Understanding TUPE is essential if your business is buying, selling, or outsourcing services. Getting it wrong can expose you to costly claims and employee disputes. TUPE ensure employees’ rights are protected when a business or service provision changes hands.
This guide is for business owners, HR managers, and in-house legal teams navigating the risks and responsibilities of employee transfers. You’ll learn when TUPE applies, what your legal obligations are, and how to manage the process to avoid disruption and liability. Whether you’re planning a merger, acquisition, or outsourcing arrangement, knowing your TUPE duties is key to staying compliant and keeping your workforce onside.
Need help managing a TUPE transfer? Our employment law solicitors have extensive experience supporting businesses through complex restructures and acquisitions.
Jump to:
- What is TUPE?
- Why is awareness of TUPE important?
- When will TUPE apply?
- Who transfers under TUPE?
- What if an employee does not want to transfer?
- What responsibilities and obligations do employers have under TUPE?
- Which rights and liabilities are automatically transferred under TUPE?
- Which rights and liabilities do not automatically transfer under TUPE?
- How can you protect against the effects of TUPE?
- Contracts affected by TUPE - Changing terms of employment
- Employee protection against dismissal under TUPE
- Employee Liability Information
- How does TUPE apply when the employer is insolvent?
- Are there any potential changes to TUPE on the horizon?
What is TUPE?
At its core, TUPE can be understood as a package of employment laws that are designed to protect employees in a business sale or a service provision change. TUPE won’t generally apply to share sales. Without TUPE, employment contracts would remain with the original employer, leaving employees at risk of redundancy. TUPE therefore, steps in to protect employment in this context by deeming those employment contracts as automatically transferring to the new employer to ensure continuity of employment and prevent employees from losing their existing rights, terms, and conditions of employment.
The three main concepts introduced by TUPE are:
- The automatic transfer principle: the employment of affected employees will automatically transfer from their current employer (ie the business being acquired or the business currently providing the service) known as the ‘transferor’ to a new employer (ie the buyer of the business or the new service provider) known as the ‘transferee’. In other words, the identity of the employees’ employer will change and the new employer will inherit the employees on their existing terms and conditions and with almost all potential rights and liabilities, including any insurance claims, unpaid wages, or existing employment tribunal claims.
- Protection against dismissal: employees will be protected against dismissal if the sole or main reason they are dismissed is the TUPE transfer. This means that if you dismiss employees because of the TUPE transfer (e.g. you are buying a business and dismiss employees because you don’t want them to transfer to you), employees would be able to bring claims for automatic unfair dismissal against you.
- Obligation to inform and consult: employees have a legal right to be informed about a TUPE transfer that is planned and to be consulted if there are any measures planned as a result of it.
There are many different scenarios when TUPE may apply so it’s better to seek legal advice sooner rather than later to give your business maximum time to prepare and follow the correct process to ensure you are complying with your legal obligations , as it can be costly not to.
Why is awareness of TUPE important?
Getting familiar with TUPE is important for a number of reasons:
- TUPE applies in many contexts: TUPE can come up in many different situations (eg business sales, outsourcing, insourcing). It’s not always obvious that TUPE applies, and so it’s important to plan ahead.
- TUPE impacts both parties to the transfer. TUPE impacts both the seller of the business or outgoing service provider and the new owner taking over the business or taking over provision of a service. That means you could be impacted by TUPE whether you are selling your business or buying a business, or whether you are outsourcing a service to someone else or taking on a service from someone else.
- You will need time for staff planning: If TUPE applies, the employment of affected employees transfers to a new employer. It’s usually understood who will be transferring well in advance of the transfer, but you’ll want to do some planning ahead of time. If you’re the seller or the organisation outsourcing the service, you’ll want to be clear about which employees are expected to transfer out of your business. If you’re the buyer or the new service provider for a client, you’ll want to understand how many staff you’re inheriting and the likely costs and liabilities.
- There may be unexpected cost and risk: If TUPE applies, employees will transfer to the new employer on their same terms and conditions and the new employer will take on all obligations and liabilities in respect of the employees, with a few exceptions. This could result in unexpected costs and legal exposure. It’s therefore common for the parties to try to negotiate TUPE terms and conditions for the sale or outsourcing agreement to fairly apportion these risks before the transfer takes place.
- You may need to inform and consult: There are usually legal requirements under TUPE to inform and consult affected employees before the transfer takes place, with a few exceptions. There can be penalties for failing to do so.
When will TUPE apply?
