UK TUPE 2006: Transfer of Undertakings Key Points for Employers

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE 2006”, SI 2006/246) protect employees when the business they work in is transferred to a new employer. They are technical, frequently misunderstood, and trigger employer liability that can dwarf the deal value of the underlying transaction. This article gives the structured overview every employer should have before entering a transaction that may trigger TUPE.

1. When Does TUPE Apply?

TUPE applies to two distinct types of transaction:

1.1 Business Transfer (Regulation 3(1)(a))

A “business transfer” occurs when an “economic entity” transfers from one person to another and retains its identity. This typically captures:

• Sale of a business or part of a business (asset deal).
• Sale of a division or department.
• Merger of two businesses.

A pure share sale is not a TUPE transfer — the legal employer does not change. But a sale of the business and assets out of a company to a buyer entity does trigger TUPE.

1.2 Service Provision Change (Regulation 3(1)(b))

A “service provision change” (SPC) occurs when:

• A client outsources a service to a contractor (initial outsource).
• A client changes from one contractor to another (re-tendering).
• A client brings the service back in-house (insourcing).

For an SPC to apply, there must be an “organised grouping of employees” whose principal purpose is carrying out the activities for the client. SPC was added to TUPE in the 2006 update specifically to capture outsourcing.

Source — TUPE 2006: https://www.legislation.gov.uk/uksi/2006/246/contents/made

2. Who Transfers?

Under Regulation 4(1), the employment of any employee “assigned to the organised grouping of resources or employees that is subject to the relevant transfer” automatically transfers to the new employer (the transferee) on the date of transfer. The legal effect is that:

• The employee’s contract of employment continues with the transferee on the same terms and conditions.
• Continuous service is preserved.
• All rights, duties, and liabilities under or in connection with the contract pass to the transferee (Regulation 4(2)).

The transferee inherits everything — accrued holiday, sick pay, outstanding bonuses, equal pay claims, and any disciplinary or grievance issues.

3. The Employer’s Two Big Obligations

3.1 Information

Both the transferor (outgoing employer) and the transferee (incoming employer) must inform “appropriate representatives” of affected employees about:

• The fact that the transfer will take place.
• The approximate date and the reasons.
• The legal, economic, and social implications for the affected employees.
• Any “measures” the employer envisages taking in connection with the transfer.

“Appropriate representatives” means recognised trade union representatives or, where there is no union, elected employee representatives (Regulation 13).

3.2 Consultation

If “measures” are envisaged (changes that will affect the employees, e.g., changes to terms, redundancies, relocations), the employer must consult with appropriate representatives “with a view to seeking the agreement of those representatives”. This is a duty to engage in genuine dialogue, not just to inform.

The transferee must also provide employee liability information to the transferor at least 28 days before the transfer (Regulation 11), covering:

• Identity, age, employment particulars of each transferring employee.
• Information on disciplinary or grievance procedures in the previous 2 years.
• Information on legal actions brought by, or potentially brought by, the employees.
• Information on collective agreements applicable.

Source — Acas guidance on TUPE: https://www.acas.org.uk/tupe

4. Penalties for Failure to Inform and Consult

If the employer fails to inform or consult properly, an Employment Tribunal can award up to 13 weeks’ actual pay per affected employee as compensation (Regulation 16(3)). This is a significant exposure — for a transfer of 50 employees on average £600/week, the maximum exposure is £390,000, separate from any other claim.

The transferor and transferee are jointly and severally liable for the protective award (Regulation 15(9)).

5. Restrictions on Changing Terms

Regulation 4(4) treats any variation of contract that is by reason of the transfer as void. The transferee cannot, after the transfer:

• Reduce salary.
• Change pension scheme (subject to specific pension carve-out).
• Reduce holiday entitlement.
• Change job title in a substantive way.
• Apply different policies (e.g., remove a private medical insurance plan).

Variations are permitted only if:

• They are for “an economic, technical or organisational reason entailing changes in the workforce” (an “ETO reason”); or
• They are for a reason wholly unconnected with the transfer.

The “ETO” defence is narrow — courts and tribunals scrutinise it carefully. A simple desire to harmonise terms across the workforce does not qualify.

6. Dismissals Around a Transfer

Under Regulation 7, dismissal of a transferring employee is automatically unfair if the sole or principal reason for it is the transfer itself. The employee can bring an unfair dismissal claim with no qualifying period (the usual 2-year minimum does not apply for automatically unfair dismissals).

