TUPE Podcast Series: What Transfers

In this sixth podcast in our TUPE Podcast Series, Amanda Glover will delve into the automatic transfer principle and what transfers to the incoming employer under TUPE.

In the episode, Amanda will explore:

• What rights and liabilities relating to the individuals transfer under TUPE 
  • Contractual rights
  • Non-contractual and discretionary rights and benefits
  • Acts and omissions before the transfer
  • Statutory rights
  • Tortious and civil liabilities
  • Trade union recognition, collective rights and liabilities
  • TUPE pension rights and liabilities

If you have any questions in relation to TUPE, please contact our employment lawyers for advice.

Transcript

Hello, my name is Amanda Glover and I’m an Associate in the employment team at Clarkslegal.  

This is the sixth podcast in our TUPE Podcast Series, and in this session I'll be looking at what transfers under TUPE. By way of a reminder, when I use the term transferee, I'm referring to the incoming business owner or provider, and likewise when using the term transferor, I’m referring to the old business owner or provider. 

The automatic transfer principle is a principle which is set out in regulation 4 (1)  of TUPE. The regulation confirms that when TUPE applies, the contracts of employment of all employees employed by the transferor and assigned to the undertaking, or in the case of a service provision change, assigned to the services, automatically transfer to the transferee. All of the transferor’s rights, powers, duties, and liabilities under or in connection with the transferring employees contracts of employment, pass to the transferee. Also, any act or omission of the transferor pre transfer, which relates to the transferring employee or their employment, will be deemed to have been an act or omission of the transferee. Subject to a few exceptions, the transferee effectively steps into the shoes of the transferor, as the employer of the transferring employees. 

So, let’s explore what rights and liabilities relating to the individuals transfer under TUPE. 

Let’s start with contractual rights. As we know contractual terms can be either express, implied, incorporated or statutory. These contractual terms all transfer under TUPE. It is therefore crucial for the transferee to ask probing questions of the transferor, in the context of any due diligence exercise, so that it can fully identify all of the contractual terms that are applied to the transferring employees. 

Secondly let’s look at non-contractual and discretionary rights and benefits. It is not only purely contractual terms and conditions which transfer to the employee. Any rights and obligations connected with the contract of employment also transfer. This means that non contractual obligations of the transferor pass to the transferee, such as obligations imposed by statute or the common law. However, the relevant non-contractual obligation must have been legally enforceable against the transferor pre transfer for it to bind the transferee. For example, a purely non-contractual policy would not be legally enforceable against the transferor before the transfer and so it would not be legally enforceable against the transferee after the transfer. 

Next step then is continuity of employment. A TUPE transfer will not break continuity of service. Therefore, if for example a transferring employee has 14 months service at the time of the transfer, they will only need to work for transferee for a further 10 months before acquiring ordinary unfair dismissal rights for example. 

Now let us turn to…acts and omissions before the transfer. It is important to remember that any acts or omissions of the transferor before the transfer are treated as having been done by the transferee. For example, the transferee will inherit the discriminatory acts of the transferor that occurred pre transfer. 

And how about statutory rights? Whilst there are limited exceptions, as a general rule statutory rights and liabilities can pass to the transferee. This will include claims relating to equal pay, discrimination, wrongful and unfair dismissal, redundancy, working time and rights for part-time and fixed term workers.

Turning now to tortious and civil liabilities. As a general rule tortious and civil liability will also pass to the transferee. This will include personal injury claims.

Finally we have pension rights and liabilities, but these are covered  later on in the session. 

So let's move on to look at trade union recognition, collective rights and liabilities.

Firstly, trade union recognition. If an independent trade union is recognised by the transferor in respect of any of the transferring employees, this recognition will transfer to the transferee, provided that the transferring group maintains an identity distinct from the rest of the transferee’s business. Now it isn’t clear exactly what is required for the transferred group to maintain an identity distinct from the rest of the transferee’s business. However, if the transferring group is fully integrated into the transferee’s existing business after the transfer, it is highly unlikely that union recognition will transfer. 

As you may be aware, there are two types of trade union recognition: voluntary recognition and statutory recognition. Somewhat unhelpfully, TUPE makes no distinction between these two types of recognition, and although it's been suggested by the department for business and trade that only voluntary recognition passes to the transferee on a TUPE transfer, it is safer to assume that both could transfer. 

