Deal Point - New TUPE Regulations Have Arrived!

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Dealpoint is a regular briefing on issues relevant to corporate transactions, notably M & A and reconstructions. Each edition of Dealpoint will focus in detail on one area of law and practice which may be of interest to principals and practitioners in the corporate transactions area.

In this edition of Dealpoint, we consider recent changes to the TUPE Regulations.

New TUPE Regulations Have Arrived!

The regulations protecting employees affected by a business transfer or outsourcing have at long last been revised. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the Regulations”) have now been published and will come into force on 6 April 2006. The Regulations will apply to those transfers which take place on or after that date.

What are the main changes under the revised Regulations, what effect will they have on transactions and what new obligations will business acquirers face when dealing with a business transfer or outsourcing?

The main changes will be:

A new duty on the transferring employer to provide to the new employer information about the employees who will be transferring. The information must include details relating to the (a) identity and age of the employees (b) statements of terms and conditions of employment (c) disciplinary proceedings or grievance issues in the last two years (d) court/tribunal cases brought by the employees in the last two years and those which it is reasonably expected the employees might bring and (e) any collective agreement which will have effect after the transfer. All of this must be supplied at least two weeks before the transfer.

Failure to comply entitles the new employer to bring a claim against the transferring employer before an employment tribunal for compensation. With the potential of a minimum award of £500 per employee, this duty should not be taken lightly! It will not apply to any transfer taking place on or before 19 April 2006, and in most cases ought not to add anything material to the disclosure process that normally takes place on a business sale. There may be greater difficulties on changes in outsourcing arrangements, where often the transferee won’t be identified until very late on.
The transferring employer or the new employer will be able to agree with employees variations to their employment contracts before or after the transfer takes place where the sole/principal reason for the variation is (a) a reason unconnected with the transfer or (b) a reason connected with the transfer which is “an economic, technical or organisational reason entailing changes in the workforce.” This is an attempt to make life easier for new employers in particular, but the wording is in fact quite limiting, and so unless the new employer is changing the workforce in some way (as well as changing terms and conditions) the current difficulties will remain, and probably get worse.

Practitioners currently negotiating asset acquisitions should consider, in the light of changes they wish to make to the workforce and/or terms and conditions, whether the acquisition should be before or after 6th April.
New provisions will make it easier for insolvent businesses to be transferred to a new employer, in two respects in particular. First, some of the transferring employer’s debts will not pass to the new employer - statutory redundancy pay, debts in respect of payments in lieu of notice and holiday pay will be met by the Secretary of State instead. Secondly, the new employer may establish inferior terms and conditions after the transfer where agreed with the employees’ representatives. These provisions apply to sales by insolvency practitioners such as Liquidators, Administrators and Administrative Receivers.

This is a sensible change as the fear of TUPE liabilities has in the past left buyers reluctant to buy businesses leading to businesses closing and job losses, or at least providing for the TUPE risk in the price offered.

In the short term practitioners considering an acquisition of a distressed business should consider deferring the acquisition until 6th April and buy from an insolvency practitioner.
New employers will be liable jointly with the transferring employer if the transferring employer breaches its duty to inform and consult employees pre-transfer. New Employers will seek indemnities from the transferring employer, but difficulties will exist if the seller is a liquidator or administrator or receiver who refuse to give indemnities.
The Regulations have been drafted to cover beyond question all those cases where services are outsourced, in-sourced or where there is a change in the outsourcing contractor.
The Regulations will expressly apply to employees who ordinarily work outside the United Kingdom, provided the business itself is situated in the United Kingdom immediately before the transfer.

March 2006

For further information please contact
David Faulkner on: 44(0)870 763 1385 or
Richard Wrigley on: 44(0)870 763 1586

This article is a summary of the law of England & Wales as at March 2006. Its contents are general only and should not be relied upon in relation to any specific matter or transaction where advice should be sought.




Dealpoint is a regular briefing on issues relevant to corporate transactions, notably M & A and reconstructions. Each edition of Dealpoint will focus in detail on one area of law and practice which may be of interest to principals and practitioners in the corporate transactions area. In this edition of Dealpoint, we consider recent changes to the TUPE Regulations. New TUPE Regulations Have Arrived!
The regulations protecting employees affected by a business transfer or outsourcing have at long last been revised. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the Regulations”) have now been published and will come into force on 6 April 2006. The Regulations will apply to those transfers which take place on or after that date. What are the main changes under the revised Regulations, what effect will they have on transactions and what new obligations will business acquirers face when dealing with a business transfer or outsourcing? The main changes will be: A new duty on the transferring employer to provide to the new employer information about the employees who will be transferring. The information must include details relating to the (a) identity and age of the employees (b) statements of terms and conditions of employment (c) disciplinary proceedings or grievance issues in the last two years (d) court/tribunal cases brought by the employees in the last two years and those which it is reasonably expected the employees might bring and (e) any collective agreement which will have effect after the transfer. All of this must be supplied at least two weeks before the transfer. Failure to comply entitles the new employer to bring a claim against the transferring employer before an employment tribunal for compensation. With the potential of a minimum award of £500 per employee, this duty should not be taken lightly! It will not apply to any transfer taking place on or before 19 April 2006, and in most cases ought not to add anything material to the disclosure process that normally takes place on a business sale. There may be greater difficulties on changes in outsourcing arrangements, where often the transferee won’t be identified until very late on. The transferring employer or the new employer will be able to agree with employees variations to their employment contracts before or after the transfer takes place where the sole/principal reason for the variation is (a) a reason unconnected with the transfer or (b) a reason connected with the transfer which is “an economic, technical or organisational reason entailing changes in the workforce.” This is an attempt to make life easier for new employers in particular, but the wording is in fact quite limiting, and so unless the new employer is changing the workforce in some way (as well as changing terms and conditions) the current difficulties will remain, and probably get worse. Practitioners currently negotiating asset acquisitions should consider, in the light of changes they wish to make to the workforce and/or terms and conditions, whether the acquisition should be before or after 6th April. New provisions will make it easier for insolvent businesses to be transferred to a new employer, in two respects in particular. First, some of the transferring employer’s debts will not pass to the new employer - statutory redundancy pay, debts in respect of payments in lieu of notice and holiday pay will be met by the Secretary of State instead. Secondly, the new employer may establish inferior terms and conditions after the transfer where agreed with the employees’ representatives. These provisions apply to sales by insolvency practitioners such as Liquidators, Administrators and Administrative Receivers. This is a sensible change as the fear of TUPE liabilities has in the past left buyers reluctant to buy businesses leading to businesses closing and job losses, or at least providing for the TUPE risk in the price offered. In the short term practitioners considering an acquisition of a distressed business should consider deferring the acquisition until 6th April and buy from an insolvency practitioner. New employers will be liable jointly with the transferring employer if the transferring employer breaches its duty to inform and consult employees pre-transfer. New Employers will seek indemnities from the transferring employer, but difficulties will exist if the seller is a liquidator or administrator or receiver who refuse to give indemnities. The Regulations have been drafted to cover beyond question all those cases where services are outsourced, in-sourced or where there is a change in the outsourcing contractor. The Regulations will expressly apply to employees who ordinarily work outside the United Kingdom, provided the business itself is situated in the United Kingdom immediately before the transfer. March 2006
For further information please contact David Faulkner on: 44(0)870 763 1385 or Richard Wrigley on: 44(0)870 763 1586

This article is a summary of the law of England & Wales as at March 2006. Its contents are general only and should not be relied upon in relation to any specific matter or transaction where advice should be sought.

	© Martineau 2004