, the employer failed to invite the election of representatives or, in default of such election, to give the required information to the claimant, so was in breach of its obligation to inform and consult. The claimant was entitled to compensation for this failure.

The employer must ensure that a workplace ballot for the election of employee representatives is conducted in secret, and that all affected employees are afforded an opportunity to vote in the ballot and, if they wish, to put their name forward for election as such representatives (reg.14 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006)).

Information: Under reg.13(2) of the TUPE Regulations 2006, "long enough before a relevant transfer to enable the employer of any affected employees to consult the appropriate representatives of any affected employees", the employer must inform the representatives:

• that the relevant transfer is to take place; when, approximately, it is to take place; and the reasons for it;
• of the legal, economic and social implications of the transfer for all affected employees;
• of the measures that the employer envisages will, in connection with the transfer, be taken in relation to those employees or, if it is envisaged that no measures will be so taken, that fact; and
• if the employer is the transferor, of the measures that the transferee is likely to take in relation to those of the transferor's employees whose contracts of employment are to be transferred to the transferee.

Where an employer has to provide information under reg.13(2), if it uses agency workers it must include information relating to them, namely the number of agency workers that are working temporarily for it and under its supervision and direction, the parts of its business in which they work and the type of work that they do (reg.13(2A) of the TUPE Regulations 2006). (See Atypical workers > Agency workers for more details of the provisions relating to agency workers.)

In anticipation of such consultations, the transferee must cooperate by formally advising the transferor of its intentions in relation to those of the transferor's employees who are to be absorbed within the transferee's business or undertaking.

Consultation: Where the employer of any affected employees envisages that it will, in connection with a transfer, be taking measures in relation to any such employees, it shall consult all the persons who are appropriate representatives of any of the affected employees in relation to whom it envisages taking measures with a view to seeking their agreement to the measures to be taken.

A transferee employer is not obliged to consult with transferred employees after the date that the transfer is completed (Amicus and another v City Building (Glasgow) LLP and others [2009] IRLR 253 EAT).

During the consultations, the transferor and transferee must consider any representations made by the appointed or elected representatives; reply to those representations; and, if minded to reject them, give their reasons for doing so. Before, during and after such consultations, the representatives must be permitted a reasonable amount of paid time off work to enable them to meet with those of their colleagues who are likely to be affected by the transfer. They must also be provided with suitable accommodation and facilities to enable those meetings to take place.

Penalties for failure to inform or consult: Complaints by trade-union-appointed or employee-elected representatives, or by the affected employees, concerning the employer's refusal or failure to consult with them about a proposed business transfer must be lodged with the employment tribunal within three months of the alleged refusal. Depending on the group to which the employer's failure relates, the complaint must be lodged by a trade union representative, or an employee representative, or an affected employee as appropriate (reg.15(1) of the TUPE Regulations 2006). In Hickling t/a Imperial Day Nursery and others v Marshall EAT/0217/10, the Employment Appeal Tribunal (EAT) confirmed that in circumstances where there are no employee representatives, an employee is entitled to bring a complaint under reg.15 of the TUPE Regulations 2006. In Independent Insurance Company Ltd v Aspinall and another [2011] IRLR 716 EAT, the EAT held that where an individual employee brings a claim for a protective award in a collective redundancy situation, the employment tribunal does not have the jursidiction to make an award benefitting other redundant employees. Independent Insurance Company Ltd v Aspinall and another [2011] IRLR 716 EAT is expected to be followed where an individual employee brings a claim for a protective award in respect of a failure to inform and consult under the TUPE Regulations 2006.

Similar complaints may be lodged concerning an employer's unwillingness to allow non-union employees to elect their own representatives. Should such a complaint be upheld, the offending employer will be ordered to pay each affected employee compensation equivalent to up to 13 weeks' pay (regs.15(8) and 16(3) of the TUPE Regulations 2006). A week's pay is uncapped for the purposes of awards made under reg.15(8) for breach of any obligations relating to information and consultation or the election of employee representatives set out in regs.13 and 14 of the TUPE Regulations 2006 (Zaman and others v Kozee Sleep Products Ltd (t/a Dorlux Beds UK) EAT/0312/10).

