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What is TUPE?

TUPE is a set of Regulations that apply to certain transfers of businesses or undertakings (as defined below). Broadly, TUPE transfers employees, their contracts of employment, and conditions and aspects of their employment from an existing employer to a new one (eg a new company or property owner) when a relevant business or undertaking transfer occurs. This helps preserve the employees’ employment rights.

What is transferred?

Transfers under TUPE help generally preserve all of the contractual terms of an employee’s employment. For example, their:

  • pay

  • benefits, such as any enhanced annual leave entitlements and annual bonus provisions

  • periods of continuous employment, which are used to work out the employee’s eligibility for certain employment rights

  • right to make legal claims for any breaches of their employment rights by the outgoing employer (ie these claims may now be made against the incoming employer)

Some entitlements that are not specified in an employee’s contract of employment, but which arise ‘in connection’ with this contract, may also be transferred. For example, in the case of Ponticelli Limited v Gallagher, the courts decided that an employee’s right to participate in a non-contractual share incentive plan was transferred under a TUPE transfer. Exactly what will transfer for a given employee depends on the specifics of their and their employer’s situation. 

When does TUPE apply?

The TUPE Regulations can apply when a company is sold or its activities are outsourced, brought in-house or transferred, or a contract for services is moved from one service provider to another.

Business transfers

Under TUPE, what is considered to be a business or undertaking is not judged by its name but by the use made of its assets, such as the:

  • premises

  • equipment

  • works in progress

  • goodwill (eg the value of a brand name or a customer base)

  • intellectual property

  • employees

To test whether a business or undertaking has transferred, ask yourself whether the core assets have transferred to the incoming employer and are being used in essentially the same kind of business activity as previously. TUPE will generally not apply if just shares, limited assets, and/or equipment are transferring to a different owner.

Service provision changes

The TUPE Regulations can apply in situations where the party providing services changes, including when:

  • a contractor takes over activities from a client (ie those activities are 'outsourced')

  • a new contractor takes over activities from an existing contractor (known as 're-tendering'), or

  • a client takes over activities from a contractor (ie those activities are 'in-sourced')

The TUPE rules regarding a service provision change will not apply if there is just a change to the supply of goods. The transfer must include a supply of services as well. TUPE will also not apply if the service is for single-event activities/activities of short-term duration (eg an exhibition or conference).

Who's impacted by TUPE?

  • the outgoing employer - the employer making the transfer, ie the former employer

  • the incoming employer - the employer taking on the transfer, ie the new employer

The TUPE process

Stage 1 - Before committing to the transfer

When an incoming employer has the opportunity to take on a business or service, they must assess whether it is the right decision for them (ie is it value for money? Do the benefits of the transfer outweigh the risks?). It is important that the outgoing employer informs employees of a potential transfer at this stage.

Stage 2 - Prepare for the transfer

Employers must usually inform/consult employees about the transfer and identify those who will transfer, as well as any adjacent rights or similar (eg existing collective agreements applicable to the employees).

Stage 3 - The transfer

At this stage, the incoming employer gains the transferring employees and must inform/consult them about the transfer. Employees must be managed, settled, and made clear about their duties. Conversely, the outgoing employer loses the transferring employees and must inform/consult the remaining employees about the transfer. The employer should ensure that all remaining employees are managed, settled, and made clear about their duties. Unless an exemption applies (eg for smaller businesses), consultation about a transfer may have to be via a worker representative.

Stage 4 - After the transfer

After the transfer, the incoming employer must inform/consult employees about potential redundancies (if any). They should ensure that appropriate allowances are made while employees adjust and integrate. Any relevant procedures should also be reviewed. The outgoing employer must inform/consult employees about potential redundancies and, in general, preserve high morale. The employer should address employee concerns so as to avoid falls in performance and quality of work.

TUPE measures

After the transfer, incoming employers often have plans to make changes to employment arrangements. Under TUPE, these are called ‘measures’ and can include:

Minor changes to employees' Employment contracts also constitute measures, although there are tight restrictions on when contracts may be altered. For example, the change cannot be brought about even with the employee’s consent if the sole or principal reason for that change is the transfer itself. Additionally, employers should make sure that employees agree to any changes to their employment contracts.

TUPE and dismissal

If an employee is dismissed by either the outgoing or incoming employer before or after a transfer and the sole or principal reason for the dismissal is the transfer, it will be automatically unfair. If the reason for the dismissal isn't the transfer, it may not be automatically unfair, but it may still be an unfair dismissal if the employer hasn't followed the proper procedure.

TUPE and redundancy

Where a potential redundancy situation arises as a result of a transfer, employers must follow correct redundancy processes.

When the incoming employer is making (or intending to make) 20 or more redundancies within a 90- day period, this involves following the collective consultation rules by, for example, consulting directly with affected employees and making notifications within specified timeframes.

If there are fewer than 20 employees being made redundant within a 90-day period, there is still a requirement to consult with employees; however, there is more flexibility regarding how this is done.

For more information, read Redundancy and How to make someone redundant in a small business.

TUPE and insolvency

Where an employer is insolvent and the business is being taken over or transferred to another company, employees are offered different protections from a normal transfer.

Employees are unlikely to be protected under TUPE if the business is closing. However, TUPE will generally apply if the business is being rescued and taken over or transferred.

Where employees are owed money by the insolvent employer, they can generally make a claim for this. Such a claim can be made regardless of whether the employees are protected under TUPE or not. If the transfer is protected by TUPE, the new employer must pay any amount that's left over after employees have been paid from the government’s National Insurance fund.

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