Dismissal for an ETO reason entailing changes in the workforce is treated as a dismissal by reason of redundancy — it can still be challenged, but it is not automatically unfair, and statutory redundancy pay is due.

7. The “Object” Right (Regulation 4(7))

An employee can refuse to transfer. Under Regulation 4(7), if an employee informs the transferor or transferee that they object to becoming employed by the transferee, the contract terminates by operation of law. There is no dismissal — and therefore no claim for unfair dismissal or redundancy pay — unless:

• The transfer would involve a substantial change in working conditions to the material detriment of the employee (Regulation 4(9)). In that case, the employee is treated as having been dismissed by the transferor.

A 30-mile relocation, for example, may amount to a “material detriment” allowing a constructive dismissal claim.

8. Pensions

Regulation 10 carves pensions out of the automatic transfer rule. Occupational pension scheme rights relating to old age, invalidity, or survivors’ benefits do not transfer under TUPE itself.

However, the Pensions Act 2004 (s.257) and the Transfer of Employment (Pension Protection) Regulations 2005 require that:

• If the transferor employer participated in an occupational pension scheme, the transferee must offer either:
  • A defined benefit scheme of equivalent value; or
  • A money purchase scheme with employer contributions matching employee contributions up to 6% of salary.

Failure to offer one of these is enforceable through the Pensions Regulator.

Source — The Pensions Regulator on TUPE: https://www.thepensionsregulator.gov.uk/en/employers/transfer-of-employees

9. Practical Pre-Transfer Checklist

Before a transaction known to be a TUPE transfer:

10. Common Mistakes — Gyoseishoshi View

• Treating a share sale as TUPE. It is not. Only asset deals and SPCs trigger TUPE.
• Forgetting the SPC route. Outsourcing and insourcing routinely trigger TUPE through the SPC limb.
• Defining the “organised grouping” wrong. An employee who works partly on the contract being transferred and partly on others may not be assigned. The test is whether they are organised, in a stable way, around the activities being transferred.
• Paying lip service to consultation. “Telling” is not “consulting”. Tribunals look for evidence of genuine dialogue.
• Inheriting unknown liabilities. The transferee inherits all the transferor’s employment liabilities, including unknown ones (e.g., a tribunal claim filed the day after transfer for events before transfer). Indemnity protection from the transferor is essential commercial protection but does not bind employees.
• Harmonising terms quickly. Reducing terms within 18 months of transfer is high risk; reducing them at all is risky without a clear ETO reason.
• Forgetting service provision change in genuine de minimis cases. TUPE has a “minor activity” exclusion for SPCs where the activities transferring are of “short-term duration” or are “wholly or mainly the supply of goods”. These exclusions are narrow.

11. Documentary Pack

The MmowW Scrib🐮 cell #15 (UK Employment) generates a TUPE pack covering:

• Letter of information to employees and representatives.
• Consultation script with talking points.
• Employee liability information template (Regulation 11).
• Section 1 statement update post-transfer.
• ETO/redundancy assessment matrix.
• Settlement agreement template (where applicable).

12. The Bigger Picture

TUPE is not just an HR issue — it is a due diligence issue, a purchase price adjustment issue, and an insurance issue. The information and consultation duties cannot be commercially negotiated away between buyer and seller; they are owed to the employees. A buyer that fails to engage early discovers, often too late, that the costs of TUPE non-compliance can wipe out the deal margin.

For the transferor, the message is equally direct: failing to provide employee liability information on time, or failing to inform and consult, can lead to direct exposure regardless of the indemnities built into the deal documents.

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Disclaimer

This article provides legal information, not legal advice. MmowW Scrib🐮 is a document preparation service operated by a licensed Gyoseishoshi (行政書士) office in Japan. We are not UK solicitors or barristers.

Sources

• TUPE 2006 (SI 2006/246): https://www.legislation.gov.uk/uksi/2006/246/contents/made
• Employment Rights Act 1996: https://www.legislation.gov.uk/ukpga/1996/18/contents
• ACAS — TUPE: https://www.acas.org.uk/tupe
• The Pensions Regulator — TUPE: https://www.thepensionsregulator.gov.uk/en/employers/transfer-of-employees
• Government — TUPE guidance: https://www.gov.uk/transfers-takeovers