In Sweetin v Coral Racing [2006] IRLR 252 EAT, the EAT held that tribunals should adopt the same approach when assessing compensation for failure to consult under TUPE as they do when assessing failure to consult in a collective redundancy situation. This means starting with the assumption that the maximum award should be made, and reducing it only where it is just and equitable to do so. This approach was set out by the Court of Appeal in Susie Radin Ltd v GMB and others [2004] IRLR 400 CA. In Todd v Strain and others [2011] IRLR 11 EAT, the EAT distinguished Susie Radin Ltd, stating that the approach of starting with the assumption that the maximum award should be made was appropriate only where the employer has done nothing at all and that "it should not be applied mechanically in a case where there has been some information given and/or some consultation but without using the statutory procedure".

Employers may justify their failure to inform and consult if they can satisfy a tribunal that there were special circumstances making it not reasonably practicable for them to do so, so long as they can demonstrate that they did all that they reasonably could to comply with that duty.

But, it is no defence for a transferor to argue that it was prevented from complying with that duty because of the transferee's refusal to provide information about its intentions in relation to the employees to be transferred. In those circumstances, the transferee may nonetheless be joined or sisted as a party to the tribunal proceedings and, where appropriate, will be ordered to pay the whole or part of any award of compensation payable to those employees. Under reg.15(5), a transferor may assert that it was not reasonably practicable for it to discharge its duties to inform and consult because of a failure on the part of the transferee to provide the requisite information only if the transferor gives the transferee notice of its intention to assert this. In Seawell Ltd v (1) Ceva Freight (UK) Ltd v (2) Mofatt EATS/0034/11, the EAT held that the fact that the transferee was already a party to the tribunal proceedings did not relieve the transferor of its obligation to give notice under reg.15(5).

In Royal Mail Group Ltd v Communication Workers Union EAT/0338/08, the EAT held that, although the employer was mistaken in believing that no employees were to be automatically transferred as a result of a TUPE transfer, the mistake was genuine and the provision of information that accorded with that genuine, but mistaken, belief did not amount to a breach of the duty to inform and consult. The Court of Appeal upheld the EAT decision (Royal Mail Group Ltd v Communication Workers Union [2009] IRLR 1046 CA).

Liability: Under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) (TUPE Regulations 1981), whether liability in respect of the transferor's failure to inform and consult prior to the transfer passes to the transferee was the subject of conflicting EAT decisions. In both Alamo Group (Europe) Ltd v Tucker and another [2003] IRLR 266 EAT and Kerry Foods Ltd v Creber and others [2000] IRLR 10 EAT, it was held that the right under reg.10 of the TUPE Regulations 1981 to information and consultation was "in connection" with the employment contract and therefore subject to the reg.5 principle of automatic transfer. However, in Transport & General Workers' Union v James McKinnon, JR (Haulage) Ltd and others [2001] IRLR 597 EAT, the EAT ruled that there was a distinction between a liability arising under TUPE itself, such as the failure to comply with reg.10, and a general liability arising out of or under the contract, which transfers to the transferee under reg.5. There were difficulties with both approaches: the former removed any incentive on the transferor to consult, as the liability transferred to the blameless transferee, but the latter undermined employees' rights if the transferor became insolvent.

The position is improved under the TUPE Regulations 2006. By virtue of reg.15(9), liability for failure to inform and consult appropriate employee representatives under reg.13 is the joint and several responsibility of the transferor and transferee. A transferee would still be strongly advised to seek a full indemnity from the transferor.

