TUPE NOTE
On an asset acquisition, the parties to the transaction must consider the impact of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE regulations’).
The TUPE regulations came into force for transfers taking place on or after 6 April 2006 replacing the 1981 regulations of the same name.
At common law the transfer of an undertaking from one employer to another automatically terminates the contract of employment, which cannot be assigned as they are personal to the employer and employee. There is therefore a dismissal of employee, and the seller of the undertaking may consequently be liable to the employees for breach of contract or statutory claims arising from that termination.
In this situation, the reason for the dismissals would generally be redundancy. However, the dismissed employees may have claims for wrongful dismissal (if incorrect notice given) or unfair dismissal by reason of redundancy.
The position of employees is different where there is a ‘relevant transfer’ under the TUPE regulations. If there has been a ‘relevant transfer’, the employee’s contract will automatically transfer with the undertaking and continue as if originally made between the employees and the buyer. The transfer does not terminate the employees’ contracts of employment and does not therefore, operate as a dismissal. The TUPE regulations also give a safeguard for employees that are dismissed, actually or constructively dismissed, before or after the transfer, if the dismissal is by reason of the transfer or a reason connected to it.
The TUPE regulations define a ‘relevant transfer’ in regulation 3 as “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”. The TUPE regulations further define an economic entity as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.
In ascertaining whether there has been a relevant transfer in employment law terms, it is necessary to determine whether what has been transferred is an economic entity which is still in existence, and this will be apparent from the fact that its operation, with the same economic or similar activities, is being continued or has been taken over by the new employer.
The parties cannot agree to exclude the operation of the TUPE regulations. Whether a transfer is a ‘relevant transfer’ is a matter of fact, therefore, the court or employment tribunal will look behind the label which the parties put on the transfer and will instead examine the substance of the contract.
Regulation 7 of the TUPE regulations states that a dismissal is automatically unfair where the dismissal was by reason of the transfer or for a reason connected with the transfer, unless the employer can show that the dismissal was for an economic. Technical or organisational reason, commonly called an ETO reason.
The transfer of an employee will not occur if the employee informs the transferor or the transferee that he objects to becoming employed by the transferee. In this instance the employee will not be regarded as being dismissed by the transferor and will be regarded as having resigned. However, an employee whose contract of employment is or would have been transferred may treat his contract as terminated and still be treated as having been dismissed by the employer, where the relevant transfer involves or would involve a substantial change in working conditions to his material detriment. This preserves the common law right of an employee to resign and claim constructive dismissal for a fundamental breach of contract by the employer. Continue reading