TUPE applies on a ‘relevant transfer’, which can be:
- A business transfer: where a business or part of a business transfers to a new owner and retains its identity after the transfer.. The key to whether the business retains its identity is whether the main assets (i.e. premises, equipment, goodwill from brand name, intellectual property, employees) have transferred to the incoming employer and are being used in the same kind of business activity as before the transfer. An example could be if you acquired a small manufacturing business and while you may change its name, everything else remains the same, including the employees and the work that is carried out, or
- A service provision change: this can include:
- outsourcing work for the first time to a service provider when it was previously performed in-house (eg specialist IT services that cannot be performed in-house
- switching from an existing service provider to a new service provider (eg to get a better deal after putting the contract out for tender), or
- bringing work back in-house that was previously outsourced to a service provider (eg to regain control over specific services).
- Assignment of a lease or licence of premises and operating the same business from those premises.
To be protected under TUPE, an organised group of employees (which can be one employee) whose principal purpose is to carry out the activities in question on behalf of the client and are essentially dedicated to doing so must be in place immediately before the change.
A “one-off” buying-in of services of short-term duration” will not normally be covered. For example, the hiring of catering staff for a one-off event would be a short-term buying-in of services and so excluded from TUPE.
In addition, activities mainly related to the supply of goods rather than services will not normally be covered. An example might be purchasing drinks for resale in a cafe.
Who transfers under TUPE?
TUPE will only apply to employees if they are:
- ‘employed by the transferor’: this means all employees and apprentices including those on paid or unpaid leave at the time of the transfer, it may also include directors if they are employees and part of the organised grouping being transferred. Self-employed consultants working under a contract for services are generally not covered by TUPE, but whether an individual is operating under a contract for services or a contract of employment will require careful analysis and is only ultimately decided by an employment tribunal.
Those with worker status were previously thought not to be covered under TUPE, but this has been an area of uncertainty following an employment tribunal judgment in 2019 which decided that both employees and workers should transfer under TUPE. The decision was widely criticised and due to the practical difficulties, tends not to be widely followed but given the uncertainty, it is worth considering whether workers should be included. The previous conservative government had proposed amending the law to clarify that workers were not protected by TUPE, but the Labour government has indicated that it plans to remove the distinction between employees and workers, which would mean workers would be protected by TUPE in the future.
If staff are technically employed by another organisation (such as a service company or a holding company), but permanently work in the business being sold they will not generally be covered by TUPE. However, an employee may be assigned to a particular undertaking or part of the transferor undertaking if most of their time and effort is spent working in it, even if legally-speaking their employer is a different company. - ‘assigned to the organised grouping of resources or employees’: this is not specifically defined, but whether an employee is ‘assigned’ to the organised grouping means looking at the facts. For example, how much time is spent by an employee on the parts of the business being transferred, if it is the majority of their time, they are more likely to be assigned to the organised grouping. However, there is no specific percentage or number of hours relevant to whether an employee is assigned and it will depend on the individual facts in each case. Employees who are only temporarily assigned to an organised grouping (a short assignment and where a date of return or re-assignment to another company has been set) will not transfer under TUPE.
- ‘subject to the relevant transfer, and would otherwise be terminated by the transfer’: This means the employee must be part of the organised grouping immediately before the transfer includingemployees on annual leave or family leave. It will depend on the facts of the case whether those who are on long-term sick leave would be included. If an employee appeals a decision to dismiss them before a transfer and the decision is overturned on appeal, it is as if the employee was not dismissed and they will continue to be part of the organised grouping and will transfer under TUPE.
Parties to a TUPE transfer can often spend considerable time discussing whether an employee satisfies the above requirements and disputes can often arise. For example, an outgoing service provider that has just lost a contract with its client is likely to argue that anyone working on that contract forms part of the ‘organised grouping’ to avoid the risk of being left with employees it doesn’t need and would have to make redundant. The new provider may challenge this by asking questions about how the employees have been assigned to the contract and where they spend their time. For these reasons, it’s important to try to start discussions about a potential TUPE transfer as early as possible.
What if an employee does not want to transfer?
Whilst employees will generally be happy to transfer their employment, in some situations they may have reasons for not wanting to automatically transfer to a new company. If they don’t wish to transfer, they may object to the transfer in writing to either their existing employer or the new employer. If an employee does object, then they won’t transfer to the new employer. Their employment will automatically end on the transfer date and they are treated as having resigned without any entitlement to redundancy pay., Employees do not need to explain why they are objecting to the transfer, but it is best to explore their reasons to understand whether there is a risk of a potential claim if they are unhappy
The employee will not have any rights to statutory or contractual compensation unless they object and resign because their working conditions would be substantially worse after the transfer to their material detriment. An example of this might be where the new employer’s workplace is in a different location which would make it difficult and more expensive for the employer to get to work.
There is no legal obligation for an employer to inform an employee of their right to object to the transfer and the consequences of objection, but it is best practice to do so, though commercially this should be given consideration.
Incoming employers should be wary where an employee exercises their right to object from the perspective of enforcing restrictive covenants. As there is no contract between the incoming employer and objecting employee, the new employer will not be able to enforce the restrictive covenants in the objecting employee’s contract: this can be dealt with by the asset purchase agreement providing that certain key employees will not object to the transfer or by assigning the benefit of the restrictive covenants to the new employer, but this is a more risky and untested method and also depends on the wording of the restrictive covenants.
What responsibilities and obligations do employers have under TUPE?
Both the outgoing and the incoming employer must inform, and are in some circumstances required to consult with, recognised trade unions or elected employee representatives of their own employees who may be affected by the transfer or any measures taken in connection with it. “Affected employees” are any employees - of either of the parties to the transfer - who may be affected by the transfer or measures taken in connection with it. This may include staff who do not transfer.
There is always a requirement to inform about a TUPE transfer, but the requirement to consult only arises where ‘measures’ are envisaged in connection with the transfer. ‘Measures’ are given a wide interpretation and so it’s good practice to try to consult on anything that may be changing in connection with the transfer. Examples include post-transfer potential redundancies, changes to team structures, individual working hours or changing the date wages are paid
If there is no trade union and no previously elected employee representatives, employers will need to follow a formal process to elect employee representatives so they can be passed the necessary information about the transfer.. There is an exception to this for small businesses that allows them to simply inform and consult directly with the affected employees (provided there are no existing employee representatives in place, where:
- the business employs fewer than 50 employees (irrespective of the number of employees transferring); or
- fewer than ten employees will transfer under TUPE, regardless of the overall number of employees within the business.
The information must be given in writing to the elected representatives and should include:
- The fact that the transfer is going to take place, why and give an indication as to when.
- Social, legal or economic implications (such as a change in location).
- Any measures that the transferor and transferee expect to take (such as redundancies) in respect of their own employees. If there are none, this should be stated.
- The number of agency workers employed, the work they are performing and in which departments.
- The outgoing employer must provide information about any measures that the incoming employer is considering taking in respect of affected employees. If there are none, this should be stated.
This information must be provided to the representatives long enough before the transfer to enable the outgoing employer to consult meaningfully with the affected employees. Where either party fails to comply with the obligation to inform and consult, an employment tribunal can order a penalty of up to 25% of the annual payroll costs of employees affected by the transfer (i.e. 13 weeks’ uncapped pay per affected employee.
If there is a potential redundancy situation due to a transfer, and the incoming employer is making (or plans to make) 20 or more redundancies within 90 days – a collective consultation - employers must consult with a recognised trade union where they exist. If there is no recognised union, then employers must consult with elected employee representatives and directly with affected employees. Where there less than 20 employees being made redundant within 90 days, employers must still consult with employees individually, but there are no prescribed time limits. Provided the outgoing employer agrees, the incoming employer may begin consulting representatives of affected employees regarding the proposed redundancies, including those transferring, even before the transfer.
Which rights and liabilities are automatically transferred under TUPE?
TUPE specifically states that all the transferor’s rights, powers, duties and liabilities under or in connection with 'the transferring employees’ contracts pass to the transferee. In other words, it’s as if the incoming employer steps into the outgoing employer’s shoes in respect of the affected employees. Therefore, if you are buying a business or you are an incoming service provider, thorough and timely due diligence is essential to ensure that you know what you are potentially taking on. There can be potentially costly liabilities that you could inherit as part of a TUPE transfer such as final salary pension schemes and generous enhanced redundancy terms. You should speak to experienced employment law solicitors who will guide you through the due diligence process is recommended to ensure that you are not left with costly surprises in terms of employees taken on once the transfer has taken place.
The automatic transfer principle does not just relate to pay, but to all statutory and contractual benefits including holiday pay, health insurance, company car, bonus or commission schemes, profit share schemes, and enhanced maternity and redundancy packages. It also relates to non-contractual benefits connected with the contract provided they would have been enforceable against the outgoing employer before the transfer.
Any acts or omissions of the outgoing employer before the transfer are treated as having been done by the incoming employer, including where there may be claims for unfair dismissal, discrimination or personal injury. Again, thorough due diligence and well-drafted indemnities in the business transfer or outsourcing agreement can protect your business from financially damaging liabilities and so employment law advice is recommended.
Collective agreements and actions taken in relation to them by the outgoing employer will pass to the incoming employer. Although collective agreements are not usually legally enforceable between the employer and the relevant trade union, certain provisions in collective agreements may be binding on the employer if the employee’s contract incorporates provisions of collective agreements agreed from time to time. Collective terms will not automatically transfer if agreed after the date of the transfer and the incoming employer is not a participant in the collective bargaining. Union recognition also transfers to the incoming employer but only where the transferred undertaking or organised grouping maintains an ‘identity distinct’ from the rest of the incoming employer’s business after the transfer and retains its autonomy. In order to be considered autonomous, the transferred entity or organised grouping needs to have the power to govern itself without direct instruction from the incoming employer and independently organise work within it, give orders and instructions and allocate tasks to employees. It is advisable to seek legal advice if your business wishes to derecognise a union.
Which rights and liabilities do not automatically transfer under TUPE?
- Pensions: The major exceptions to the principle of automatic transfer are old age, invalidity and survivors’ benefits under occupational pension schemes, including pension instalments paid to a member after they pass normal retirement age, if the sole purpose is to support the employee after retirement. Transferring employees are unable to make any claim against the outgoing employer for breach of contract or constructive dismissal arising out of a loss or reduction in their rights under an occupational pension scheme as a result of the transfer.
However, if an employment contract refers to an employer paying a percentage of salary into the employee’s personal pension scheme, that obligation will automatically transfer under TUPE. Early retirement benefits and benefits intended to enhance the conditions of such retirement paid in the event of dismissal to employees who have reached a certain age are not ‘old age, invalidity or survivors’ benefits’ and therefore will be covered by the automatic transfer principle. The incoming employer will only assume liability for enhancements to an early retirement pension that are no longer available to a transferring employee following the transfer, not for the full amount of an early retirement pension. However, transferred employees become deferred members in the outgoing employer’s scheme on the TUPE transfer, so they cannot make a double recovery by claiming entitlement to a full early retirement pension from the new employer too. It is advisable to seek professional advice on pensions and warranties and indemnities to best protect your business in respect of pension liabilities. - Profit share and share schemes: employees' rights under profit and share schemes, even if separate from their contracts, can transfer under TUPE, and if the new employer cannot replicate the exact terms of the old employer's scheme, it is obligated to offer a "substantially equivalent" alternative to the transferring employees. This means the new scheme must offer similar benefits and opportunities as the old scheme.
- Restrictive covenants: whilst restrictive covenants automatically transfer with the rest of the employment contract, the restrictive covenants will relate to the outgoing business at the time the contract was entered into and so may not be that useful to the new employer. The outgoing employer may in that case have to pay the employee to agree to amend the restrictions to best protect the incoming employer. If you are seeking to change terms and conditions of employees which have transferred under TUPE see Contracts affected by TUPE – Changing terms of employment below, but it is again advisable to seek specialist employment law advice on this to take into account the specific needs of your business.
- Contracts with third parties: The liabilities relating to contracts between the transferor and third parties which are not related specifically to employment do not pass to the transferee on a TUPE transfer.
How can you protect against the effects of TUPE?
It is not possible to contract out of TUPE and recent attempts to try and avoid TUPE by way of complex corporate dealings and using share sales instead of asset sales have not been successful. However, there are steps which both the outgoing and incoming employer can take to minimise the impact of TUPE liabilities. For example, contractual indemnities can be used to share out any liabilities reasonably in the sale contract negotiated between the parties, before the transfer takes place. Negotiating TUPE terms in the transaction documents can take some time, so it’s important to start preparing for a TUPE transfer as early as possible.
Further, having a good awareness and sound knowledge about TUPE from the outset and involving specialist employment lawy solicitors at an early stage, should minimise costly mistakes. If you are well prepared before a TUPE transfer, it will make the due diligence and entire TUPE process run more smoothly, lowering both your costs and time spent. If you are selling or outsourcing your business, you should have as open a dialogue with employees through employee representatives as you are commercially able to and ensure that you are transparent on information relating to employees and their employment with the buyer. If you are buying a business or bringing work in-house, it is important to do clear, thorough and timely due diligence to ensure the decision is the correct one for your business and you are fully aware of the liabilities your business may face.