Additional resources on the duty to inform and consult representatives FAQs Where only a few employees will transfer to a new employer under TUPE, does the obligation to inform and consult still apply? Is an employer obliged to consult with employee representatives on a TUPE transfer? Who has to be informed and consulted on a TUPE transfer? What is the purpose of any consultations that take place on a TUPE transfer? The duty to consult in a TUPE situation arises where an employer envisages taking measures in relation to affected employees, but what sort of measures would this cover? What is the time period over which the employer must consult on a TUPE transfer? What is the time frame for electing employee representatives for informing and consulting on a TUPE transfer? How many employee representatives are necessary for informing and consulting on a TUPE transfer? Can an employer place restrictions on who can stand as a candidate in elections for informing and consulting on a TUPE transfer? What duties do employee representatives elected for informing and consulting on a TUPE transfer have? What should the employer do where an employee representative for informing and consulting on a TUPE transfer ceases to act as such? What happens if employees invited to elect representatives for informing and consulting on a TUPE transfer fail to do so? What happens if the transferor or transferee fails to consult or inform adequately on a TUPE transfer? Policies and documents Procedure for the election of specially elected representatives for informing and consulting on a TUPE transfer Letter informing employee representatives about a transfer that is to take place Letter to affected employees initiating process for electing employee representatives for informing and consulting on a TUPE transfer Letter to candidates for election as employee representatives for informing and consulting on a TUPE transfer Letter to affected employees confirming details of forthcoming election of employee representatives for informing and consulting on a TUPE transfer Letter to election candidates announcing result of election for employee representatives for informing and consulting on a TUPE transfer Letter to affected employees announcing result of election for employee representatives for informing and consulting on a TUPE transfer Letter to employee representatives starting consultation on measures in relation to affected employees Letter informing individual employees about a transfer that is to take place Form for affected employees to nominate candidates for election as employee representatives for informing and consulting on a TUPE transfer Model ballot paper for election of employee representatives for informing and consulting on a TUPE transfer "How to" guidance How to arrange the election of employee representatives for informing and consulting on a TUPE transfer Liveflo Conduct an election for employee representatives for TUPE consultation with the help of this interactive Liveflo flowchart

Duty to notify employee liability information

Article 3(2) of the Acquired Rights Directive (2001/23/EC) permits member states to adopt appropriate measures to ensure that the transferor notifies the transferee of all the rights and obligations that will be transferred to it. This has been taken up in reg.11 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006). Under reg.11, the transferor is required to notify to the transferee the "employee liability information" of any person employed by it who is assigned to the organised grouping of resources or employees that is the subject of a relevant transfer.

"Employee liability information" means:

• the identity and age of the employee;
• the written employment particulars required to be given to the employee under s.1 of the Employment Rights Act 1996;
• information on any disciplinary procedure taken in relation to the employee or grievance procedure taken by the employee within the previous two years in relation to which a code of practice issued under part IV of the Trade Union and Labour Relations Act 1992 that relates exclusively or primarily to the resolution of disputes applies (the Acas code of practice on disciplinary and grievance procedures (PDF format, 1.58MB) (on the Acas website));
• information on any court or tribunal case, claim or action brought by the employee against the transferor within the previous two years, or any court or tribunal case, claim or action arising out of the employee's employment with it that the transferor has reasonable grounds to believe that the employee may bring against the new employer; and
• information about any collective agreement that will have effect after the transfer in relation to the employee.

The employee liability information must include that of any person who would have been employed by the transferor and assigned into the organised grouping of resources or employees to be transferred if the individual had not been dismissed because of the transfer itself or for a non-economic, technical or organisational reason connected with the transfer, ie in circumstances where the dismissal is automatically unfair.

The information has to be in writing or made available to the transferee in a readily accessible form. The latter might include electronically by email, or via computer data files. The information has to be correct at a specified date not more than 14 days before the date on which it is notified to the transferee. Once it has provided the employee liability information, the transferor is required to notify the transferee in writing of any change to it.

Notification of the employee liability information must occur no later than 14 days before the relevant transfer, or, if special circumstances make this not reasonably practicable, as soon as is reasonably practicable afterwards.

Notification of the employee liability information may be given in more than one instalment, and may be given indirectly through a third party.

Penalties for failure to notify employee liability information: If the transferor fails to comply with the employee liability information requirement under reg.11 of the TUPE Regulations 2006, the transferee can present a complaint to an employment tribunal. The complaint must be brought within three months of the date of the relevant transfer, or within such further period as the tribunal considers reasonable in a case where it is satisfied that this was not reasonably practicable.

