When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) Regulations 2006. These are commonly referred to as the ‘TUPE’ regulations.
Under TUPE, the new employer takes over the existing employment contracts. This effectively means that the outgoing employers rights, powers, duties and liabilities under or in connection with the employees’ contracts are legally transferred to the incoming employer. This typically includes:
- all previous terms and conditions of employment;
- any failures of the previous employer to observe employees’ rights;
- holiday entitlement;
- periods of continuous employment; and
- any collective agreements previously made.
Often, the incoming employer will want to harmonise the contracts after acquiring the business in order to achieve equality and consistency with their current employees. The TUPE regulations protect employees from losing their existing employment rights so any changes to the terms and conditions will not be permitted if the sole or principal reason for the change is related to the transfer. Such changes will be deemed invalid.
Similar rules apply to the existing employer who is unable to make changes to the terms and conditions of employment prior to a transfer taking place. This is irrespective of whether the employee has agreed to the change.
Exceptions to the rule
Whilst the general rule is that changes cannot be made to the terms and conditions, an incoming employer is allowed to make changes if the reason is an ‘economic, technical or organisational reason’ (ETO) entailing changes in the workforce. Government guidance outlines the following: –
- ‘Economic’ reasons relate to how the company is performing.
- ‘Technical’ reasons relate to the equipment or processes the company uses.
- ‘Organisational’ reasons relate to the structure of the company.
An ETO reason could be, for example, a reorganisation by the incoming employer for a genuine business reason or the introduction of new technology that results in fewer employees being required.
Alternatively, changes to terms and conditions may be allowed if this is expressly permitted in the employment contract. In either scenario, employees will need to agree to the change. Employers should be mindful that employees who resign as a result of changes to their terms and conditions of employment, may have a claim for constructive dismissal.
After the transfer
When the transfer is complete, employers should provide an up-to-date written statement of employment, giving the name of the new employer and confirming that the terms and conditions remain unchanged.