healthcheck-step-1 Created with Sketch. 1 image/svg+xml
Business, taken personally.

A guide on TUPE when buying or selling a business

Posted by Jessica Thompson on 8th July 2020

What is TUPE?

TUPE – which stands for the Transfer of Undertakings (Protection of Employment) Regulations are rules designed to protect employees when there is a “relevant transfer”. A “relevant transfer” is when there is a transfer of a business which retains its identity, or there is a new service provider replacing a previous service provider, which is called a “service provision change”.

The purpose of TUPE is to safeguard contractual terms for employees when they transfer to a new business owner or new service provider. TUPE prevents employees from transferring to a new business owner on advantageous terms, for example, they may be entitled to a contractual bonus pre-transfer, then having their benefits taken away by the incoming employer, ending up worse off because of the transfer.

TUPE is notoriously complex, and careful consideration needs to be given in advance of any transaction taking place to check whether TUPE even applies and to ensure, if it does, that TUPE is complied with.

But what happens if the exiting business (the seller), just before a transfer which attracts TUPE protection takes place, enhances their employee’s position? For example, varying their contractual terms to award them a contractual bonus or salary increase which they did not have before? Is the incoming employer (the buyer) now tied into honouring those?

According to a recent Tribunal case, Ferguson & Ors v Astrea Asset Management Limited, the answer is no.

The evidence

The case involved Lancer Property Asset Management (Lancer), which provided estate management services to their client, Berkeley Square Estate (Berkeley), who decided to move to a new service provider.  As TUPE was engaged, the directors of Lancer were to become employees of the new provider, Astrea Asset Management Ltd (Astrea).

But before the transfer took place, the directors of Lancer decided to award themselves a salary increase and generous new terms for bonus and termination payments, together with a 24-month notice period.

The new employer (Astrea) disputed the terms, sacking two of the directors for gross misconduct and refused to pay the enhanced benefits to the other directors. The directors submitted a claim against Astrea quoting TUPE, saying that TUPE applied in situations where the change was detrimental to the employee, not when the changes were advantageous to the employee.

The outcome

The Tribunal said that all contract variations which are connected to a transfer are void, whatever the outcome and the objective of TUPE is to protect not enhance an employee’s position.

This meant that Astrea did not have to honour the pre-transfer enhancements which the directors had awarded themselves. This result is good news for those employers who will fall under TUPE in a business transfer or service provision change, but TUPE still remains a very complex area of law. It is always advisable to seek legal advice in good time of any transaction being completed to ensure that both outgoing and incoming employers do not fall foul of TUPE on either side of the transaction.

If you are selling or buying a business and need guidance on TUPE, get in touch with a member of our employment law team for advice.

Share this post: