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Transfers of employment contracts

What is the purpose of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE)?

When a business, or 'undertaking', is transferred from one owner to another, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) aims to protect employees' terms and conditions of employment.

What is the practical effect of a transfer of undertakings?

When a business changes hands, employees of the previous business owner automatically become employees of the new owner and they are employed on identical terms.

The effect of a transfer is that employment contracts are treated as though they had originally been agreed with the new employer. Continuity of service is unbroken and employees maintain all the rights and responsibilities stated in the contract of employment with their previous employer.

If the new employer does not satisfy the employees' terms and conditions of employment, the new employer may be liable for breach of contract.

What responsibilities do old and new business owners have towards employees?

The responsibilities of a business depend on whether it is the 'transferor', that is, the business transferring employees to another business, or the 'transferee', which is the business taking on employees of a transferred service.

However, both old and new employers have a duty to notify and consult with employees directly or indirectly affected by the transfer.

What obligations do new business owners have towards employees?

Under TUPE, a new employer takes over their employees' existing employment contracts, including:

  • all previous terms and conditions of employment
  • all prior failures on the part of the former employer to respect employees' rights - for instance, employees can bring a discrimination action against their new employer despite the basis for the complaint arising before the transfer occurred
  • holiday entitlement
  • continuous employment
  • any previous collective agreements.

Which transfers are covered by TUPE?

TUPE applies when a business, or a part of it, is transferred from one employer to another in circumstances where:

  • all or part of a sole trader's business is sold or transferred
  • all or part of a company is bought or acquired 
  • two companies no longer exist and combine to form a third company
  • a contract for goods or services is transferred in circumstances that amount to the transfer of a business to a new employer.

TUPE applies irrespective of the size of the transferred business - from large businesses employing thousands of employees to small businesses with only a handful of employees.

Which transfers are not covered by TUPE?

TUPE does not apply to:

  • transfers by share take-over
  • transfers of assets only
  • transfers of contracts to provide goods or services not involving the transfer of all or part of the business
  • transfers of businesses outside the UK.

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