If the tribunal finds the complaint well founded it must make a declaration to that effect and may make an award of compensation to be paid by the transferor to the transferee. The amount of compensation will be what the tribunal considers just and equitable in all the circumstances, subject to a minimum of £500 per employee in respect of whom the transferor has failed to comply (unless the tribunal considers it appropriate to award a lesser sum).

Additional resources on the duty to notify employee liability information FAQs In a TUPE situation, is the transferor obliged to give the transferee the personnel files of transferred employees? In a TUPE situation is the transferor required to obtain its employees' consent before passing on information about them to the transferee? Policies and documents Letter from transferee to transferor requesting employee information for due diligence purposes Letter from a transferor to a transferee seeking assurances that employee information exchanged will be safeguarded Letter from transferor to notify transferee of employee liability information Letter from a transferor to a transferee providing details of employee liability information that has changed after initial exchange of information was made "How to" guidance How to carry out a due diligence exercise

Territorial application

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) apply to a business transfer where, immediately before the transfer, the undertaking is situated in the UK. In the case of a service provision change, the Regulations apply where there is an organised grouping of employees situated in Great Britain immediately before the service provision change. The reference to "Great Britain" rather than the UK in relation to service provision changes is intentional - reg.3(1)(b) does not apply in Northern Ireland.

The Regulations apply even if:

• the transfer is governed or effected by the law of a country or territory outside the UK;
• the service provision change is governed or effected by the law of a country or territory outside Great Britain;
• the affected employees' employment is governed by such a law; or
• the transfer of the business involves employees who ordinarily work outside the UK.

In Holis Metal Industries Ltd v GMB and another [2008] IRLR 187 EAT, the Employment Appeal Tribunal (EAT) held that the TUPE Regulations 2006 have the potential to apply to the transfer of a business that, after the transfer, is based outside the UK, and, as in Holis Metal Industries Ltd, outside the EU.

Effect of bankruptcy or insolvency on a relevant transfer

Bankruptcy proceedings or analogous insolvency proceedings: Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE Regulations 2006) provides that regs.4 and 7 of the Regulations, which deal with the effect of a relevant transfer on contracts of employment, and the dismissal of an employee because of a relevant transfer, "do not apply to any relevant transfer where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner". The Regulations do not specify which insolvency proceedings are to be regarded as having been instituted with a view to the liquidation of the transferor's assets and this has caused some confusion about when reg.8(7) applies.

Whether or not administration is capable of constituting "analogous insolvency proceedings" under reg.8(7) was dealt with by the Employment Appeal Tribunal (EAT) in Oakland v Wellswood (Yorkshire) Ltd [2009] IRLR 250 EAT. The EAT held that whether or not reg.8(7) applies to a particular transfer from an administration is a question of fact, and effectively depends on the intentions of the administrator. It stated that "the judge was entitled to conclude that [as a matter of fact] the appointment of joint administrators was with a view to the eventual liquidation of the assets" and that reg.8(7) of the Regulations operated to prevent the transfer of the claimant’s contract of employment on that basis. The Court of Appeal overturned the EAT decision on a different point and went on to express the view, obiter, that "the correctness or otherwise of the contention that administration necessarily excludes the application of regulation 8(7)…is a strongly arguable point" (Oakland v Wellswood (Yorkshire) Ltd [2009] EWCA Civ 1094 CA).

In OTG Ltd v Barke and other appeals [2011] IRLR 272 EAT, the EAT held that the fact-based approach adopted in Oakland was wrong and that administration can never constitute "analogous insolvency proceedings" under reg.8(7). The EAT went on to state that, in these circumstances, reg.8(7) did not disapply the protection afforded by reg.4, namely, the automatic transfer of an employee's contract of employment in the event of a relevant transfer. In Key2Law (Surrey) LLP v De'Antiquis [2012] IRLR 212 CA, the Court of Appeal approved the "absolute" approach adopted by the EAT in OTG Ltd, namely that administration can never constitute "analogous insolvency proceedings" under reg.8(7).

