TUPE Back to Basics - ThinkHouse TUPE Club

Siobhan Bishop: Good morning everyone and welcome to our TUPE Club Webinar. I am Siobhan Bishop, a Principal Associate in the Employment, Labour & Equalities Team here at Gowling WLG. I am delighted to be joined by Jane Fielding, who is a Partner in the Team and the head of the Team, and also Hannah Swindle, who is a Principal Associate.

Today, we are going to be taking TUPE back to basics. We have designed this session specifically for those who do not have much experience in TUPE or perhaps those who would like a refresher. We will treat it, very much, as an introduction to all the fundamental concepts and the key issues and with some tips about how to avoid liability, as well.

So, if you do not regularly deal with this, we are hoping that that will be an ideal session for you. I am sure that you will know TUPE is a challenging area and there is a lot to cover. So, the way we are dealing with this is in two parts. Today we will do the "back to basics" and then later in June we will have another Webinar where we will dig into the details and give you more information and examine some of the issues, especially the more complex issues, more carefully.

So, what is on the agenda today? First, "what is the effect of TUPE?" So, what is the effect on the employees and the risks that it creates and we will also look at what Brexit means for TUPE going forwards. Then, when does TUPE apply? That is the key question, both in terms of the sale and acquisition of a business and an outsourcing situation. TUPE and information is one of the key practical things that you have to look at, so we will look at "how and when that applies" and, finally, we'll wrap up with "mitigating risks", so helping you to avoid liability for the key issues in a TUPE situation.

We are aiming for an hour today. We will run through the presentations first and then there will be time for questions at the end. I am going to disappear off screen to marshal those questions so we can answer them, or as many of them as we can, in the time at the end. However, you can submit your questions at any point during the Webinar using the Q&A box and we will deal with those, as many as we can get through, at the end. I am going to, first of all, hand over to Jane, who will dealing with "what is the effect of TUPE?"

Jane Fielding: Thanks Siobhan. So TUPE - Transfer of Undertakings Protection of Employment Regulations 2006. If you remember nothing else about this talk, remember the bit in brackets "Protection of Employment" because that is how Tribunals, when they look at TUPE, will generally interpret any ambiguity in the provisions. It is all about safeguarding the rights of employees when there is a change in ownership in the business in which they work or there is a change in service provider for any services in which they are engaged. So, it is all about looking after people when they get moved with the employer's business or services being provided.

Originally TUPE came from Europe, so the Acquired Rights Directive we have had since 1977. It was updated in 2001 and TUPE 1981 was when we first started grappling with this in the UK. That was replaced in 2006 with a new set of TUPE regulations and those are the ones that we use today. It was again updated in 2014, but it is still the TUPE 2006 ones that are the main regulations. Then obviously overriding all of that and helping us to understand TUPE is a constant stream of case law, both domestic and European.

So there is a lot, as Siobhan said, to get to grips with in TUPE and for a relatively short set of regulations, it can get quite fiddly. In addition, clearly, because it is law from Europe, we also need to look at what the situation is now we are post‑Brexit. So, as I am sure you all know, the EU Withdrawal Act 2018 is the relevant piece of legislation here and it sets what is called this Implementation Period, which ended on 31 December last year at 11pm. That is a key date for understanding what happens in terms of Retained EU law, as it is called, now we are post‑Brexit.

So, basically, what the Act does is it freezes EU law that was applicable in the UK immediately before that December date. What it requires our UK courts to do is to follow European CJU decisions that were taken before that date. They are given, by that Act, the same status as Supreme Court decisions. However, there are certain UK courts that can depart from that European case law, if they think it is right to do so. Those are the Supreme Court, obviously, but also the Court of Appeal and the Court of Session, in Scotland.

That is where it stops though. So the Employment Appeal Tribunal which is, as you all know, the first instance appeal court after the Employment Tribunal, does not have that ability to depart from pre‑IP EU cases. It is only the Court of Appeal and Supreme Court. Most TUPE cases do not really get beyond the EAT. There are not as many appeal cases as there are with other areas, such as discrimination, that go beyond that. It will be interesting to see how long it takes for any pre‑IP EU cases to be departed from, because they have to get to at least the Court of Appeal.

