23 February 2012
The broad effect of the Transfer of Undertakings (Protection of Employment) regulations (TUPE) is to preserve the continuity of employment and the terms and conditions of those employees who are transferred to a new employer. It also contains a number of obligations upon the transferring employer (the transferor) and the receiving employer (the transferee) to inform and consult with affected employees.
How it applies
Briefly, for there to be a transfer under TUPE there must be:
- a business or “undertaking” capable of transfer that does in fact transfer from one employer to another, retaining its identity; and/or
- a change in contractor where services carried out by one service provider cease and are carried out instead by another (in other words, a “service provision change”).
In practice, on a change of service provider all contracts of employment and associated liabilities will transfer by operation of TUPE from the outgoing employer or service provider to the incoming employer or service provider. Effectively, the new employer steps into the shoes of the old employer as though the employee’s contract of employment was always with them. Where TUPE applies, a new employer usually cannot change the transferred employees’ terms and conditions even to match those of its existing employees.
Thus, for example, when outsourcing a service for the first time, FM must ensure that their businesses fulfil their obligations and responsibilities to any transferring employees and fully disclose all necessary information to any new employer in accordance with TUPE.
Whether employees are within scope will always involve an assessment of the individual circumstances, but it is important to note that even though employees might not be operational or might be employed by a different entity, TUPE may nevertheless apply to them. For an FM, the question of exactly when TUPE does and does not apply can be challenging. This is why it is imperative to engage specialist legal and HR teams prior to any change of service provision or transfer of employees.
Failure to spot a TUPE risk is at the very nub of most TUPE disputes. It is safer to assume TUPE will apply even if in doubt as to whether TUPE does in fact apply.
Often in the rush to transfer services to a new service provider, time is limited. At contract transition, commercial and operational mobilisation due diligence exercises must work in synergy with the HR due diligence process to discharge legal duties, protecting contractual terms by way of obtaining the right employee information, identifying risks and liabilities early on.
More often than not, customers and suppliers will supplement the fundamental position under TUPE by agreeing warranties and indemnities that go to (among other things) the conduct of the parties and the apportioning of liability, both on entry and exit. It is not a case of leaving the due diligence process solely for HR to sort out on their own; FMs need to initiate early discussion between all parties involved so as to indentify the commercial/monetary impact of TUPE on their organisation.
Seek a warranty when you want the other party to confirm that certain information they are giving you is correct.
For example, you will want to ensure that the information about the pay and benefits of transferring employees is accurate. If it turns out that it was inaccurate you will have a claim for damages against them, although this will be subject to an obligation to mitigate the
Seek an indemnity where you want a guaranteed remedy of reimbursement in respect of a particular liability. For example, if an employee has a claim that arose prior to their transfer. In such instance and under the indemnity, the client will reimburse the service provider’s costs of dealing with
this claim and any compensation
it has to pay.
With any change of service provision there is frequently the likelihood of it affecting staff and their roles. Change does not come without a cost but the cost can be minimised when dealing with staffing issues related to outsourcing by managing this professionally and with the input of professional advisors to assist you during the process.
The mistake many firms make is at the very beginning by not explaining to staff that they are looking at ways to minimise costs which “may” result in changes to the way a process or function is run. By leaving this to the end of the process, it can potentially take longer to deal with and end up costing your organisation more.
For example, when pitching for a new bid ask yourself:
- are the services being provided for a single client
- is there going to be a designated team focusing mainly on that client’s work; and/or
- are we taking the services back from an external provider, or moving them out to a new provider, or transferring between outside providers?
Additionally, when looking at tender documents, check the small print! Buried in a tiny paragraph at the end of the document, the client may have inserted a clause that it makes no warranties about the applicability of TUPE. Ignore this at your peril, for once you’ve signed on the dotted line, it is you who will take all the liabilities if there is a TUPE situation or any related legal challenge; such claims will probably wipe out your margins.
1. Effective communication, due diligence and legal advice is vital at any stage of the TUPE process.
2. TUPE often presents significant uncertainties on exit, so it is best to deal with it at the outset. Ensure you do your due diligence (both legal and HR) and that you have secured (or provided only those) indemnities that are absolutely necessary in order to protect your legal and contractual position in the event
of any claim.
Tony Thiaray is a commercial lawyer at Cushman
& Wakefield facilities management