Relevant insolvency proceedings: In contrast with the position where a transferor is subject to bankruptcy proceedings or any analogous insolvency proceedings, where a transferor is subject to "relevant insolvency proceedings" at the time of a relevant transfer regs.4 and 7 (which deal with the effect of a relevant transfer on contracts of employment and the dismissal of an employee because of a relevant transfer respectively) do apply. Despite the application of reg.4, liability for certain sums payable to relevant employees under statutory schemes set out in chapter VI of part XI of the Employment Rights Act 1996 and part XII of that Act (namely those sums for which the Secretary of State would otherwise be liable), will not transfer to the transferee and will be met by the Secretary of State. "Relevant insolvency proceedings" are defined as "insolvency proceedings which have been opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner" (reg.8(6)).

In Pressure Coolers Ltd v Molloy and others [2011] IRLR 630 EAT, the EAT held that it is the transferee, rather than the Secretary of State, that is liable to pay the unfair dismissal basic award and notice of an employee who is dismissed after a "pre-pack" administration and TUPE transfer of the business as a going concern.

Code of practice on workforce matters in local authority service contracts (withdrawn)

On 23 March 2011, the coalition Government withdrew the Code of practice on workforce matters in local authority service contracts (PDF format, 197K) (on the Local Government Employers website) and guidance on "Handling workforce matters in contracting" with immediate effect. The withdrawal was not retrospective and the code of practice and guidance remain relevant to local authority service contracts in existence prior to 23 March 2011. Where contracts are renegotiated, parties may agree to remove provisions giving effect to the code, but any such changes will apply to new staff only and the terms and conditions of existing staff will remain unchanged.

Code of practice on workforce matters in local authority service contracts (relevant to contracts in existence prior to 23 March 2011)

Department for Communities and Local Government Circular 03/2003 sets out the Code of practice on workforce matters in local authority service contracts (PDF format, 197K) (on the Local Government Employers website). The code forms part of the service specification and conditions for all such contracts. The ethos of the code is to encourage local authorities to select only those providers that offer staff a package of terms and conditions that will secure high-quality service delivery throughout the life of the contract. This means, among other things, that where contractors employ new employees to work on the same contract as transferred employees their terms and conditions should overall be no less favourable than those enjoyed by the transferred staff.

Treatment of outsourced employees: When contracting out of services occurs a local authority must apply the principles set out in the "Cabinet office statement of principles on staff transfers in the public sector" and its annex on pensions. The gist of the statement is that, even where the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) do not apply in strict legal terms, the principles of TUPE should be followed and the staff involved treated no less favourably than had the Regulations applied.

The annex to the statement requires the pensions of transferred employees to be protected. Transferred employees must therefore have ongoing access to the Local Government Pension Scheme or be offered an alternative good-quality occupational scheme, as defined in the annex, under which they can continue to earn pension benefits through their future service. In addition, there must be arrangements in place for handling the accrued benefits that they have already earned.

New joiners to an outsourced workforce: Where a service provider recruits new staff to work on a local authority contract alongside staff transferred from the local authority, it should offer employment on fair and reasonable terms and conditions that are, overall, no less favourable than those of the transferred employees. In addition, the service provider must offer reasonable pension arrangements to such workers. The service provider is also required to consult representatives of a trade union where one is recognised, or other elected employee representatives where there is no recognised trade union, on the terms and conditions to be offered to such new recruits.

Pension arrangements for new joiners to an outsourced workforce: The service provider must offer new recruits taken on to work beside transferred employees:

• membership of the Local Government Pension Scheme where the employer has admitted body status within the scheme and makes the requisite contributions;
• membership of a good-quality employer pension scheme, which is either a contracted-out final-salary based defined benefit scheme or a defined contribution scheme - if the latter, the employer must match employee contributions up to 6%; or
• a stakeholder pension scheme under which the employer must match employee contributions up to 6%.