In terms of future decisions of the CJU, the basic position is that our domestic courts are not bound by post‑IP principles or cases. So, they do not have to follow future decisions of Europe, but they can have regard to it if they consider it to be appropriate. So, what do we think about future changes in the area of TUPE? Well, in the Trade and Co-operation Agreement there is a "non‑regression" principle and it does apply to employment law, so it will apply to TUPE. What that says is that, basically "if the UK diverges from EU law at any point and that affects trade and investment or impacts on trade or investment, then the EU could trigger a dispute resolution mechanism".

It is not unlikely or impossible to see a situation where we might water down TUPE, water down the effects of the protection of employment rights, making it perhaps cheaper to employ people, less onerous to take on a workforce and that potentially could impact on trade and investment and therefore get into this sort of dispute resolution mechanism. However, it is very early days, too early really to predict whether that is going to happen. Certainly, we have not seen anything coming out of the Department for Exiting the EU, indicating any intention to do anything around TUPE, but it is a possibility.

That is all I wanted to say about Brexit.

In terms of the effects of TUPE, what does it do? I mentioned that it is all about protecting employees and it does that in a number of ways. Firstly, employees who are assigned to the business or the services in question will automatically transfer and Hannah is going to look at what assignment is in more detail.

The basic principle here is that people move across with their work, if they are assigned. It is about protecting employees. Employees can say, "I don't want to go" as, enshrined in TUPE, is each assigned employee's ability to opt out or object to transferring. They cannot be forced to work for somebody they do not want to work for, so that is a key part of TUPE.

They move over on their existing terms and conditions, so they are preserved, and if they have any claims against the transferor (the current employer), then those go across as well and the transferee (the new employer) inherits those. They might have a claim for underpaid wages; they might have a harassment grievance ongoing or a claim; the transferee steps into all that. In terms of collective issues, if there are collective agreements in place between the transferor employee and a recognised union and those provisions flow down into the individual employment contract of the employees who are transferring across, then the transferee will inherit them as agreed at the point of transfer.

Therefore, if there is a two-year pay deal agreed, for example, and they are only six months into that, the transferee will inherit the obligation to increase the pay, as agreed, over the two-year period. They are not caught by any changes agreed subsequent to the transfer if they are not, in their own right, party to that bargaining at a collective level.

If there is trade union recognition in respect of the staff who are transferring over, that could transfer. Where the organised grouping of resources or employees (which is a fundamental part of whether there is a TUPE transfer in the first place and Hannah is going to cover) and it maintains a distinct identity in the transferee organisation, then the transferee can also inherit trade union recognition. This will be on the same basis as the transferor. So, if it was voluntary, it could be derecognised as a matter of law although there would be industrial relations issues arising out of that, of course.

The transferee effectively steps into the transferor's shoes in respect of all the rights, powers, duties and liabilities as between it and the staff, but there are some exceptions to that. The first exception is criminal liabilities. In contrast to civil or tortuous liability, criminal liability cannot transfer, so that might be, in this context, around immigration checks, there might be criminal issues around tax, something like that. That stays with the transferor.

The second big exception is pensions. Old age benefits under occupational schemes do not transfer to the transferee but early retirement and enhanced redundancy benefits, under that type of pension scheme, which can be very generous, can transfer. Those are the Beckmann and Martin rights, which you might have heard about, and they are very complex. We have an excellent Pensions Team and we always involve them, because these can be very significant liabilities and it is really important to understand where they might fall and how they are valued.

Private pension contractual obligations of the transferor do transfer. For example, if you have a contractual clause that says the employer is going to contribute 10%25 to a group personal pension scheme, then that will transfer and the transferee will need to fund that.

So a few more effects of TUPE. Again, bearing in mind TUPE is about protecting employees, changing terms of employment becomes more difficult in a TUPE context. Staff go across with their terms and conditions intact. There might be a right in the employment contract to change terms that the transferee can use. However, those tend to have to be approached with caution in any event because the extent of that right may be open to challenge.

If you do not have that in a TUPE context, it is very difficult and there are very limited circumstances in which a change is allowed, even if the individual employee consents. The effect of the change not being valid is it is void and that can cause difficult complications so this change in terms of employment is a tricky area in TUPE and one we will look at more in the next session that Siobhan mentioned that we are going to do in June.

The second key protection in a TUPE context is enhanced protection for unfair dismissal. Employees still need the two-year minimum qualifying period to claim unfair dismissal but, if they have that qualification, then the situation is that there is automatic unfair dismissal if the sole or principal reason for the dismissal is the transfer itself. If it can be shown that there was an economic, technical or organisational reason for the dismissal which involved a change to the workforce, so that is either a change to headcount or a geographical relocation, then it is not automatically unfair but we revert to normal unfair dismissal principles to see if the dismissal is fair or not.

The automatic unfair dismissal, if the sole or principal reason is the transfer and it is not saved by ETO reason, is very valuable. It means that whatever process you follow in terms of consulting about the dismissal it does not matter, if that link is made out, then it is an automatic unfair dismissal finding.

The final protection for employees is around providing information. There is obligation around employee liability information, from the transferor to the transferee, so they understand more about what they are inheriting, what the rights and obligations they have towards the staff are, so they can honour those. The second aspect of information is that the staff are entitled to be told and consulted about the proposed TUPE transfer and the impact of it via employee representatives and I am going to come on to look at both of those things in a little bit more detail.

The first point is that the information and consultation obligations in terms of consulting with employee representatives are wider than just informing and consulting the individuals who are in scope to transfer. They apply to anyone who is affected by the transfer. It is important to bear that in mind because there is not the direct correlation there. I am going to come on to that later and first I am going to hand over to Hannah.

Hannah Swindle: Okay, so I am going to look at "when does TUPE apply?" which is always the million-dollar question. We spend a lot of time helping clients to identify the risks of it applying but there is never 100%25 certainty of that, so sometimes we have to just take a view and proceed on the basis of whether it will or it will not.

To be able to get to a certain a position as we can, we need to look at the legal framework. On the slide, we have the initial part we need to look at. TUPE applies where there is a relevant transfer and there are two types of potential transfer. First of all, we have a business transfer and the classic example of that is where you have a business being sold as a going concern. The other type is a service provision change, which involves outsourcing and a change in the provider of services to a client.

These types of transfer do overlap and it can be possible to be both types at the same time, so it is always important to consider both types. Looking first at a business transfer (it is often called an old style transfer because it has been with us since TUPE first came about in 1981), we need to have a transfer of an economic entity or undertaking, or part of one, in the UK to another legal person or company. The entity or undertaking also needs to retain its identity after the transfer and I will look at each part of that definition in more detail in a moment.

But here, as shown on the diagram, there is going to be a transfer of employees from the seller (or the transferor) to the buyer (or the transferee). First of all, for TUPE to apply we need to have an undertaking or business or part of an undertaking or business in the UK and there has to be a transfer of the running of that business, or part of business, to another legal person, which is usually another company.

Often, in a business transfer, there will be a purchase or sale contract, but importantly there is no need for a contract between the two parties. The important thing is to look at the start and end point of where the work or the business is moving to and from to identify whether a transfer has taken place. TUPE does not apply to the sale of shares but, a confusingly, there is potential to apply before or after a share sale if there is any inter‑group reorganisation to move parts of the business to another part of the group.

So, what is an economic entity? It is an organised grouping of resources pursuing an economic activity. It does not matter whether that economic activity is central to the business or just ancillary to it, but you need to be able to identify it. It is still quite confusing as to what this actually means but, clearly, what we know is that it is not just a collection of assets. So when does it tip over into something more than just assets? It is often clear, for example, where you have a sale of a whole division of a business or, even more obviously, all the assets of the business to a single buyer.

Where you are splitting assets between different buyers, it becomes more difficult to work out and so you need to look at each split in detail. You need to ask the question whether there is enough for it to be an economic entity and that might depend on what asset is included in the sale based on the nature of the business. For example, in a software business, that might be the IP; in a cleaning business, where are the people going?

For TUPE to apply, that undertaking or economic entity has to retain its identity post transfer for TUPE to apply. The test that is used to work this out is often called the "going concern test". All the relevant factors must be looked at including what has actually transferred, good will and including, importantly, which assets. I have just mentioned that certain ones are going to be more important for different types of businesses.

You also need to look at how similar the activities are before and after the transfer and whether there is a transfer of employees and customers. Finally, we know from case law that an entity can retain its identity even if it is integrated into the transferee's business after the transfer.

The second test in TUPE is one which came about in 2006, largely to address the fact that the old test had started being applied as a matter of case law to outsourcing. So, the service provision change test was brought in to try to give a bit more certainty in outsourcing situations. It is going to apply in three scenarios. The first is an outsourcing of services from a client to a contractor, so that is where activities are being carried out by a client on its own behalf and they decide to have a contractor do those services for them going forward.

Secondly, it can apply where the client has decided to change that contract, to switch to a different provider, and that is sometimes called a "second generation outsourcing" where the services are transferred from one contractor to another. Finally, it can apply to an insourcing, where the client decides they now want to do that activity back in‑house and they insource it.

The slide shows the typical model in an outsourcing service provision change. You have the client at the top, the customer for the services. Then, at the next level down, the service provider or the suppliers, so both the outgoing and incoming employers. Where there is a change in service provider, the TUPE transfer goes directly from the outgoing provider or supplier to the incoming provider or supplier.

There is not a direct contract between these two providers and TUPE works independently from the actual contract. Instead, the contracts are between the service providers and the customer. The customer itself is not a party to the TUPE transfer. This is really important because it impacts on how the indemnity protections work. Indemnities are usually included in a contract where TUPE applies to protect the incoming employer from inheriting liabilities arising from the acts of the outgoing employer because otherwise, as Jane has already mentioned, they transfer over automatically with the employees.

Instead of going directly between the outgoing and incoming employer, as they may do in a business sale, they will be between each supplier and the customer. We will look at the issues around drafting in more detail in our next TUPE session in June.

So, in some more detail, the conditions for a service provision change are that you need an organised grouping of employees who are situated in Great Britain and their principal purpose needs to be carrying out activities on behalf of a client. It is also necessary that the client intends that fundamentally the same activities will continue after the transfer and that is always a question of fact. The parties need to look at how the activities are carried out in practice and also what the contract says.

There are a couple of key exceptions to be aware of that have been written into the legislation. A service provision change does not apply to contracts wholly or mainly for the supply of goods for the client's use. The government's TUPE guidance gives the example of a contract to supply sandwiches for a client to sell to staff in its canteen. This will be covered by the exemption so TUPE will not apply if they change that contract or retender it. However, if you contrast that with a contract to run the staff canteen, that means the activities would not be wholly or mainly for the supply of goods. It is a service, so TUPE would apply there.

The second exception is that it will not apply to contracts for a single specific task or event of short-term duration and case law confirm that the two should be read together. Therefore, we are referring to a single specific event of short-term duration. Government guidance again has given us an example and they gave the example of the supply security services at the Olympic Games. It is a question of fact and degree, what is short term? In addition, the client's intention immediately before the transfer is really important. You cannot use it to get around TUPE just by entering into a succession of one-day cleaning contracts, for example.

Therefore, once we have worked out that we do have a TUPE transfer, next we need to think about who it is going to apply to. The regulations state that TUPE applies to all employees assigned to the organised grouping or transfer and undertaking. They do not define "assignment" in the regulations, all they state is that "it is other than on a temporary basis". That is going to be a question fact in any one case.

It is important to look at a number of different factors to work this out. None of the factors are determinative in and of themselves; you have to look at them altogether. On the slide, we have set out the various factors that are most commonly considered. At the top, there is time. We are often asked whether someone will be assigned for TUPE purposes if they work more than 50%25 in the business or on particular services.

It is a good starting point, a rule of thumb, to identify the people who are most likely to be in scope, but it is not simply just a question of how much time they spend on that particular business or service. It is a factor but it is not determinative. We also need to consider things like the nature of the work, what does it say in the employee's employment contract? Also, importantly, what do they do in practice? What are their actual day‑to‑day responsibilities?

Allocation of costs can also be relevant. Is the cost of an employee allocated to a particular client contract for example? We also need to look at the value of that individual for the service or the business in question. What we do know is that someone has to be assigned other than on a temporary basis, so TUPE is not going to apply to a temporary secondee, but it would apply to someone who has made a permanent transfer, even if that is relatively recently.

The trickier areas often come about where employees work on more than one contract or for more than one client, such as a project manager or possibly in a shared service team such as HR or IT, which supports many different parts of the business. In those cases, it is really important to consider all the factors, including that type of job role. A project manager will not necessarily be assigned to a contract just because they are spending all of their time on that contract in the lead up to transfer troubleshooting. It can also be the case that employees are not actually assigned to any particular contract. Thank you. I will pass you back to Jane now.

