A Business’s Guide to TUPE in M&A Law
The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") is a key framework designed to protect employees’ rights when a business, or a part of it, is acquired by another. Under TUPE, employees automatically transfer to the new employer on their existing terms and conditions.
For businesses involved in mergers, acquisitions, or restructuring, compliance with TUPE is essential. Compliance also promotes trust and stability within the workforce, maintaining efficiency, and managing the risk of legal disputes.
When Does TUPE Apply? Understanding a "Relevant Transfer"
Business Transfers: When an undertaking or part of a business is transferred to a new employer while retaining its identity.
Service Provision Changes: When an organisation outsources services, changes service providers, or brings previously outsourced services back in-house.
In M&A transactions, TUPE is particularly relevant in asset purchases, where employees linked to the transferred assets move to the buyer. It is also critical to assess whether TUPE applies when outsourcing or insourcing business functions.
During an intra group restructuring, it is also crucial to consider whether TUPE applies as although a restructuring may keep employees as a part of the same group, moving employees from one company to another may trigger TUPE.
Key Considerations Under TUPE
1) Employee Consultation
Both the buyer and seller have a legal duty to inform and consult employees affected by the transfer.
2) Employee Objections
Employees have the right to object to the transfer. If they do, their employment contract is generally treated as terminated by resignation when the transfer is completed. However, if the transfer significantly worsens working conditions, they may claim unfair dismissal.
3) The Automatic Transfer Principle
Employees’ contracts, including all rights, obligations, and restrictive covenants—automatically transfer to the new employer. Unilateral changes to terms and conditions may lead to exposure.
4) Dismissals and TUPE
Any dismissal solely due to the transfer is automatically unfair unless justified on "economic, technical, or organisational" (“ETO”) grounds. Even where ETO grounds exist, employers must ensure proper redundancy processes are followed to mitigate exposure. Even if the employer seeks to rely on ETO grounds, they have the burden of proof in legal claims, meaning that an ex-employee may bring an action in the Employment Tribunal and the employer will have to prove their case wrong, potentially leading to costly and lengthy litigation.
5) Contractors and Secondees
TUPE protections may extend to contractors and secondees, depending on their role and integration within the business. A detailed review is generally required to determine whether they qualify for protection under TUPE.
TUPE Compliance: Considerations for Buyers and Sellers
Conduct thorough due diligence to understand the workforce composition, potential liabilities, and ongoing disputes.
Engage in employee consultations to ensure transparency and legal compliance.
Ensure any planned redundancies have legitimate ETO justifications and follow proper procedures.
Develop an integration strategy for transferred employees to continue efficiency.
Maintain accurate employee records for disclosure to the buyer and the buyer to make relevant enquiries.
Identify potential risks early and implement mitigation strategies.
Conclusion
TUPE plays a crucial role in M&A transactions by safeguarding employees' rights during business transfers. Both buyers and sellers must carefully navigate their obligations to ensure compliance, reduce legal exposure, and facilitate a smooth transition.
If your business is considering an acquisition or sale involving employees, Adam Benedict provides expert legal guidance in employment and corporate law. If you are an employee affected by a transfer, we can offer tailored legal advice to protect your rights effectively.
Written by Harrison Carr
Approved by Adam Creasey
