When ownership of an undertaking transfers Reg 4 TUPE transfers employment rights to the buyer (i.e ‘transferee’) and protects relevant terms of the contract of employment from changes.
A dismissal ‘because of’ the transfer is automatically unfair under Reg 7 TUPE unless it is for an economic, technical or organisational (‘ETO’) reason that also entails changes to the workforce.
In this context ‘because of’ means the transfer is the sole or principle reason for the dismissal.
Liability for dismissals pre- transfer that are not ‘because of’ the transfer will remain with the transferor, however, liability for dismissals that are because of the transfer will become the transferee’s.
TUPE Insolvency (Reg 8 exceptions)
However, the position is different if the seller (transferor) is subject to insolvency proceedings and an insolvency practitioner has been formally appointed at the point when the undertaking is sold.
There are two possibilities:
1. Type 1. Insolvency proceedings the purpose of which is not to liquidate the assets of the transferor (e.g. administration, administrative receivership and voluntary arrangements).
This includes ‘pre pack administrations’ where the sale of assets is agreed before an administrator is appointed.
2. Type 2. Insolvency proceedings whose purpose is to liquidate the transferor’s assets (e.g. compulsory liquidation, creditors’ voluntary liquidation and other terminal insolvency procedures).
In 1. above the transferee:
- is not liable for the pre-transfer debts that can be recovered by employees from the national insurance fund (see below), but remains liable for all other sums.
- can vary employee contracts after the transfer providing it can show that it was necessary to do so to ensure the survival of the business and appointed representatives of affected employees agree.
National Insurance Fund covered elements
- 8 weeks arrears of pay (subject to a limit to a weeks’ pay, currently £525)
- up to 6 weeks’ holiday pay
- statutory notice pay (i.e. one week for each complete year of service)
- basic award for unfair dismissal
- statutory redundancy pay
However, TUPE Reg 4 (the automatic transfer of employees) and Reg 7 (automatically unfair dismissals) do apply, so the transferor will be liable for wages after the transfer and for any dismissals that are ‘because of’ the transfer and not for and ETO reason entailing changes in the workforce.
In 2. above:
- TUPE Reg 4 (the automatic transfer of employees) does not apply, so the transferee can cherry pick which (if any) employees it wants to employee post transfer.
- TUPE Reg 7 (automatically unfair dismissals) does not apply, so the transferee can terminate employees’ employments without having to show an ETO reason that entails changes to the workforce.
- Employment related debts and liabilities do not transfer to the transfere.
- The transferee can employ former employees of the transferor on different terms and conditions.
TUPE duty to inform and consult
Whether or not the Reg 8 exceptions apply both the transferor and the transferee are under a duty to inform and consult with affected employees.
A failure to comply with this duty results in an award of 13 weeks gross pay to each employee.
A dismissed employee can claim:
- A basic award / redundancy payment equal to 1 weeks’ gross pay for each complete year of service up to 20 years (with years over age 41 enhanced x 1.5).
- Compensation equal to a years’ gross pay OR the current statutory maximum (£86,444 from April 2019) (whichever is lower)
- Notice pay (i.e. whatever the contract provides for notice, or 1 week for each complete year of service up to a maximum of 12 weeks)
- Any accrued but untaken annual leave
- Wages due up to and including the termination date
- 13 weeks’ gross pay if there has been a failure to consult under TUPE