Contracts affected by TUPE - Changing terms of employment
One of the key points about TUPE is that it preserves the terms and conditions of employees so that they are employed by the transferee on the same terms as the transferor. For this reason, changes to employee terms and conditions are only lawful in limited circumstances. If the sole or main reason for a change in an employee’s terms of employment is the transfer itself, this will be void unless:
- there is an Economic, Technical or Organisational (ETO) reason
- if the reason for the change is the transfer, but the contract allows the employer to make the particular change
- the terms are incorporated from a collective agreement, the change takes place more than a year after the transfer and when considered together the terms are not less favourable for the employee
- if the transferor is subject to ‘relevant insolvency proceedings’ there are certain ‘permitted variations’ which can be made
If a change to terms and conditions is completely unrelated to the transfer, these changes are allowed, but if a transfer is about to take place or has just taken place, it may be difficult to prove the changes are not a result of the transfer. If they are as a result of the transfer and are not for an ETO reason, they may be void, as the outgoing employer may enhance employee terms and conditions to increase costs for the incoming employer and the incoming employer will not then be bound by the enhanced terms. It is best if you are looking to change employee terms and conditions just before or after a transfer to seek specialist legal advice.
Employee protection against dismissal under TUPE
Another key point of TUPE is that employees are protected from dismissal as a direct result of a transfer. Dismissals will be automatically unfair if the sole or main reason for the dismissal is the transfer itself, unless there is an ETO reason. Even if there is an ETO reason, there will still be an unfair dismissal if an employer has not acted reasonably in deciding that the ETO reason was sufficient to justify dismissal. However, if the ETO reason is sufficient to justify a dismissal under the circumstances and a fair process is followed, the dismissal is likely to be fair on grounds of ‘some other substantial reason’ or redundancy.
If there is a resignation by an employee in response to substantial change to an employee’s terms and conditions to the employee’s material detriment as a result of a transfer or a repudiatory breach of contract connected to the transfer, then the same enhanced protection against dismissal applies to those employees.
Employee Liability Information
At least 28 days before a transfer, the outgoing employer must provide the incoming employer with Employee Liability Information (ELI). ELI is certain information about the transferring employees, such as their terms of employment, age, length of service and any outstanding claims, grievances and disciplinaries amongst other things. If the outgoing employer fails to provide the information, the incoming employer can apply to the Employment Tribunal for compensation based on the losses suffered, with a minimum award of £500 per employee that the information was not provided for. There is no maximum award.
How does TUPE apply when the employer is insolvent?
To try and rescue failing businesses and make them more attractive to buyers some TUPE provisions are relaxed where the transferor is insolvent to make the business’ liabilities less onerous to take on.
If the insolvency proceedings of a transferor are terminal (and they have been initiated with a view to liquidating the transferor’s assets) there is more relaxation of TUPE than in other insolvency situations such as an administration. For example, where the insolvency is terminal, employees will not automatically transfer to the transferee, and dismissals because of or connected to the transfer will not be automatically unfair. Whereas in non-terminal insolvency situations, the employees will still transfer, but the transferee will have more scope to change the employees’ terms than they would have had under normal circumstances and some of the transferor’s debts relating to employees will not transfer, instead they will be paid by the Secretary of State from the National Insurance Fund. However, in both terminal and non-terminal insolvency situations some obligations will remain the same, for example the obligation to inform and consult and so specialist legal advice in this area is essential.
Are there any potential changes to TUPE on the horizon?
There are no direct changes to TUPE provided for in the Employment Rights Bill although the removal of the 2-year qualifying period for unfair dismissal will impact TUPE transfers in terms of how the incoming employer will be able to manage its workforce after the transfer.
The Bill includes new powers to make regulations to protect workers transferring from the public sector, as well as those working alongside them. The aim is to avoid a “two-tier workforce” where ex-public sector employees and private sector employees are working on the same contract but are employed on different terms and conditions.
The Labour government’s planned next steps include launching a Call for Evidence to examine “a wide variety of issues” relating to TUPE and how it works in practice. There is no indication yet as to which issues will be looked at but this could include perhaps the current restriction on changing terms and conditions post transfer to harmonise terms and conditions with existing workforce or the current requirement to elect employee representatives when where there are no measures envisaged by the incoming employer.
If you are worried about getting TUPE wrong, our employment law solicitors have helped hundreds of businesses manage employee transfers with confidence. Speak to us today and protect your business from unnecessary risk.