Jane: Thanks Hannah. I am going to pick up on information and consultation. Firstly, the obligation on the transferor to provide employee liability information to the transferee is to help the transferee understand what they will inherit in terms of the number of people; the profile of the people; what basic terms and conditions they are on. I am not going to read out all of the particular categories of information on the slide, but they are set out there and you can see more detail in Regulation 11 of TUPE.

However, what you can see is that it does require a degree of organisation and co‑ordination by the transferor to pull that information together to pass on, at the appropriate time, to the transferee. Generally, in our experience, some HR departments are excellent at capturing that information, if they do a lot of TUPE work and some, if TUPE is a less regular occurrence, take some time to pull that together and to make sure that you are getting the right information. Some degree of organisation and co‑ordination is very helpful there.

So what do you have to do with this information? Well, you have to give it to the transferee at least 28 days before the transfer takes place, or the date you expect it to take place. If you provide the information in compliance with that obligation under Regulation 11, then you have your data protection basis for doing so because you are complying with that legislative obligation.

If you do not comply, as the transferor, what is the potential liability? Well, it is just and equitable compensation, which the transferee can be awarded, if they put in a claim to the Employment Tribunal. The award is at least £500 per employee for failure but the Tribunal will take into account the provisions of any indemnities that are designed to protect in this area. However, I have said on the slide that it is really "too little too late". The reason we say that is, in terms of it being "too little" you can see from the list that it does not cover some very important aspects that the transferee might be interested in in terms of the employment contracts of the staff.

It does not cover whether they have enhanced redundancy protection and, if they are looking at reducing headcount, then that could be very significant. It does not cover, for example, if they have valid restrictive covenants in place and, if you are in a business sale situation, that could be particularly significant. Therefore, there are some key areas, in which a transferee would be interested, which they will not get from the employee liability and information obligations. That is where we quite often see them supplemented by the customer in an outsourcing, for example, with contractual provisions to try and flush out more information.

That is also relevant and the reason why we have those provisions in terms of timing. Because if you are looking at a large workforce or a large scale retender of services and a long tender process, then 28 days before the transfer is going to be too late to help potential bidders, if you are in a tender situation, shape their bids, understand their pricing etc. Those contractual provisions requiring the incumbent contractor to provide information, usually on an anonymised basis because that helps with the data protection impact, to provide that information much earlier in the process, is very helpful in that sort of situation.

The other key aspect of this, which is perhaps, more obviously, for the benefit of the employees affected are the obligations to inform and consult. They are distinct obligations. The obligation to inform applies in every TUPE situation. The obligation to consult is only mandatory where the employer envisages measures, and we will come on to look at what measures means in a little bit. Even if there are no measures and the obligation to consult is not there, case law tells us that you should still leave time in the timetable for voluntary consultation to take place.

Effectively this means a gap in the timetable. You have informed but before you actually go ahead with the transfer, you should allow some time for the staff, via their representatives, to raise questions and make comments etc. But it is not an actual obligation in terms of mandatory consultation and the obligation, as you can see on the slide, is to consult with appropriate representatives and Regulation 13 tells us what that means.

Basically, if there is a trade union that is recognised in respect of the affected staff (and they are all in the same bargaining unit), then the trade union is the appropriate representative. However, if there is no trade union or there is a trade union but recognition is only in respect of part of the affected staff group (meaning the bargaining unit does not cover all the affected staff), then the employer has a choice for those staff that are not in the bargaining unit.

They can either consult with staff representatives who are pre‑elected, so there might be an existing staff forum, for example, as long as the purpose for which they were elected is wide enough to capture TUPE (and it will not always be), then that is an option. Or they can choose to invite the staff to elect representatives specifically for this TUPE exercise. That is generally the safer option because you do not need to worry about whether the pre‑elected forum has standing or whether individual members are still within their term of office, for example. However, if you do invite staff to carry out an election then, obviously, there is a knock‑on effect on the timetable for the TUPE transfer because you have to build in time for those elections to be conducted.

So, what information do you actually have to give the affected staff? Well, it is there on the slide. It has to be in writing but otherwise it is fairly unprescriptive how you provide it. It is basically letting the affected staff know about what is being proposed; what it means for them; why it is being done. Focussing on the last two bullet points on the slide there, these are where we have to talk about the measures that are envisaged by the transferor or the transferee. If there are no measures, that must be confirmed.

