TUPE: protecting employees during business transfers

When TUPE applies

TUPE applies to two main types of transfer. In both cases, the key question is whether there is a change of employer and whether the business or service retains its identity after the transfer.

Business transfers

A business transfer occurs when an economic entity (a business or part of a business) transfers to a new owner and retains its identity. The business must be a 'going concern' - continuing to operate rather than being sold for its assets.

Examples of business transfers:

• Selling your business to another company
• Merging with another business
• Buying a competitor's customer base and staff
• Converting a sole trader business to a limited company
• Transferring part of a business to a new owner

Service provision changes

A service provision change occurs when:

• Outsourcing: You contract out a service previously done in-house (e.g., outsourcing your IT support)
• Re-tendering: A contract changes from one contractor to another (e.g., a new cleaning company takes over)
• Insourcing: You bring a contracted-out service back in-house

For service provision changes, there must be an organised grouping of employees whose principal purpose is carrying out that service. One-off tasks or contracts for the supply of goods only are not covered.

What transfers automatically

When TUPE applies, employment rights and obligations transfer from the old employer to the new employer automatically - whether or not anyone agrees to it. The new employer "steps into the shoes" of the old employer.

Pensions: the exception

Old-style occupational pension rights do not transfer automatically under TUPE. However, the new employer must provide access to a workplace pension scheme and match employee contributions up to 6% of salary. For defined benefit schemes, specialist advice is essential.

Employee objection

Employees can object to transferring to the new employer. If they do, their employment ends on the transfer date, but this is treated as a resignation rather than a dismissal - so there is no right to redundancy pay or unfair dismissal claim.

Information and consultation requirements

Both the old and new employer have duties to inform and consult employees about a TUPE transfer. These are separate from collective redundancy consultation requirements (which apply if 20 or more redundancies are planned).

What you must tell employees

You must inform affected employees (through their representatives) about:

1. The fact that the transfer is going to take place and when
2. The reasons for the transfer
3. The legal, economic, and social implications for affected employees
4. Any measures the new or old employer expects to take that will affect employees

"Measures" includes any planned changes - relocations, restructuring, changes to reporting lines, or harmonisation of terms. If there are no planned measures, you must say so.

When consultation is required

If either employer plans to take "measures" affecting employees, you must consult with employee representatives. This means:

• Consulting "with a view to seeking agreement" - not just informing
• Considering and responding to any representations made
• Giving reasons if you reject any representations

No fixed timeframe

Unlike collective redundancy consultation (30/45 days minimum), TUPE has no fixed consultation period. You must inform and consult "long enough before the transfer to enable meaningful consultation". In practice, 2-4 weeks is common, but complex transfers may need longer.

Due diligence for buyers: employee liability information

If you are buying a business, the seller must provide you with detailed information about the employees who will transfer. This is essential for your due diligence and for planning the integration.

What to look for in ELI

When reviewing employee liability information, pay particular attention to:

• High earners: Employees with expensive terms you may struggle to afford
• Long service: Employees with significant redundancy or notice entitlements
• Ongoing issues: Disciplinary procedures, grievances, or potential claims
• Restrictive covenants: Non-compete clauses that may affect key staff
• Bonus or commission schemes: Contractual commitments you will inherit
• Collective agreements: Terms negotiated with trade unions

Negotiate protection in the sale agreement

Use the Sale and Purchase Agreement (SPA) to protect yourself against employment liabilities:

• Warranties: Seller confirms the ELI is accurate and complete
• Indemnities: Seller compensates you for pre-transfer liabilities that emerge later
• Price adjustment: Reduce purchase price for known employment issues or likely redundancy costs
• Retention: Hold back part of the price for 12 months to cover claims

Making changes after a TUPE transfer

You cannot change employees' terms and conditions, or dismiss them, simply because of the transfer. Any such changes are void, and any such dismissals are automatically unfair.

However, changes and dismissals may be lawful if they are for an "ETO reason entailing changes in the workforce".

What is NOT an ETO reason

The following are NOT valid ETO reasons:

• Cost savings alone: Cutting wages to improve profitability is not an ETO reason
• Harmonisation: Aligning terms with your existing staff is not an ETO reason (even if it seems fairer)
• The transfer itself: "We need to make changes because we've bought the business" is not valid
• Changes without workforce changes: An ETO reason must involve changes to the number or functions of employees, not just their terms

Practical approach to post-transfer changes

If you genuinely need to make changes after a TUPE transfer:

1. Wait: The longer after the transfer, the easier it is to show the reason is unconnected. 6-12 months is often suggested, though there is no safe harbour.
2. Demonstrate genuine need: Document the business reasons for change that are separate from the transfer.
3. Consult properly: Even with an ETO reason, you must consult and try to reach agreement.
4. Follow fair process: If dismissals are necessary, use fair selection criteria and procedures.
5. Consider alternatives: Could you offer a buy-out, enhanced redundancy, or voluntary terms?

Penalties for non-compliance

Getting TUPE wrong can be expensive. There are two main types of claim:

Automatically unfair dismissal

If an employee is dismissed because of the transfer (or for a reason connected with it that is not an ETO reason), the dismissal is automatically unfair. The employee can claim regardless of length of service.

Compensation follows normal unfair dismissal rules: basic award (based on age, service, and weekly pay) plus compensatory award for financial loss (capped at the lower of £123,543 or 52 weeks' pay for 2026/27; cap removed entirely from January 2027).

Joint liability

Both the old and new employer can be liable for TUPE failures. If employees were not properly informed or consulted before the transfer, the tribunal will apportion responsibility between the two employers based on who was at fault.

When TUPE does NOT apply

TUPE does not apply in every business sale or service change. Key exclusions include:

• Asset purchase only: You buy assets (equipment, stock, property) but do not take on the business as a going concern. The business does not continue - you just use the assets differently.
• Share sale: You buy shares in a company. The employer (the company) does not change, so there is no transfer. The employees remain employed by the same legal entity.
• Goods supply contracts: A contract to supply goods (not services) changes supplier. There are no employees providing an ongoing service.
• One-off tasks: A contract for a single event or short-term task ends. There was no organised grouping of employees providing an ongoing service.
• Terminal insolvency: A business in liquidation is wound up completely (not rescued). However, if the business or part of it is sold as a going concern, TUPE applies.

Warning: Deliberately structuring a transaction to avoid TUPE can be challenged. Employment tribunals look at the substance of what happened, not just the legal form. If it walks like a transfer and quacks like a transfer, TUPE probably applies.

TUPE and insolvency

Special rules apply when a business is sold out of insolvency proceedings. If the sale is designed to rescue the business (rather than close it), TUPE still applies but with modifications:

TUPE transfer checklist

For sellers (transferors)

1. Identify which employees will transfer
2. Prepare employee liability information (ELI) and provide to buyer at least 28 days before transfer
3. Ask buyer what measures they plan to take affecting employees
4. Inform employee representatives about the transfer, reasons, implications, and measures
5. Consult on any measures you or the buyer plan to take
6. Continue to employ transferring staff until the transfer date
7. Provide copies of employment contracts and personnel files to buyer on completion

For buyers (transferees)

1. Request and review employee liability information during due diligence
2. Identify any employment risks (claims, high-cost terms, ongoing issues)
3. Tell the seller what measures you plan to take (or confirm none)
4. Negotiate warranties, indemnities, and price adjustments in the SPA
5. Prepare to employ transferring staff from the transfer date
6. Set up payroll and pensions for transferring employees
7. Communicate with transferred employees promptly after completion
8. Do not change terms or make dismissals because of the transfer