EU legislation has given rise to regulations that protect employment when an employer transfers the undertaking the employee works for to a new owner. These regulations are called the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
TUPE provides that where you transfer an undertaking that keeps its identity to a new owner, the contract of employment of the existing employees transfers automatically to the new employer on the same terms and conditions.
TUPE also applies when services are outsourced, in-sourced or assigned by a client to a new contractor (known as a 'service provision change'). Again, in these circumstances, the contract of employment of the existing employees transfers automatically to the new employer on the same terms and conditions.
TUPE would not usually apply when the transfer is by share transfer, but this is not always the case. The most typical situation where TUPE applies is the sale of the whole of a business as a going concern. However, TUPE has not been restricted to such a typical transaction and can be applied to a variety of situations such as contracting out and the grant of franchises. The position is not always clear and difficult legal issues arise from time to time.
TUPE does not allow changes to employment contracts unless the sole or main purpose of the change is an 'economic, technical or organisational reason entailing changes in the workforce'. Additionally, employees to which TUPE applies have the right to claim constructive dismissal where certain substantial changes for the worse are made to working conditions to such an extent that those changes would force the employee to resign.
Once it has been established that the relevant transfer of an undertaking or a service provision change has occurred, TUPE provides that the contract of employment will be transferred from the old employer to the new. The employees will have the same rights against the new owner as they had against the old employer and the transfer does not affect the continuity of their employment.
The transfer of the contract of employment (and rights and duties under it) will not occur if the employee informs either the old or the new owner that they object to becoming employed by the new owner. In that event, the transfer will terminate the contract of employment with the old employer. The employee will not be treated for any purpose as having been dismissed by either of the old or new employers.
If the employee is dismissed and the reason for the dismissal is because of the transfer then the dismissal is automatically unfair unless it can be shown that it was for an economic, technological or organisational reason entailing a change in the workforce. Employees require one year's service to bring this type of claim. Whether the reason for a dismissal is due to the transfer is a question of fact and will have to be decided on the circumstances of each case.
If you can show that the dismissal was for economic, technical or organisational reasons that entailed a change in the workforce (and not for reasons solely because of the transfer), the dismissal may not be automatically unfair but will be judged by an Employment Tribunal on the ordinary principles of fairness.
Further information is available from the Department for Business, Energy & Industrial Strategy guidance ''.