We’ve won the contract, well done sales team! Now, what about the staff?
Well, that will all depend on TUPE, groan!
Yes, it is complex, but if you are winning or losing contracts, you really do need to know what TUPE means to plan properly.
TUPE can have a major bearing on the value, profitability and legal liabilities transferred to you in any new contract to provide services.
This is what you need to know about TUPE:
How does TUPE work?
In basic terms, there are several concepts to help us identify when TUPE applies to the transfer of a contract. Here are the key terms you’ll need to know:
Is there a service provision change?
This is where a company or organisation contracts out part of their operation, and that part forms a clearly identifiable organised grouping of resources, for example, where a company:
- does the work for themselves, but transfers the work out to an independent contractor, examples include catering or cleaning operations; or
- has already transferred that work out to an independent contractor but decides to engage a new and different contractor to the present one, thus transferring the work and employees to another contractor; or
- decides to simply transfer the work back in-house from the present external contractor.
In these three instances, subject to some other conditions being in place, TUPE will generally apply to impose the automatic transfer of the employees – who are assigned to, and working on, that contract - across to whoever takes it on next, as in each case.
There must be an Organised Grouping of Employees immediately before the transfer
In simple terms, this means that there needs to be a clear grouping of employees who are assigned to the contract and who are set up and organised to carry out the activities that are being transferred. This could actually even be a single employee, the key being that their principal purpose is the delivery of the activities under the contract
Tip: Employees who don’t work all their time on the contract may not be assigned to it and, thus, may not transfer.
The activities must remain the same
The activities carried out on the contract prior to the transfer must remain “fundamentally or essentially the same” as those carried on after the transfer.
TIP: As an incoming contractor, compare the way you are going to deliver the contract, if it’s different, take advice as TUPE may not apply.
What if the contract YOu take on is being undertaken differently by YOu?
Where the activities are substantially different, it may not then be the same contract. In that case, any staff that were assigned to the original contract could remain with the present contractor and would not then need to transfer.
An example of this could be the difference between a full catering canteen service and a sandwich van on site – they could be too different to amount to a service provision change under TUPE, thus, the catering employees may not transfer to the new contractor.
Indicators of a change in the activities that may exclude the application of TUPE and stop the transfer of employees may include the following:
- Changes in the size of the contract.
- Changes in the delivery and methods of delivery.
- Fragmentation of the services between contractors.
The Automatic Transfer Principle: what and who transfers?
Once the conditions of a transfer are satisfied under TUPE, then the automatic transfer principle applies to mean that:
- the contracts of employment of all employees;
- who are employed immediately prior to transfer; and
- who are ‘assigned’ to the organised grouping of resources that transfers;
- will automatically transfer.
Again, in simple terms, their contracts of employment and all their rights and liabilities stay the same and transfer with the contract, to change them can be unlawful and create claims.
There are some exceptions to the transfer principle such as certain pension benefits, but keeping to outlining just the basics of TUPE, we won’t cover them here.
Can’t you just dismiss an employee who is due to transfer?
TUPE gives employees enhanced protection and any changes to their terms or dismissal will likely be automatically unfair if the sole or principal reason for the dismissal is the transfer.
However, in circumstances that amount to what is called an ‘ETO’ (economic, technical or organisational reason), for changes or a dismissal then you can consider – with the right facts, evidence and process in place – consulting to vary terms or dismissing an employee without creating an automatically unfair dismissal. However, this is complex so take advice.
If the new contractor is looking at doing things differently, for example new technology, then an ETO could be in place.
Get in touch to find out more on how an ETO can help you shape a new contract to your advantage (see below).
What about employees who object and don’t want to transfer?
Where an employee objects, subject broadly to a clear and recorded ‘objection’ being in place at the right time for the right reasons, then they may not transfer and their contract may cease by operation of law on the date the transfer takes place.
Are there any legal obligations to inform and consult with employees?
In basic terms, TUPE requires both parties to inform affected employees of either party and if they plan to make changes, to consult with them too.
Depending on the number of employees affected, you may need to arrange to inform and consult with their representatives too or if there are less employees you may consult more easily and directly.
A failure to inform and consult can carry compensation of up to 13 weeks of gross pay per employee.
The extent of your obligations to consult will be defined by the changes or ‘measures’ that are proposed to affected employees and their terms and their numbers too.
Careful analysis is needed as to what changes are being made, by who and when and also as to who should consult and who could be liable here.
Are there obligations to share information ABOUT the employees?
The outgoing contractor/employer is legally obligated to provide ‘employee liability information’ (ELI information) within 28 days of the date the transfer takes effect. The information includes things like the employees’:
- Identities;
- written terms and conditions (pay, hours, location, notice, start date etc.);
- disciplinary and grievance records for the last two years;
- any union agreements; and
- any claims by employees in the preceding two years.
If you are the outgoing employer, you must ensure all the correct information is supplied in time and is accurate. If not, claims can be brought by the new contractor against you arising out of any failure to do this correctly or at all.
Can’t the parties just contract out of all this?
No, the law would override it. Simply because TUPE essentially crystalises the terms of employment and assigned employees rights etc. So, very careful consideration of any new contract you win must take place. Here are some examples of the issues you’ll need to consider:
- What employees are there?
- What are their terms (pay, location, benefits, notice etc.)?
- What roles do they do?
- What issues are there (claims, grievances, sickness, disciplinaries, performance issues etc)?
- Does all that work with our approach to the contract?
- Will we need them all?
- Do their costs work on the new contract?
- What liabilities will we inherit here and how do they affect the commercial viability of the new contract?
- What, if any, warranties does the outgoing contractor give?
- What happens if you lose the contract in the future, either when it ends or is transferred elsewhere?
My Tip for preparing to win or lose a contract
For the incoming employer
- Look at the present contract and examine what may be different about your operations – it may not be a TUPE transfer or it may be the case that not all employees will transfer.
- Seek the full ELI table of information on all assigned employees from the outgoing contractor as soon as possible.
- Consider using the client to communicate with the outgoing contractor - and make having all the ELI details part of your requirement to take the contract on – to ensure a smooth transfer without damage to all parties’ reputations.
- Examine, for each assigned employee:
- Their role, are they assigned?
- Their costs and contractual obligations, will this work financially and operationally?
- Check all of the employees listed are genuinely assigned to the business or contract you are taking on. If not, you may not be obligated to take them.
- Seek copies of the contract that the present contractor is working under for the customer – there can often be useful obligations in there, for example not to change terms or move staff around and to ensure information is disclosed to you freely.
- If you plan on making changes, take advice and prepare carefully on how you will inform and consult as soon as you can.
- Consider seeking contractual indemnities to cover liabilities transferring to you and/or arising out of pre-transfer actions of the outgoing contractor.
For the outgoing employer
- Prepare the ELI table as soon as you can and issue it.
- Update any changes to the ELI information.
- If applicable, check the present contract terms – they may require you to both do and not do specific things once you are on notice of loss of the contract i.e., no pay increases, no movement of staff assigned to the work in question and consultation obligations too.
- Check affected numbers and assignment of the employees.
- Elect a representative to inform and consult with if required.
- Seek feedback from the new employer on any measures they plan to take.
- Secure indemnities to cover consultations.