TUPE – Practical tips for HR involved in the planning phase of a business or asset transfer

For HR professionals in acquisitive companies, TUPE transfers might be a common part of their “diet” of work. For most HR professionals, that will not be the case; however, it will be a rare HR professional who escapes altogether needing to grapple with TUPE.

This blog is intended to help HR professionals with some key practical tips when dealing with the planning phase of a TUPE transfer (ie pre-transfer) in the context of a business or asset transfer. For more information on TUPE more generally and the legal obligations, please refer to our earlier blog: what happens on a TUPE transfer.

The key factors to consider depend on whether you are the “transferor” (ie the current entity which owns the business or assets) or the “transferee” (the company acquiring the business or assets, and to which employees may transfer). The tips below cover some of the main considerations from both perspectives.

The default position under TUPE is that almost all employment-related liabilities will transfer to the transferee, meaning that it is the transferee which faces the most risk. As such, at a pre-transfer stage the transferee will typically be focused on two key areas – carrying out due diligence to understand the existence and scale of any risks and liabilities that it might inherit, and seek contractual protection for past liabilities. For both parties, the information and consultation process will also be a key aspect of pre-transfer planning.

Pre-transfer diligence and contractual protections

From a diligence perspective, TUPE sets out minimum requirements with regards to employee data that a transferor must provide at least 28 days before the transfer (known as employee liability information). Broadly speaking, this includes the names and ages of transferring employees together with the particulars of employment that an employer has to provide as part of a section 1 statement (usually captured in the contract of employment), information on any grievance or disciplinary processes in the two years prior, any claims or potential claims, and any collective agreements.

However, in practice a transferee will expect to see a wider range of information, and at an earlier stage. This means that the HR professionals supporting the transferor will be expected to produce a significant amount of data and information regarding the workforce, potentially in a short period of time. The ease with which this can be done will very much depend on the systems already in place – for some organisations a significant amount of data can be collated quickly through generating a report, while for others a more time consuming, manual process will be required.

For the transferor:

• Get organised early – as soon as the prospect of a transfer is on the horizon, start identifying the information regarding employees that you have easily to hand (which might include salary and benefits, for example) and the information that might require more manual collation (such as any disciplinary or grievance information) so that you have a clear picture on the possible time commitment required once the diligence requests are received, and can start to frontload some of that work.
• Be mindful of data protection obligations – the transferee may be asking for a lot of information, but it may not be appropriate in all cases to provide the information requested (in particular, employee names should be redacted or anonymised, but other identifying or sensitive information may also need to be redacted). Again, this can factor into the timeline.
• Consider early who might be in scope to transfer. In some cases, it may not be clear cut which employees are assigned to the economic entity being transferred (and who might accordingly transfer with it). While it is tempting and often practical simply to consider the proportion of each employee’s time spent working for the transferring business, that will not be definitive in all cases, and a more fact sensitive analysis may be required. It is also important to ensure that the transferring employees are specifically identified in the business transfer agreement (or equivalent), as often the transferee will have a right to terminate “woodwork” employees (ie employees who unexpectedly claim they have transferred) at the transferor’s cost. This is difficult to police without a schedule of named transferring employees to refer to.
  
  

For the transferee:

• Although the default position under TUPE is that employees’ terms and conditions will be preserved following the transfer, this does not necessarily mean that everything will remain the same. The transferee will not necessarily be able to continue the same schemes and benefits in the same way (and there are particular nuances when it comes to pensions and share schemes, where advice should be taken). Prepare a comparison of the employees’ current offering from the transferor as against the transferee’s offering – this will help to identify potential logistical issues and practical steps that might need to be taken (such as changing the private medical insurance provider). These might well need to be disclosed as “measures” as part of the TUPE information and consultation process – see below, and should also be done in parallel with an assessment of whether any proposed “measures” are in fact changes to terms and conditions, in which case consideration needs to be given to whether the proposed change is permitted under TUPE.
• Given that the default position is for transferees to inherit liabilities associated with the employees, contractual protections will be important (such as “line in the sand” indemnities which apportion responsibility for pre-transfer liabilities to the transferor, and for post-transfer liabilities to the transferee). However, this is no replacement for a good diligence process to identify risks that might be coming your way. While the lawyers will be undertaking the legal due diligence, often important commercial detail and nuance can be gained through good communication with HR counterparts in the transferor.
  
