In July 2024, new changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (otherwise known as TUPE) will come into effect, and it's important that employers and HR professionals are informed. TUPE is known for its complexity and severe consequences for employers who fail to comply.
TUPE is designed to safeguard employees during business transfers. A key requirement is that businesses must engage in 'informing and consulting' with affected employees. A failure to do this can result in claims being brought to an employment tribunal, along with financial penalties to the employer. Employees who are not adequately informed or consulted may seek a 'protective award', which can result in a substantial financial burden for a company. This penalty can amount to up to 13 weeks' gross pay without a cap for each affected employee.
As an example of how a failure to properly comply with TUPE regulations can be costly, in the case of Eville versus Grants, an employer was required to compensate 131 affected employees with £65,000 due to insufficient information and consultation given to them during a transfer.
With this in mind, here we take a look at the upcoming changes to TUPE regulations that employers need to be aware of from July 2024.
What is TUPE?
TUPE offers protections to employees who are affected by either a transfer that takes place as a result of a business or asset sale, or a service provision change (like outsourcing, re-tendering, or bringing activities in-house).
Under TUPE, an employee's employment contract (along with their rights and liabilities), automatically transfers to the new employer when applicable. This protects the employee from dismissal or changes to terms and conditions that may be solely due to the transfer, except in specific situations.
TUPE also requires employers to inform and consult with employees before a transfer occurs, and this is the area within which proposed reforms will occur.
Current informing and consulting obligations
Under current regulations, organisations with 10 or more employees must conduct an election to appoint new employee representatives when no existing representatives are in place, specifically for informing and consulting regarding a TUPE transfer. This election requirement adds extra complexity and responsibility to the statutory requirements imposed on employers during TUPE transfers. Micro-businesses, which have less than 10 employees, are exempt from this obligation. A failure to fulfil the statutory obligations to inform and consult can make an employer liable for claims of protective awards, amounting to up to 13 weeks' full pay per affected employee. This can prove highly costly if many employees are affected.
Proposed changes
The government aims to stop the election requirement for appointing employee representatives in small-scale TUPE transfers within two circumstances:
- Where an employer has fewer than 50 employees, regardless of the transfer size.
- Where the proposed transfer involves fewer than 10 employees, regardless of the employer's size.
Under these proposed changes, the informing and consulting process would take place directly with the affected employees, rather than through elected representatives.
These changes will take effect only for TUPE transfers occurring on or after July 1, 2024, provided there are no existing employee representatives already in place.
The new TUPE adjustments address specific election requirements. Broader reforms to simplify and reduce the complexity of TUPE regulations, such as making changes to employment terms following a transfer, were not pursued by the government. In this respect, TUPE Regulations will remain mostly unchanged, with comprehensive reform not taking place.
Is comprehensive reform needed?
When the current government hinted at moving away with EU-derived laws, there was speculation (though unlikely), that TUPE itself might be at risk. However, this concern has now been dismissed.
In its consultation paper, the government acknowledged that 'businesses can find certain aspects of the TUPE regulations burdensome,' but the proposed changes to limit employer engagement with employee representatives are seen as only addressing minor issues. There are more substantial challenges within TUPE that employers face, including:
- It can be challenging for employers to align benefits or terms and conditions post-transfer with their existing workforce, unless there's a clear 'economic, technical, or organisational' reason for change, which is rarely applicable.
- Maintaining pre-transfer bonus schemes and share incentives can be difficult if the new employer lacks the ability to replicate them, leading to ambiguity about what constitutes a 'scheme of substantial equivalence.'
- Enforcing post-termination restrictive covenants in transferred contracts can be ineffective in safeguarding the transferee's legitimate business interests.
- Additionally, recent EU case law allowing contracts to be split between multiple transferees continues to apply in the UK under TUPE, making these contracts overly complex.
While the proposed reforms will be welcomed by many, there's a valid question about whether there is still more that can be done to address more pressing commercial challenges within TUPE.
We can advise on TUPE regulations
Our team of professionals at Neathouse Partners can advise on TUPE Regulations, business transfers, outsourcing, and reorganisations.
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