In legal terms a contract of employment is an agreement between an employer and an employee. If the business is sold to a new owner then the contract should cease.
To avoid the ending of employment contracts when businesses are sold a set of regulations tries to ensure that contracts are transferred to the new employer on the same terms. These regulations are the Transfer of Undertakings (Protection of Employment Regulations) 2006 often known as 'TUPE'. These regulations implement the European Union Acquired Rights Directives so European law plays a significant part in the legal interpretation of TUPE.
The TUPE regulations apply in two situations:
Deciding if there has been a transfer under these definitions can be difficult in some cases.
The purpose of the TUPE regulations is to transfer the contract of employment from the old employer to the new employer with the same terms and conditions that would have applied if the transfer had not happened.
Employees must be employed 'immediately before' the transfer for their contracts of employment to transfer to the new employer. This transfer is automatic under the TUPE regulations and it does not matter if the new owner agrees to the transfer or not.
Where a transfer occurs then the new employer takes over:
Therefore any act done by the old employer will be deemed to have been taken by the new employer when they inherit the employees contracts.
The new employer cannot change the employees contracts even with the agreement of the employees where the reason for the change is the transfer. An exception is allowed to this where the reason for the change is economic, technical or organisational and entails a change in the workforce so long as the change is agreed by the employee.
It is also possible that the employees contract contains a variation clause and in that case the new employer will be able to apply it to change the contract in the same way the old employer could.
A transfer of a contract under TUPE does not in itself involve an offer of new employment:
There is a potential trap in the TUPE regulations which allows the employee to object to the transfer to the new employer.
If the employee simply objects to transferring to the new employer the employment contract will end on the transfer of the undertaking to the new employer but the employee will NOT be treated as dismissed. The employee will therefore have no right to claim unfair dismissal or to redundancy:
Where the transfer involves a substantial change in working conditions detrimental to the employee then the contract can be treated as terminated by the old employer and employment rights such as unfair dismissal or redundancy will be retained against the old employer:
In deciding whether there is a detriment to the employee the tribunal must look at the position from the employees point of view and ask whether it is reasonable for the employee to adopt that
Finally if the transfer involves a breach of contract then the employee retains the right to resign and claim constructive dismissal:
Where an employee is dismissed because of a transfer then the dismissal will be automatically unfair i.e. the employer cannot argue the dismissal was reasonable.
However if the employer can show that the dismissal was for an economic, technical or organisational reason entailing a change in the workforce then the dismissal will not be automatically unfair - although there may still be a claim for 'ordinary' unfair dismissal.