When a transfer of a business takes place by virtue of the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE, the employees transfer automatically to the new employer as if their contracts of employment had originally been made with the new employer (the transferee). In these circumstances, employees will be transferred whether or not they have been informed of the transfer and regardless of any contrary intention or any agreement between the former employer (the transferor) and the new employer (the transferee)
For TUPE purposes, an employee is defined as any individual who works for another person under a Contract of Employment or apprenticeship or otherwise but not someone who provides services under a Contract for Services.
Although the transfer itself is automatic, employees can object to the transfer and decline to move from one employer to another. The consequence of this situation is that the employee’s employment will be deemed to have terminated by operation of law with no entitlement to compensation for unfair dismissal.
As a general rule, employees will transfer on the transfer day, which is normally the date of the completion of the contract for sale of the business.
If a transfer does take place, the effect of this is that all of the rights, powers, duties and liabilities of the transferor, under or in connection with employer’s Contracts of Employment, transfer to the transferee. Also any act or omission of the transferor before the transfer is deemed to have been an act or omission of or in relation to the transferee. This means that employers purchasing businesses need to extremely careful in the due diligence that they exercise in checking into the background of the outgoing employer.
One of the key aims of TUPE is to protect employees when a business changes hands and the general position has always been that employees who transfer under TUPE do so on their existing terms and conditions of employment. Any changes in contractual terms, where the reason for the change is solely or principally related to the transfer, are void. However, TUPE does permit transferors and transferees to agree contractual variations with employees connected with the transfer for economic, technical or organisational (ETO) reasons.
Case law suggests that such reasons could relate to some of the following examples: