A North American's guide to TUPE
One of the biggest concerns for North American organisations operating in the UK and other European nations is TUPE. Standing for Transfer of Undertakings Protection of Employment, TUPE is the United Kingdom's implementation of the European Union Business Transfers Directive. It is an important part of UK labour law, protecting employees whose business is being transferred to another business. The 2006 regulations replaced the old 1981 regulations (SI 1981/1794), which implemented the original Directive. TUPE is not a piece of legislation that is optional, the only people that can decide whether they wish to transfer under TUPE or not are the employees affected. No company is able to decide to opt out of this legislation.
The regulations' main aims are to ensure that, in connection with the transfer, employment is protected (i.e. substantially continued). This means:
- Employees are not dismissed
- Employees' most important terms and conditions of contracts are not worsened
- Affected employees are informed and consulted through representatives
These obligations of protection are placed on the transferring companies both before, during and after the transfer. The obligations are relieved if there is an "economic, technical or organisational" (ETO) reason for the cessation of employment Regulation 7(1)(b), or alteration to employees' terms and conditions, Regulation 4(4)(b). An example of this is if your company was taking on a service to be delivered from a different country than previously. In this case we may use ETO as a reason not to transfer the people currently delivering the work to your company.
As of 2006, the remit of TUPE was extended to specifically cover service provision changes, including the transfer from one staffing provider to another, meaning it is directly relevant to any business that outsources certain functions or utilises workforce management solutions such as RPO (recruitment process outsourcing), MSP (managed service provider) and SOW (statement of work).
An example of TUPE in action would be an organisation that has outsourced a particular area of their operations choosing to transfer responsibility from an incumbent service provider to another. Under the regulations, those workers that are affected become employed by the new provider. If said provider is unwilling or unable to take on these personnel, they are legally responsible for severance/redundancy payments and any other associated costs.
Why does TUPE represent such a concern for North American organisations? With no direct counterpart in the US or Canada, many businesses are unaware of the regulations when they first encounter them and this means they have the potential to represent something of a legal pitfall if not handled correctly. To ensure TUPE compliance, organisations that are changing service provider must first inform and consult the affected personnel. Employee liability information then needs to be given to the new provider no less than 28 days before the transfer.
Failure to comply with either of these requirements can result in an organisation being take to an employment tribunal, with potentially damaging consequences both financially and in terms of reputation. Indeed, if a larger number of employees are affected, the ramifications of a TUPE tribunal can undermine the entire transaction. The penalties vary dependant on the breach of the TUPE regulations. Failure to disclose the employees "in scope" to transfer can hold a fine of £500 per person.
The regulation also requires the incoming service provider to maintain the same terms and conditions previously experienced by employees, and failure to comply can also result in legal action. Furthermore, TUPE can carry over employment discrimination claims, meaning the new service provider would be responsible for defending against the claim, despite not being initially involved. To reduce someone’s contractual terms as a direct result of the transfer such as compensation or benefits leaves both companies open to a claim. TUPE is one of the few pieces of legislation that allows an employee to bring a claim against both companies at the same time. There is also no expiration date for a claim to be made under the regulations. If terms are changed one month, one year or ten years after the transfer date and it is deemed that the change is a direct link to the transfer a claim can be brought. The only time changes to terms are safe to be made that are not directly connected to the transfer is if the company decided to harmonise terms and conditions for all employees, not just those that may have transferred under TUPE.
It is vital that due diligence is carried out prior to the transfer and any findings are covered off in the commercial contract either with the client or the previous service provider to ensure that any risk has been financially accounted for in case a claim is made at a later date.
Experience is key
So, how can North American organisations avoid any potential TUPE pitfalls? Ensure that you engage with a TUPE expert at the earliest stage and that TUPE is identified as a possibility. This will help to outline the process and risk, as well as enabling successful planning and reducing any litigation risk. In addition, the key is to work with service providers that have experience operating in the UK and EU and have been exposed to the regulations. This way, risk is mitigated and the chances of any nasty TUPE-based surprises occurring are significantly reduced.
Complying with TUPE may seem like a daunting prospect to the uninitiated and there is no denying it can be a complex area. However, with the right guidance it does not need to be a major concern and should not be a barrier to North American organisations' success in the UK and Europe.