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With this in mind, the key points to remember are as follows:
The TUPE Regulations apply where:
It is possible for a transfer to be both a business transfer and a SPC.
Having regard to the above and from a property perspective, the TUPE Regulations may apply in the following situations:
The aim of the TUPE Regulations, which derive from the EU Acquired Rights Directive, is to preserve the continuity of employment and the terms and conditions of those employees (with the exception of age, invalidity and survivors' benefits such as occupational pension schemes) who transfer to the new employer. This means that the employees employed by the previous employer (the transferor) when the transfer takes effect automatically become the employees of the new employer (the transferee). This is known as the automatic transfer principle.
Employees also receive enhanced protection against dismissal under the TUPE Regulations. Where the principal or sole reason for an employee’s dismissal is the relevant transfer, such dismissal will be automatically unfair unless the reason is an Economic, Technical or Organisational (ETO) reason, in which case the dismissal may be potentially fair (so long as a fair procedure is followed). The compensatory award for unfair dismissal is currently capped at £78,962 or one year’s gross pay, whichever is the lower. Where an employee is able to establish that the dismissal was discriminatory or a detriment for their having blown the whistle, there is no cap on the compensation that can be awarded.
If the TUPE Regulations apply, you need to bear in mind that both the transferor and transferee are obliged to inform, and, where necessary, consult with their affected employees in good time before the transfer takes place. Unless an employer has: (i) a body of employee representatives in place; (ii) a recognised trade union; or (iii) fewer than 10 employees, an employer will also need to carry out an election process to appoint employee representatives. Failure to comply with the inform and consult obligations could result in each affected employee being awarded up to 13 weeks’ full (gross) pay in compensation, for which the transferor and transferee could be held jointly and severally liable. Further, a transferor is obliged to provide Employee Liability Information in respect of each affected employee at least 28 days before the transfer. Failure to do so could result in the transferee being awarded a minimum of £500 for each employee for whom the information was not provided or was defective.
Certain rules under the TUPE Regulations are relaxed where the transferor is subject to relevant insolvency proceedings. The extent to which the rules are relaxed will depend upon whether the proceedings are terminal (e.g. bankruptcy) or non-terminal (e.g. voluntary arrangements). Given that the intention is to rescue an ailing business, where there are relevant insolvency proceedings the transferee will not be liable for some pre-existing debts owed to the transferring employees, such as holiday pay. The transferee will also have greater flexibility to vary the contractual terms of the transferring employees. Where the insolvency proceedings are terminal the enhanced protection against dismissal rules shall not apply.
Determining whether the TUPE Regulations apply from the outset could save you and your client much heartache, as you will be better prepared in setting a realistic timeframe for the transaction. Further, by carrying out an effective due diligence exercise your client will be able to determine its possible liabilities and factor these into any negotiations, which could result in a costs saving. You will also be better placed to ensure that the underlying agreement includes adequate warranties and indemnities so as to mitigate risk as much as possible. For instance, including a woodwork indemnity, which would enable the transferee to dismiss (at the transferor's expense) any individuals whose names were not included in the list of expected employees, could protect your client from potentially costly claims, should unexpected employees come to light following completion.
Guest post by Fudia Smartt, Senior Associate, Russell-Cooke
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