On a retender of a contract to which the code applies, the new service provider must offer one of these pension options to any members of staff who transfer to it who, prior to the transfer, had a right under the code to one of these pension options.

Adherence to the code: The relevant local authority will enforce the obligations on a service provider created under the code. Employees and recognised trade unions should in the first instance seek to resolve any complaints that they have about how the obligations under the code are being met directly with the service provider.

If this informal dialogue does not work, where it appears to the local authority that the service provider is not meeting its obligations or one of the service provider's employees or a recognised trade union writes to the local authority with regard to an unresolved complaint, the local authority will seek an explanation from the service provider. If the response is unsatisfactory the local authority will ask the service provider to take remedial action. If, after this, the service provider still appears to the local authority not to be complying with the code, the local authority will seek to enforce the terms of the contract, which will incorporate the code. Where a service provider has not complied with the code, the local authority will not be bound to consider it for future work.

The contract must provide a provision for resolving disputes about the application of the code by alternative means to litigation. All parties (including the service provider, the local authority and recognised trade union or other staff representatives) must have access to this process.

Where the primary service provider transfers staff originally in the employment of the local authority to a subcontractor as a result of the terms of its obligations to the local authority, the primary service provider remains responsible for the subcontractor's observance of the code.

Principles of good employment practice and Code of practice on workforce matters in public sector service contracts (withdrawn)

On 13 December 2010, the coalition Government withdrew the Code of practice on workforce matters in public sector service contracts (on the Cabinet Office website) with immediate effect and replaced it with Principles of good employment practice (PDF format, 193K) (also on the Cabinet Office website). Compliance with the principles set out in the Cabinet Office statement is voluntary. The code of practice will continue to apply to public sector contracts in existence prior to 13 December 2010 (see Continued application of the Code of practice on workforce matters in public sector contracts to contracts in existence prior to 13 December 2010).

The Code of practice on workforce matters in public sector service contracts (on the Cabinet Office website), which was introduced in March 2005, formed (save in certain limited situations) part of the service specifications and conditions of every public sector contract awarded to a service provider that involved a transfer of staff from the relevant public sector organisation, or where staff originally transferred out from the public sector organisation as a result of an outsourcing were TUPE transferred to a new provider under a retender of contract. The code required, among other things, that "where the service provider recruits new staff to work on a public service contract alongside staff transferred from the public sector organisation, it will offer employment on fair and reasonable terms and conditions which are, overall, no less favourable than those of transferred employees". In contrast, Principles of good employment practice (PDF format, 193K) (on the Cabinet Office website) provides that: "where a supplier employs new entrants that sit alongside former public sector workers, new entrants should have fair and reasonable pay, terms and conditions. Suppliers should consult with their recognised trade unions on the terms and conditions to be offered to new entrants."

While the six principles of good employment practice contained in the Cabinet Office statement are supported by the Government, compliance with the principles is voluntary, so contracts will continue to be awarded on the basis of value for money and not on the basis of who signs up to the principles. However, the principles do set out what the Government expects of its best suppliers in their employment practices. The principles include a commitment from the Government to use the procurement process to encourage contracting authorities and suppliers to promote good workforce practices. They also require suppliers to:

• ensure that staff have access to appropriate training;
• ensure that new staff have fair and reasonable pay, terms and conditions;
• demonstrate how their working practices support their equality obligations;
• have clear dispute resolution processes in place; and
• develop effective employee engagement strategies.

Continued application of the Code of practice on workforce matters in public sector contracts to contracts in existence prior to 13 December 2010: The Code of practice on workforce matters in public sector service contracts (on the Cabinet Office website) will continue to apply to public sector contracts in existence prior to its withdrawal on 13 December 2010. Where contracts are renegotiated, parties may agree to remove provisions giving effect to the code, but any such changes will apply to new staff only and the terms and conditions of existing staff will remain unchanged. Where contracts that have required compliance with the code are extended, unless both parties agree to remove the provisions requiring compliance, the code will continue to apply to new staff. Where contracts are retendered and a new contract is created, the code will not apply to it.

