Any restructuring or reorganisation of a business inevitably brings some changes for the workforce. Employees’ terms and conditions of employment may need to be altered to reflect the new needs of the business ( Changing contracts of employment ). On occasions, substantial changes in job content or reductions in staffing levels may be involved, raising the redundancy issues covered elsewhere ( Redundancy ). This section of the Guide deals with the situation where the reorganisation involves the business, or the part of it in which some employees work, being sold or contracted out, resulting in a change in the identity of their employer.
Under general principles of contract law, if a business changes hands and a new employer is put in the old employer’s place, an important term of the employment contract of the business’s employees is fundamentally changed. This change means that, effectively, they are constructively dismissed ( Constructive dismissal ). In order to avoid this result and give some protection to the interests of employees caught up in business transfers, employment law has intervened, in the form of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (often referred to as ‘TUPE’). This section of the Guide explains how the Regulations operate.
One of the most important effects of the Regulations is that the new owner of the business inherits the employees who work in it, together with almost all their existing contractual and other legal rights ( Transfer of employees ). The Regulations therefore require the old employer to give the new employer certain information about the employees who transfer in this way ( Due diligence ). The Regulations also make it automatically unfair for the old or the new employer to dismiss an employee for a reason connected with the transfer, unless there is some economic, technical or organisational reason for the dismissal ( Whose liability for unfair dismissal? ).
Because the transfer of a business has important repercussions for the workforce of both the old and the new employer, the Regulations require the employers to give certain information to their workforce representatives about the transfer. If they are considering taking any steps in connection with the transfer that may affect their employees, the employers must also consult with their workforce representatives about the measures they are proposing ( Informing and consulting the workforce ).
These considerations arise, however, only if the business transfer falls within the scope of the Regulations. This chapter therefore opens with an explanation of the types of transaction covered by the Regulations ( When do the regulations apply? ).
It will be clear from this introductory summary of the Regulations that they can have substantial financial and practical consequences for the commercial viability of any transaction to which they apply. They are also likely to affect the terms of the commercial agreement under which the transaction is made. Companies that are considering entering into a transaction to which the Regulations might apply may therefore wish to contact their Association for advice at an early stage.