An Insolvency Practitioner's guide to complying with TUPE

In this article, Chris Dobbs outlines how Insolvency Practitioners can comply with TUPE, and looks at why it's important.

What is TUPE?

TUPE stands for Transfer of Undertakings (Protection of Employment), named after the statutory Regulations last amended in 2014.

TUPE applies when a business changes hands and is designed to protect employees during their transfer from an old to new employer. Some of the key aspects of TUPE are:

• Employment automatically transfers from transferor to transferee
• Terms and conditions of employment are protected
• Assets and liabilities pass to the transferee

Why is it important to comply with TUPE in insolvency situations?

As IPs, it’s important to comply with TUPE, as failure to do so can result in problems being passed to the potential purchaser, meaning the sale price may be affected  and the sale could even be lost.

Conversely, complying with TUPE:

• Can make the sale process easier
• Can reduce problems, which could lead to more interest
• More interest and less cost to purchaser may result in better sale price
• May happen more quickly resulting in saving the business

Where does TUPE ‘fit in’ to insolvency?

There are two categories for TUPE purposes:

1. With a view to liquidation of transferor’s assets

Insolvency proceedings in this category are exempt from regulation 4 (transfer of employment and employee liabilities) and regulation 7 (automatic unfairness of transfer-connected dismissals) of the Regulations.

Technically employers still have to inform and consult and provide employee liability information, but as their employment will not pass on to a new employer these obligations have limited affect.

2. Not with a view to liquidation of transferor’s assets, i.e. administrations.  Insolvency proceedings in this category means:

• The majority of TUPE applies; and
• They have the benefit of regulation 8(5) (non-transfer of certain employee debts) and regulation 9 (increased flexibility to vary terms and conditions) of the Regulations.

What are the TUPE obligations in administrations?

Below I’ve outlined, in more details, the TUPE obligations when dealing with administrations.

Non-transfer of employee debts

Some employee debts should not be transferred to the new employer and should be paid by the National Insurance Fund.

This is up to 8 weeks arrears of pay and up to 6 weeks pay for holiday accrued over the previous 12 months.  There are a couple of other debts that may be claimed from the National Insurance Fund in certain circumstances.

Flexibility to vary terms and conditions

‘Permitted variations’ can be agreed with the employee’s representatives.

This flexibility is designed to safeguard opportunities by ensuring the survival of the undertaking.

Statutory entitlements must still not be breached, and any  agreement to vary terms and conditions must be reached with the assigned representatives in writing.

Related Article: Can employees' terms and conditions change?

Inform & consult

Certain information must be provided, including:

• The fact a transfer is to take place, when and the reasons for it
• Any legal, economic and social implications on the effected employees
• Any measures  the purchaser envisages they will take in relation to the employees

There is also the obligation to consult on any measures to seek to gain the agreement of employees. Employee representations must also be considered, and reasons must be given for any disagreement.

Failure to comply with the inform and consult obligations can lead to consequences of up to 13 weeks pay for each employee.

Employee liability information (ELI)

ELI must be provided to the purchaser at least 28 days before the transfer (or as soon as reasonably practicable if this is not possible).

Information should include:

• Identity and age of transferring employees
• Employees’ written statement of terms and conditions of employment
• Details of any disciplinaries/grievances in last 2 years
• Details of any court/tribunal proceedings in last 2 years or any have reasonable grounds an employee may bring
• Any collective agreement that will have effect after the transfer

Consequences for non-compliance with this obligation include the purchaser being able to claim a minimum of £500 per employee.

The don’ts of TUPE

Don’t:

• Make redundancies on behalf of the purchaser       
• Attempt to harmonise terms and conditions with employees’ staff without ‘permitted variations’
• Help a purchaser ‘pick and choose’ who to employ

Some essential considerations

• Keep up continued communication with employees and their representatives
• Provide any potential purchaser with accurate information quickly
• Keep the sale price as high as possible by making sure you and, by working with them, purchasers comply with TUPE

Annual Insolvency Conference

The presentation, on which this article is based, was given by our employment team at our first annual Insolvency Conference with 50+ practitioners in attendance; and went into much further detail.

To receive invites to our insolvency events, webinars and conferences please sign up to our insolvency email list here.

Alternatively, or in addition to, you can sign up to our employment newsletter with the same link.

Employment solicitors in Bournemouth, Christchurch and Ringwood

At Frettens, we offer a free initial appointment for all new clients. This usually takes place over a coffee with one of our bright lawyers at our modern, conveniently located offices, but can also be over the phone or video call.