The Code of practice on workforce matters in public sector contracts (relevant to contracts in existence prior to 13 December 2010)

Treatment of public sector transferees: The code states that, when contracting out services, public sector organisations must apply the principles set out in the "Cabinet Office statement of practice on staff transfers in the public sector" and the annex to it, "A fair deal for staff pensions". The service provider will be required to demonstrate its support for these principles and its willingness to work with the public sector organisation to implement them. The principles of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) must be followed in respect of every public sector service contract that involves a transfer of staff from the relevant public sector organisation to the service provider in question, or from an existing service provider to a new service provider following a retender of contract, even if the Regulations do not apply to the transfer in strict legal terms. So far as pension rights are concerned, the annex specifically requires the terms of a business transfer to protect the pensions of the transferred employees, who must be offered membership of a pension scheme that is broadly comparable to the public pension scheme that they are leaving.

New joiners to an outsourced workforce: Service providers awarded public sector service contracts involving the transfer of staff from public sector organisations must not only comply with their obligations in respect of the individuals transferred, but also ensure that those subsequently employed to work alongside them are offered employment on fair and reasonable terms and conditions that, overall, are no less favourable than the terms and conditions of the transferred employees.

Where a service provider awarded a public sector service contract recruits additional staff to work alongside employees transferred under the contract, it must offer the new recruits membership of either a good-quality employee pension scheme, ie a contracted-out, final-salary based defined benefit scheme or a defined contribution scheme, or a stakeholder pension scheme. In the case of a defined contribution or stakeholder scheme the employer must match employee contributions up to 6%.

Staff transferred to a new service provider following the retender of a public sector service contract must also be offered one of the pension options if, prior to the transfer, they had a right under the code to one of the options.

Adherence to the code: Complaints or disputes about a service provider's refusal or failure to comply with its contractual obligations in relation to transferred employees or new recruits should, in the first instance, be a matter for discussion and resolution between the service provider in question and the relevant trade-union or employee-elected workforce representatives.

If this informal dialogue does not work, where it appears to the public sector organisation that the service provider is not meeting its obligations or one of the service provider's employees or a recognised trade union writes to the public sector organisation with regard to an unresolved complaint, the public sector organisation will seek an explanation from the service provider. If the response is unsatisfactory the public sector organisation will ask the service provider to take remedial action. If, after this, the service provider still appears to the public sector organisation not to be complying with the code, the public sector organisation will seek to enforce the terms of the contract, which will incorporate the code.

If informal dialogue does not resolve the situation, the annex to the code offers an alternative, time-limited, three-stage dispute resolution procedure to be carried out under the supervision and ultimately binding arbitration of an independent person appointed from an Acas-approved list. At the conclusion of the procedure, if there is no agreement between the parties, the independent person will impose a revised package of terms and conditions applicable to each of the affected employees.

A service provider's continued refusal to comply with its obligations will result in an action for breach of contract.

The code cautions that a service provider that does not comply with its obligations under the code will be unlikely to be considered for further work by a public sector organisation.

The code is a statement of practice published by the Cabinet Office. It is not binding in law and as such does not on its own give rise to any enforceable legal rights (The Law Society of England and Wales v The Secretary of State for Justice and another [2010] EWHC 352 HC).

Key references

Legislation

Acquired Rights Directive (2001/23/EC)
Trade Union and Labour Relations (Consolidation) Act 1992
Pension Schemes Act 1993
Employment Rights Act 1996
Pensions Act 2004
Collective Redundancies and Transfer of Undertakings (Protection of Employment) Regulations 1999 (SI 1999/1925)
Transfer of Employment (Pension Protection) Regulations 2005 (SI 2005/649)
Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246)

Codes of practice

Code of practice on workforce matters in local authority service contracts (in Annex D of circular) (PDF format, 197K) (on the Department for Communities and Local Government website)
Code of practice on workforce matters in public sector service contracts (PDF format, 89K) (on the Cabinet Office website)

Guidance

A guide to the 2006 TUPE Regulations for employees, employers and representatives (PDF format, 188K) (on the UK Government website)