Moving on to collective agreements. A collective agreement which has been made by the transferor or on its behalf with a trade union recognised by it in relation to some or all of the transferring employees, will transfer to the transferee and anything done by the transferor in connection with that agreement is deemed to have been done by the transferee. The terms which are in force under a collective agreement at the date of the transfer are those which transfer. If any new terms are agreed post transfer between the transferor and the trade union in accordance with the collective agreement, they will not have any effect on employees who were already transferred. 

And finally, the duty to inform and consult. As some of you may be aware, where the transferor has failed in its duties to inform and consultant under TUPE, liability will be joint and several, and so the transferee will be jointly and severally liable with the transferor. 

So we've looked at what rights and liabilities transfer under TUPE. This therefore leaves the question of which ones remain with a transferor after the transfer. They are…..

• Accrued occupational pension rights up to the date of the transfer 
• Criminal liabilities. 
• Responsibility for PAYE and NICs in relation to any payments the transferor makes .
• Share options, but please note that these may not transfer depending on the rules of the scheme.
• Liability under a continuation order (this is a form of interim relief whereby continuation of employment is ordered). 
• Certain liabilities in insolvency situations. 
• The benefit of the transferor’s immigration status checks. A transferee must carry out its own cheques to avoid liability.
• And finally…the benefit of a waiver of claims contained in a settlement agreement does not pass if the dismissal occurred on or before the transfer but the settlement agreement was entered into after this date. The transferee should therefore be joined as a party to enable them to take the benefit of the waiver. 

 Moving on then to the more complex TUPE and pension rights. The automatic transfer principle does not apply to old-age, invalidity, and survivors benefits and occupational pension schemes. This means that any contractual terms, rights, liabilities, and obligations, which relate to old-age, invalidity, and survivors benefits, under an occupational pension scheme do not transfer to the transferee. The pensions exemption applies to the following rights: Pensions payable on or after the normal retirement age i.e. old age benefits. Ill health early retirement benefits i.e. invalidity benefits. And benefits payable to members dependant on the death of the member before or after normal pension age i.e. survivors benefits. 

Firstly, the exception only applies occupational pension schemes. It does not therefore apply to any other pension arrangement, and therefore that other arrangement would transfer to the transferee under TUPE. 

Secondly the pensions exemption only applies to old-age, invalidity, and survivors benefits under an occupational pension scheme. This exemption does not therefore cover the following benefits and so the obligation to provide them transfers to the transferee.

So… 

• You've got early retirement benefits (other than for ill health), including the right to retire early voluntarily. 
• Enhanced redundancy benefits related to an occupational pension scheme 
• Specific future pension benefits under the Pension Act 2004 
• Other benefits provided under an occupational pension scheme which are not old-age, invalidity or survivors’ benefits, for example critical health insurance. 

 And a phrase that you might have heard bandied about quite commonly is Beckmann and Martin rights. In two cases in the European Court of Justice known as the Beckman and Martin cases, it was decided that the occupational pension scheme TUPE exemption did not  extend to those pension benefits payable on early retirement, such as enhanced redundancy benefits. As a consequence of these decisions early retirement rights such as an enhanced pension on redundancy could transfer from the seller to the buyer on a business acquisition. Even if the current employer is operating a defined contribution arrangement the rights could still exist. This means the buyer could face claims in relation to early retirement benefits if those pension benefits are not replicated by the buyer. If any of the employees could have such rights as a result of joining the employer through a historic TUPE transfer, we recommend the employer seeks legal advice before making redundancies.

And finally, let us look at the obligation on the transferee to provide an alternative pension scheme. To complement the pensions exemption in TUPE the transferee is obliged in certain situations provide a minimum level of alternative pension provision. If any of the transferring employees immediately before the transfer, was a member or was eligible to be a member of an occupational pension scheme provided by the transferor, the transferee must provide an alternative defined contribution scheme with matching contributions of up to six percent of the employees basic pay. The obligation applies even if the transferor’s scheme was a defined benefit scheme. If the transferor’s scheme was a defined contribution scheme, there is an additional requirement that the transferor must also have made or have been required to make contributions in addition to the employee’s contributions for the obligation on the transferee to provide a replacement scheme to come into force. 

Well, that brings us to the end of the podcast, and I hope you found it helpful. In the next podcast in the series we'll be looking at ‘changing terms and conditions following a TUPE transfer’, so make sure you keep an eye out for that one. Thank you.