  

For both transferor and transferee:

• Do not underestimate the potential time commitment and think early about resourcing both internally and externally. Your legal advisers are part of your team and can help to take some of the strain, but making that decision early is likely to be more efficient than trying to do too much, and discovering you need outside support at a late stage.
  
  

Information and consultation process

The general position is that employee representatives need to be informed and, if appropriate, consulted on measures being taken in connection with the transfer. The information obligation arises in all cases, but the obligation to consult only arises where measures are being taken, and also only applies to each of the transferor and the transferee in relation to their own employees. This means, slightly oddly, that if the transferor does not intend to take any measures in respect of its employees, and the transferee only intends to take measures affecting the transferring employees (who are not at that stage its employees) there is no legal TUPE consultation obligation. Best practice, however, is to engage in some form of consultation or Q&A process to offer comfort to the transferring employees – for example, there could be a town hall which the transferee attends, or a Q&A document compiled with the aid of questions collated by the representatives.

For the transferor:

• Whilst a TUPE information process can be conducted relatively quickly where there are no measures (there is no prescribed minimum time period, provided it is done “in good time”), a fully “by the book” process would usually require the election of representatives (assuming there are not appropriate existing representatives) and this needs to be factored into the time frame. Helpfully, from July 2024, consultation directly with employees will be possible for small transfers of under 10 employees, or for employers with less than 50 employees, provided there are no existing employee representatives.
• There is a very specific list of information which transferors are legally obliged to give to employee representatives. This includes slightly unexpected categories of information (such as use of agency workers). It is important therefore to ensure that the information provided to employee representatives ticks all the necessary legal boxes.
  
  

For the transferee:

• The transferees most common obligation in this context is to share with the transferor the measures it intends to take in relation to the transferring employees. It is very common for the transferee initially to assert confidently that there will be “no measures”. However, “measures” are widely defined (the classic example being a change in payroll date), and there will almost certainly be something that is likely to change (noting the logistical points flagged above). As such, avoid jumping to conclusions before properly working through the practicalities of the transfer.
• While transferees have no right to access or meet with the transferring employees pre-transfer, the transferor will often facilitate this to allow engagement and to reassure employees. However, it is important to recognise the limitations of pre-transfer access. In particular, if redundancies are on the horizon, pre-transfer consultation will not count for individual consultation purposes (ie for unfair dismissal purposes). By contrast, pre-transfer consultation is possible for the purposes of collective consultation obligations.
  
  

For both the transferor and transferee:

• There is a natural tendency to focus on the transferring employees, but remember that wider employees may also be affected by the transfer (for example, if the transfer will result in redundancies in the wider workforce). It is important therefore to think more widely about the workforce and potential knock-on effects from the transfer, and to consider whether it is appropriate to inform and consult with representatives of wider affected employees.
  
  

Intra-group transfers

In some cases, TUPE will apply to intra-group transfers, where the transfer of employees is largely administrative in nature, and nothing will change other than the employing entity. In these cases, a commercial decision is often taken to adopt a more “light touch” approach, and one that is not compliant with some of the various requirements of TUPE. This may well be the right approach from a commercial perspective. However, there is, of course, legal risk associated with this, and it is important to work through the risk/benefit analysis on a case-by-case basis with your legal advisers to ensure that the right balance is struck.

We regularly advise on TUPE issues arising in a broad range of contexts (including corporate transactions, outsourcing and insourcing, insolvency, school and charity mergers, property transactions and intra-group restructures). We will in future blogs address practical tips post-transfer, as well as key issues specific to the outsourcing and insourcing context.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2024