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How TUPE applies when buying or selling a business
If you are buying or selling your business, you need to think about what happens to your employees.
This means you need to get to grips with the Transfer of Undertakings (Protection of Employment) Regulations, commonly known as TUPE. These Regulations protect an employee’s rights when the business they work for or the commercial contract they are working on changes ownership.
Does TUPE apply to all businesses?
It applies to all UK businesses, regardless of their size and sector. Therefore, it doesn’t matter whether you are, for example, one small business with a handful of employees or part of a group with hundreds of employees.
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Who does it protect?
It protects employees. This means the protections afforded under TUPE will not cover the self-employed.
Remember the law is not concerned with labels. An individual who has worked regularly at your organisation over a sustained period of time may declare that they are self-employed, but in fact, they may be an employee and be subject to TUPE.
When does TUPE apply?
TUPE applies in cases of business transfers and service provision changes.
Business transfers: A business transfer is where a business is bought by a new owner. For a business transfer to take effect, the business must fundamentally remain the same after the transfer.
Service provision changes: This could include cases when an employer wins or loses a contract to provide services to someone else or an activity that is taken care of in-house is outsourced to a third party.
It is not always straightforward knowing when TUPE applies. If you’re unsure, seek specialist advice at the earliest opportunity.
What is the effect of TUPE?
- Those who are employed by the outgoing employer automatically become employees of the incoming employer.
- These employees will retain their employment terms and conditions, including those found in their Contract of Employment and Employee Handbook.
- The new employer steps into the shoes of the old employer. This means that the outgoing employer’s rights, powers, duties and liabilities under or in connection with the employees’ contracts are transferred to the incoming employer.
- Any collective agreements made by or on behalf of the outgoing employer in force immediately before the transfer will also be passed on. New terms and conditions agreed in a collective agreement can be negotiated once one year has passed from the transfer, but it cannot provide employees with less favourable terms.
- The incoming employer may wish to amend the employees’ contract – often to harmonise their contracts with those of exiting employees. However, they cannot change employees’ terms and conditions unless this is expressly allowed in the contract or where there are economic, technical or organisational (ETO) reasons for the change that involve changes in the workforce.
- It will be considered an automatic unfair dismissal if the reason for the dismissal is the transfer, unless a) the dismissal is as a result of an ETO reason, for example the new employer is implementing new equipment which means that fewer staff are required to do the work, or b) the employer can show that there is a genuine redundancy situation and they have followed a fair procedure.
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TUPE is a highly complex area of employment law. If you would benefit from professional support to ensure the transfer process runs smoothly, our Employment Law Advisers can guide you through the legal processes, answer your queries, and help you to understand and prevent potential legal risks.
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