What do you know about the transfer of undertakings? TUPE, or the Transfer of Undertakings (Protection of Employment), was introduced to protect employees when a business, or a part of a business, is transferred to a new owner or merges with another company to form a new entity.
If you have employees in the United Kingdom or the European Union, or you’re looking to hire there, you must familiarize yourself with TUPE to make any future transitions as smooth and compliant as possible.
What is TUPE?
TUPE was introduced in the UK in 1981 to comply with European Union Transfer of Undertakings Directive Directives. Its purpose is to govern the transfer of a business (or part of one) to a new employer and protect employee rights during this process.
Typically, there must be a management change, but the full ownership of the business does not need to change. In other words, if a unit of a company were transferred to a subsidiary, that action would fall under TUPE.
When does TUPE apply?
According to law firm Pinset Masons, “The question of exactly when TUPE does and does not apply can be very complex.” TUPE applies in the “transfer of an economic entity which retains its identity.”
The following factors are taken into account to determine when and if TUPE applies:
- The type of undertaking involved in the transfer
- If tangible assets, such as property, are involved
- Intangible assets being transferred and their value
- If the majority of the employees are transferred to the new employer
- Determining if the buyer will carry on the activities of the seller
- Whether costumers will be transferred
- If activities were suspended during the transfer, and for how long
TUPE also applies to service organizations, as in these cases:
- When activities are outsourced to a contractor
- When activities are moved from one contractor to another
- When activities are moved in-house from a contractor
What is a transfer of undertakings?
When there is a transfer of a company, or part of one, the new employer has the obligation to take on the existing staff. In addition, the employee’s terms and conditions of employment with the previous employer are expected to continue under the new employer.
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The regulations apply to persons:
- Under contract, including apprenticeships.
- Employed through an employment agency.
- Holding office under, or in the service of, the state.
What are your obligations under TUPE?
Whether you are the seller or the buyer, you should know your obligations, such as which employees are affected and what to tell employees.
According to the British law firm of Warner Goodman, the Employment Appeal Tribunal in the UK says that the following employees are affected by transfers:
- Employees who will be transferred and the ones that could be transferred
- Employees whose jobs are at risk due to the transfer
- Employees with pending job applications during the transfer
Employees also need to be informed in writing of the following:
- A transfer will take place
- The tentative date for the transfer
- Legal, economic, and social implications of the transfer
- Measures that might be taken
TUPE varies by country, and you must learn how it changes by territory.
How does TUPE work across countries?
Let’s look at some of the differences across borders:
In Denmark, the law definition involves “a transfer of a company or a part thereof. Thus, the acquirer assumes the rights and obligations pursuant to the contracts of employment that existed at the time of transfer.”
In France, the definition refers to “a transfer of an autonomous economic entity that retains its identity and whose activity is either continued or taken up.”
Minimum of employees
TUPE protects all employees involved in the transfer of a business. Almost every country protects employees regardless of the size of the company. However, in Italy, only transfers of 15 employees or more are covered under TUPE.
Information and consultation requirements
In every country, it is the responsibility of the employers to keep employee representatives, such as unions, councils, or boards, informed of the transfer and any proposals.
In the Netherlands, employers must consult with the works council or employee representative board, and if there are none, they must inform the employee directly.
In Spain, if employees do not have appointed representatives, they must find other representation.
The time frame for notice of transfer
In some countries, employees must be given notice in advance of any transfer. For example, in the Czech Republic, employees must be notified at least 30 days before the transfer. However, in Switzerland, employers are only required to inform employees in “due time.”
International transfers at group or holding level
If your company is transferring a group or holding in a different country, do your employees need to be notified under TUPE?
In Denmark and Italy, you must notify employees regardless of the importance of the transfer.
Provide information to third parties
Most countries don’t require that you provide information about the transfer to third parties such as outside unions or governments.
However, Switzerland is one such country that does require third-party notification: If the transfer involves a collective redundancy, then employers must notify the Labour Office.
Agreements with employees and representatives
A big question that you might have is whether employees and their representatives have the power to disagree with the transfer.
The answer is, no. In every country under TUPE, neither employees nor their representatives have to agree with the transfer.
What happens if the employees object?
Just because employees cannot disagree, does not mean that they can’t object. Although many countries do not allow objections, there are a few that accept them.
In Austria, “employees may object to their transfer if the new employer refuses to accept special protection from a Collective Bargaining Agreement and the employee, therefore, loses special protection against termination, or if the new employer refuses to accept individual pension entitlements.”
New employer changes to terms and conditions of employment
One of the primary protections that TUPE offers employees is requiring the new employer to respect the employee’s previous terms and conditions of work. Most countries don’t allow changes by the new employer. However, there are exceptions.
In Austria, for example, an employer can make changes to terms and conditions of employment “as far as individual pension entitlements, and special protection against termination in a Collective Bargaining Agreement are concerned if the seller of the business continues to exist.”
In Denmark, modifications are allowed, but require employee consent.
Justifications for terminations
Just because the new employer has limitations for making modifications to terms and conditions, does not mean that employees cannot be terminated if there is a justification.
In Hungary, employees can be terminated for typical reasons, such as poor performance. However, the transfer cannot be the reason for dismissal.
In Ireland, as the new employer, you can terminate employees due to economic, technical, or organizational reasons and any other legal motive available to the previous employer.
Prevention, delays, and damages from not following procedure
Can a transfer be delayed or prevented?
In Germany, a transfer cannot be prevented, but it can be delayed. It’s unlikely, but if there are severe breaches of works council rights, a court district might delay the transfer.
In the Netherlands, if a works council starts litigation, a transfer can be both delayed and prevented.
In the UK, Poland, Hungary, Austria, Belgium, Czech Republic, and Denmark, you cannot prevent or delay a transfer, even if the proper procedures are not followed.
Can damages result from failure to follow procedures?
The most common damage that can arise from transfers is the result of wrongful dismissal.
In Belgium, employees can claim damages if they are abusively dismissed. In the Czech Republic, “employees can appeal against unfair dismissal and claim full salary compensation and continuing employment.”
Failure to consult and inform the necessary councils could also result in fines. In France, failure to inform and consult with the works council is a criminal offense. The company’s head can face up to one year in jail for a first offense and a fine of up to EUR€3,750.
Fines and jail time may go up for repeat offenders, and the company may face a fine of up to EUR€18,750.
The complexity of TUPE only increases when you start dealing with different terms across international borders.
If your team is unfamiliar with the necessary procedures and obligations, your whole international operation could be jeopardized.
Even with the appropriate knowledge, specific situations may fall under different parameters and require local experts’ advice.
Can a hiring partner help you comply with TUPE?
Your legal department may take a swing at international compliance. In this situation, success will be lengthy and costly.
What if you could have access to experts on the ground who can help you transfer international employees without the need to set up an entity, hire experts, or even set foot in another country?
An Employer of Record (EOR) has international entities in place and can help you hire international employees compliantly, handle any transfers, and comply with all aspects of TUPE.
An EOR takes on the payroll, taxes, benefits, and HR functions, and 100 percent of the responsibility for compliance. Simply put, an EOR takes all the risk from your hands when it comes to employee transfer.
Legal experts with vast experience with TUPE can handle the requirements and logistics involved in the transfer of your employees. As a result, you are free to focus growing and managing your team.