Employees who are employed in the undertaking which is being transferred have their employment transferred to the new employer. Employees can refuse to transfer (or opt-out), but depending on the circumstances of the case, they can lose valuable legal rights if they do. TUPE states that ‘all the transferor’s rights, powers, duties and liabilities under or in connection with the transferring employees’ contracts of employment are transferred to the transferee’. This all-embracing concept encompasses rights under the contract of employment, statutory rights and continuity of employment and includes employees? rights to bring a claim against their employer for unfair dismissal, redundancy or discrimination, unpaid wages, bonuses or holidays and personal injury claims etc.
Employees therefore have the legal right to transfer to the new employer on their existing terms and conditions of employment and with all their existing employment rights and liabilities intact (although there are special provisions dealing with old age pensions under occupational pension schemes). Effectively, the new employer steps into the shoes of the old employer and it is as though the employee’s contract of employment was always made with the new employer. For this reason it is essential that employers know all about the employees they might inherit if they are planning to take over a contract or buy a business and that they make sure that the contract protects them from any employment liabilities which arose before they became the employer. This is helped by the fact that the old employer is required to provide to the new employer written details of all employee rights and liabilities that will transfer (see below).
For example, if Armadillo plc has been carrying out a contract to supply an insurance company with IT services and then loses the contract to Bear Ltd, Bear Limited will not only take over the contract to supply IT services, but will also inherit all the employees of Armadillo plc who were formerly involved in supplying the IT services to the insurance company. If Armadillo plc has failed to pay its employees their wages for the past few weeks, Bear Limited will inherit the liability to the employees for the unpaid wages under TUPE.
Any dismissals will be automatically unfair, where the sole or principal reason for the dismissal is the transfer. This is also the case where the sole or principal reason for the dismissal is a reason connected to the transfer, unless it is for an economical, technical or organisational reason (an ‘ETO’ reason) requiring a change in the workforce. This ETO defence is narrow in scope and can be difficult to rely upon. Even if the employer can rely upon an ETO defence and the dismissal is not automatically unfair, it may still be unfair for other reasons (such as a failure to consult properly in a redundancy situation).
As the new employer is required to take on the employees on their existing terms and conditions of employment, it is prohibited from making any changes to the terms and conditions of employment of the transferred employees if the sole or principal reason for the variation is the transfer. This is also the case where the sole or principal reason is connected to the transfer, unless there is an ETO reason for the change, usually requiring a change in number of the workforce. This often makes it difficult, if not impossible, for incoming employers to harmonise terms and conditions of employment of staff after a TUPE transfer.
Where an independent trade union has been recognised by the outgoing employer in respect of transferring employees, recognition will transfer to the incoming employer to the same extent.