TUPE & redundancy

If TUPE applies, employees assigned to the transferring business or part of the business will generally transfer automatically to the new employer:

• On their existing terms and conditions of employment, subject to the statutory rules and exceptions.
• With their continuity of employment preserved.

TUPE redundancy rules

Under TUPE, a dismissal is automatically unfair where the sole or principal reason is the transfer itself, unless an economic, technical or organisational (ETO) reason entailing changes in the workforce applies.

Liability for an unfair dismissal before the transfer may pass to the new employer.

Redundancies can occur before or after a transfer. Redundancies to prepare a business for sale are particularly sensitive, especially where no buyer has been identified or the buyer makes redundancies a condition of the transfer.

Where redundancies take place before a buyer is identified, whether TUPE applies can depend on the circumstances and relevant case law. Employers should ensure that ordinary unfair dismissal and consultation requirements are met.

Inform and consult employees

The old and new employers must inform and, where applicable, consult employee representatives about the transfer and any proposed measures affecting employees. Failure to comply can result in a protective award of up to 13 weeks’ gross pay per affected employee. Liability may be joint and several.

Special problems to consider which can arise under TUPE

• Share incentives – Matching or replacing share benefits can be complicated where the employers have different share structures.
• Impact on bonus arrangements – Reducing an employee’s opportunity to earn a bonus may lead to claims, depending on the arrangements and circumstances.
• Impact on trade secrets and post-termination restrictions – Changes to restrictive covenants and confidentiality arrangements require care to avoid undermining their enforceability.

Redundancies as TUPE transfer condition

A buyer may require the seller to dismiss employees before completion. If the transfer is the sole or principal reason for those dismissals, they may be automatically unfair unless an ETO reason entailing changes in the workforce applies.

Redundancies may be justified by genuine business needs, but the reason for dismissal and its connection with the transfer must be assessed carefully.

Post TUPE transfer redundancies

Both employers may have obligations relating to redundancies following the transfer.

Old employers making redundancies

After transferring part of a business, the old employer may need fewer employees, for example in payroll or human resources. Any proposed redundancies must follow the applicable consultation and selection requirements.

New employers making redundancies or changes

The new employer must provide the old employer with information about proposed measures in sufficient time for consultation obligations to be met. Failure to comply may result in a protective award.

Changes to working practices or employment terms also require careful review, as TUPE may restrict changes and trigger information and consultation obligations.

Practical steps for buyers and sellers

Buyers and sellers should address TUPE risks in the transaction agreement, including through appropriate warranties and indemnities allocating employment liabilities and redundancy costs.

The parties should also consider the purchase price and obtain guidance on information and consultation requirements. Individual settlement agreements do not, by themselves, remove statutory collective consultation obligations.