The Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as TUPE, is legislation in the UK that came into effect in April of 2006. It was as a result of the United Kingdom’s implementation of the European Union Business Transfers Directive (European Union, 2001). The legislation replaced its predecessor, which had been enacted in 1981. TUPE is meant to protect employees in cases where their employer transfers ownership of the business to another individual. The law emphasizes on several aspects touching on employment; it describes the situations and conditions under which it is applicable.
In general, the law protects the employee in three aspects. The law protects the employee’s employment in case of a transfer of business. That is, in case there is a transfer as prescribed by TUPE, the new employer cannot terminate employment without sufficient administrative, organizational, economic or technical reason. It also protects the employment terms of the employee. This is because the new employer carries the terms under which the employee worked under the initial employer (McMullen, 2006). Again, these may change if the new employer had sufficient economic, technical or organizational reason for such. The legislation also warrants that before transfer of an economic entity, the affected employees should be informed and consulted. This means that the employees have to be informed and contribute to the negotiations between their current employer and the acquiring employer.
It should be noted that even though TUPE protects employees, it provides exceptions that are favorable to the employer. The first exception to the law is that pensions are excluded from the terms of employment (Legislation.gov.uk, 2006). Regulation 10 deals with the pension exclusion. According to the regulation, transfer of employment protection shall not be extended to occupational pension scheme. This means that in your case, if the cleaners from MNB have occupational pensions, you are not required by the law to provide the same. Regulation 10(3) stipulates that an employee shall not claim breach of contract in the case of transfer of employment, which leads to loss, or reduction of his or her pension, unless the breach occurred before TUPE took effect.
The second exception is where the new employer, such as you, has sufficient organizational, administrative, economic or technical reason to change the terms of employment. This provides a lot of leeway for the new employer (Wynn-Evans, 2007). For instance, the contractual terms of the cleaners at MNB are protected under TUPE. However, if EZC had sufficient reason to change their contracts, it would not be considered a breach of contract. For instance, the cleaners are paid almost £2 above what the cleaners at EZC are paid. Reducing their pay to minimum wage might be justified by an economic reason. For instance, in order for EZC to make money out of the contract with MNB, the cleaners have to be paid the minimum wage. In addition, EZC does not have to provide such benefits as gym memberships on organizational grounds. Hence, cleaners from MNB cannot claim breach of contract.
Despite these exemptions, EZC has to meet some contractual obligations to the MNB cleaners. The transfer in the MNB and EZC case is that of outsourcing as prescribed by regulation 3(1)(b)(i). Under this regulation, any economic activities, which were previously carried out by the client (MNB) and transferred to a contractor (EZC), constitute a relevant transfer. This means that when the cleaning work was transferred from MNB to EZC, the employees who initially carried out the work at MNB are covered by TUPE. This also means that MNB cannot terminate the employment of the cleaners before contracting EZC to do the job. This protects the employment of UK workers from outsourcing firms in or outside the UK (Wills, 2009). Such termination is illegal since TUPE protects the contractual right of the employee. The period before outsourcing, that a firm can fire its employees is not clearly defined under the law: what matters is the reason for termination. The Employment Appeal Tribunal has upheld a ruling that if any employee is fired for a reason fitting relevant transfer, the employer is in breach of TUPE (Hunter v McCarrick , 2012).
Another factor that affects the liability of EZC to the contractual responsibility of the MNB cleaners is “organized grouping” (Legislation.gov.uk, 2006). Regulation 4(1) states that a relevant transfer shall not terminate the employment contract of an employee belonging to an organized group of employees assigned to the task comprising of the transfer. The cleaning employees of MNB comprise of an organized grouping. This is because their sole purpose in the organization was to clean. Since EZC is taking up the contractual responsibility of the task the employees were carrying out, it has to take up the employees’ contract unless the employees object to working for EZC. Regulation 4(4) then declares any variations carried out with the principal reason of the relevant transfer, void. This means that EZC cannot alter the contract of the five MNB cleaners unless there is sufficient economic, organizational or technical reason for change in the workforce.
However, regulation 4(5) states that the relevant transfer shall not prevent the employee and the new employer from agreeing on a variation. This provides room for negotiation with the MNB cleaners (Dunbar-Rees & McGough, 2011). Another scenario that could lead to the dismissal of the MNB cleaners is if they objected to the transfer of their employment contracts to EZC. Regulation 4(7) stipulates that any employee who objects to the transfer of employment shall have his or her contract terminated by the relevant transfer. Due to the impending wage cut when employed by EZC, the MNB cleaners may opt to terminate their employment instead of working for less money. The transfer to EZC would also see their annual holiday days cut from 30 to 28.
Generally, TUPE applies and affects the contract EZC has taken in MNB. The law obligates EZC to take up the contracts of the MNB employers. The EZC cleaners work on minimum wage and have 28 holiday days. They do not receive any extra benefits. Conversely, MNB cleaners are paid £8, which is £2 more than the current EZC cleaners. They have 30 holiday days and enjoy other benefits such as private healthcare and gym membership. This shows an organizational difference in EZC and MNB. EZC has to take the MNB cleaners’ contracts. However, EZC has sufficient reason for renegotiating the contracts. First, the organizational structure of EZC varies from MNB. Economically, EZC has a different pay structure than MNB. These two reasons are enough to warrant changes in the contracts of the MNB employees.
Hunter v McCarrick , IRLR 274 (Employment Appeal Tribunal 2012).
Dunbar-Rees, R., & McGough, R. (2011). Challenges of EU competition law for general practice commissioning. BMJ, 342.
European Union. (2001). Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. European Union.
Legislation.gov.uk. (2006). Effect of relevant transfer on contracts of employment. Legislation.gov.uk. Retrieved from http://www.legislation.gov.uk/uksi/2006/246/regulation/4/made
Legislation.gov.uk. (2006). Pensions. Legislation.gov.uk. Retrieved from http://www.legislation.gov.uk/uksi/2006/246/regulation/10/made
McMullen, J. (2006). An Analysis of the Transfer of Undertakings (Protection of Employment) Regulations 2006. Industrial Law Journal, 35(2), 113-139.
Wills, J. (2009). Subcontracted employment and its challenge to labor. Labor studies journal, 34(4), 441-460.
Wynn-Evans, C. (2007). The Companies Act 2006 and the Interests of Employees. Industrial Law Journal, 36(2), 188-193.