TUPE Regulations -What You Should Know About the Transfer of Undertakings Directive

TUPE.

tupe-regulations
TUPE regulations are supposed to protect employees

The Transfer of Undertakings Directive of 1977, which became part of Irish law by the European Communities (Safeguarding of Employees’ Rights on Transfer of Undertakings) Regulations, 1980, protects the rights of employees where the business in which they are employed is transferred to a new owner.

It is a significant piece of legislation if you are selling your business or if you are working in a business which is being taken over.

What is an undertaking?

It is important to note that the TUPE directive covers undertakings and businesses or parts of undertakings and businesses-this leads to the critical question of what an undertaking is and as there is no definition in the legislation it has led to much case law with each case being decided on it’s own particular facts.

The ECJ (European Court of Justice) interprets undertakings as economic entities and vice versa.

Key elements of the TUPE regulations

The key thrust of the TUPE directive is that the rights and obligations in respect of employment contracts of the transferring business are transferred to the new business.

  • There must be a change of employer-this is a fundamental criteria
  • A change of employer can occur where full ownership does not change (management responsibility may change and transfer to a subsidiary for example)
  • Pension entitlements are excluded insofar as they do not have to be continued by the new company
  • The parties to a transfer have an obligation to notify, inform and consult with employees or their representatives
  • If TUPE legislation is breached the problem rests with the new business (the transferee)
  • The TUPE directive does not apply where the reason for the transfer is the insolvency of the transferring business.
  • TUPE also does not apply where the business is transferred by a transfer of shares
  • TUPE may apply even where there is no agreement between the two businesses, for example where a lease or franchise is surrendered by operation of law.

(This is part of the employment law Ireland series)

NOTE: TUPE regulations do not apply where a business is transferred by way of the sale of shares as there is no transfer of business-only a change of shareholding.

Key Aspects of the TUPE Regulations

The key takeaways from the regulations are

  • The rights and obligations arising from an employment contract transfer to the new employer from the old
  • Employees’ pension rights do not transfer
  • An employee cannot be dismissed solely on the grounds of transfer of undertaking
  • If the working conditions arising from the transfer deteriorate significantly leads to a termination of employment the relevant employer will be held responsible for the deterioration.

Who does TUPE apply to?

Firstly employees but also persons having an employment relationship with the transferor. This may mean agency workers, depending on who pays them, for example and the Labour Court has held that agency workers can be covered by the directive, depending on the particular circumstances of the case.

The underlying philosophy is if similar activities are continued in different hands the identity of the undertaking remains, a transfer occurs, the employees follow the work and protection is enjoyed by the employees.

Transfer of Undertakings

There must be a transfer of an undertaking for TUPE to apply. It is the transfer which triggers the rights and obligations in the TUPE regulations.

If a transferor ceases trading and the transferee resumes the business some time later, it may still be covered by TUPE.

TUPE can also apply even where there is no change of ownership-it is sufficient that there is a change in the day to day operation/management of the undertaking.

The key criterion in deciding whether there is a transfer within the meaning of the regulations is whether the activity is seen to be continuing, even with some differences or even where all of the economic activity has not transferred.

So, transfer of a part of a business or undertaking is also covered by TUPE.

However a “mere activity” may not be covered if the activity is not an economic activity capable of being the subject matter of a transfer within the meaning of TUPE.

Spijkers v Gebroeders Benedik Abbatoir CV [1986]

This European case has led to what are referred to as “Spijkers Criteria” when it comes to deciding whether there has been a transfer of an undertaking or not.

They are

  1. was the undertaking a stable undertaking with an ongoing life of its own?
  2. has the entity retained its identity?
  3. have some or all of the staff been taken over by the new employer?
  4. has the customer base transferred?
  5. are the activities post transfer similar to those carried on before the transfer?
  6. whether there was an interruption of the activity will be a factor
  7. has there been a transfer of assets?

Conclusion

If you are thinking about purchasing a business in Ireland or the EU there is quite a lot of complex issues which you would be well advised to obtain legal advice for.
There is considerable body of decided case law which teases out many issues that have arisen in this area-matters like

  • the cessation and resumption of a business prior to transfer,
  • what is an undertaking,
  • who is covered by the legislation,
  • whether public bodies are undertakings,
  • questions surrounding dealerships and franchises,
  • transfer of part of an undertaking,
  • the difference between an “activity” and an undertaking and so forth.

For this reason do consult a solicitor if you feel that your rights have not been upheld in this potentially complex area.

Changing service providers-does TUPE apply?

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Employers-How to Avoid Costly Employment Claims