The implications of TUPE for commercial property lawyers

Guest post by Fudia Smartt, Senior Associate, Russell-Cooke
The people of the United Kingdom have spoken and voted to leave the European Union so you may now be wondering whether you need to read this post. Well, it is still worth your while given that, until all the necessary formalities have been complied with regarding our secession from the European Union, UK employment law remains “business as usual.”
The aim of this post - and the associated webinar (more details below) - is to provide commercial property lawyers with a broad understanding of the application of the Transfer of Undertaking (Protection of Employment) Regulations 2006 (“the TUPE Regulations”) so that you can identify possible issues before they arise, and therefore minimise the risk of delays and unexpected and potentially significant costs.  

With this in mind, the key points to remember are as follows:

1. The application of the TUPE Regulations:

The TUPE Regulations apply where:

  • there is a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another business which retains its economic identity after transfer (reg. 3(1)(a) TUPE).  This is known as a business transfer
  • a client engages a contractor to do work on its behalf, reassigns such a contract or brings the work "in-house" (regulation 3(1)(b), TUPE). This is known as a Service Provision Change (SPC)

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 sale of a property;
  • the grant or termination of a lease;
  • a buyer transferring its managing agent contract to a new agent or where management services are taken in-house
2. Key implications:

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.

3. Timing requirements:

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.

4. Going, going, gone....insolvency and TUPE

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.

5. The devil is in the detail – make sure your agreements are fit for purpose

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

webinar

Webinar: The implications of TUPE for commercial property lawyers

New TUPE provisions came into force in April 2014. We will look at how these provisions have had an impact on commercial property. Our panel of expert speakers will provide practical guidance on the implications of TUPE in a real estate transaction and useful tips.
By watching this webinar, you will learn about:
  • When TUPE applies
  • Implications of TUPE
  • Key TUPE provisions
  • Practical implications of TUPE on the transaction
  • Recent developments
Speakers: Annabel Gillham (Of Counsel, Herbert Smith Freehills) and Fudia Smartt (Senior Associate, Russell-Cooke).
Filed Under: Property

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