So what does "measures" mean? It is not defined anywhere in TUPE, which, like many things in TUPE, is not that helpful. The case law tells us that it is "any positive act or remission by the employer". It is a very low threshold so, for example, there have been cases where only the payroll date has changed and that has had a slight impact on deductions made to salaries, sometimes in favour of the employees, not necessarily to their detriment. Even that counts as a measure that should have been informed and consulted about.

Finally, you have to provide specified information about agency workers who are working in the business and that seems slightly odd in a TUPE context. There is a mirror obligation in the context of collective redundancy consultation where it makes more sense because, in that situation, the union or the elected representatives might be saying "well why do you not, rather than make employees redundant, look at letting the agency workers go first?"

In that context, it makes a lot of sense. In this context, slightly less so. However, it is there and if you do not provide the information there is case law precedent to show that a penalty, which I will come onto in a minute, will still apply. Therefore, basically, you have to be telling the representatives how many agency workers there are; which parts of the business they are working in; and what type of work they do.

So moving on to consultation, when do you have to do this? Well, you have to do it "long enough before the transfer" to allow meaningful consultation to take place (a vague term). Basically, that means "in good time" for it to be an effective process. It is, of course, going to depend on how many people are affected and the number and extent of the measures that are being proposed.

Here I just wanted to flag a slight oddity about TUPE which I think people get confused about. The obligation to consult about measures is only between the transferor and its own staff and the transferee and its own staff. So they both have separate obligations towards their existing staff who might be affected to inform and then, if they propose measures, in respect of those staff to consult.

There is not actually any obligation on the transferor to consult its employees affected by the transfer about the measures proposed by the transferee. However, what happens in practice, because it is best practice to look after the staff generally, is that the transferor will invite the transferee in to talk to the staff who are going over, about what they propose. That is what happens in a best practice situation.

There is a separate obligation on the transferee to comply with a duty to confirm what measures it envisages to the transferor so the transferor can pass that on to the appropriate representatives. I will just say there is not actually any obligation on the transferor to consult but often they will facilitate a process voluntarily or because they are required to do that by a customer contract in an outsourcing scenario.

In terms of the penalty for getting this wrong, the maximum penalty is 13 weeks' actual gross pay per employee affected by the failure. So a good short term for that, which can get the attention of the finance director, in particular, is that it is a quarter of the annual wage bill for the affected employees -that is if you do nothing. If you do something, then you have the ability to argue down from there to what is just and equitable compensation.

For the transferring staff, the ones who are going over to the transferee, any award is made on a joint and several basis, so the individuals can choose who to go against. If the only default is because the transferee did not give the transferor the measures information (and therefore the transferor could not pass that on to the appropriate representatives), then, in the event of a claim, the transferor can join in the transferee and push the liability back onto the transferee because it is their fault and therefore should be their liability.

The last thing I wanted to mention on this is that we are often get asked… "Well, you know, it was really late, we were getting pressure from our parent company, we were in an insolvency situation, do we really still have to do this?" The answer is basically, "Yes, you should really try and do whatever you can in the time available". There is a special circumstances defence but it is only very exceptionally applicable and, in practice, we would generally recommend not paying too much attention to that because it is very difficult to bring yourself within that situation.

To bring the penalty down, it is really advisable to do whatever you can in the time available, even if you cannot do a full information and consultation process. I will now hand over to Hannah who is going to talk about mitigation.

Hannah: Because of the automatic transfer principle of TUPE and the additional obligations that it places on the outgoing and incoming employer, it can result in potentially significant additional risk and costs, The main areas in which risks can arise are set out on the slide.

First of all, we need to consider the employees involved. The parties need to know who will transfer. If you are the incoming employer, it is important to try to obtain information about who you are going to inherit. You may need to know you have enough staff, with the correct knowledge, to be up and running with the services from day one. Are there any key employees you want to ensure are transferring? If you do not inherit the correct employees, that could impact on your ability to meet service requirements for your customer. You also need to ensure that you are aware if anyone is temporarily out of the business. For example, is anyone on sick leave or family leave, because they will still transfer.

If you are the outgoing employer, you will need to know what the remaining workforce is going to look like after the transfer has happened. It is less of a problem where you have an entire service being outsourced or moved to another provider and it is clear which employees work on those services and therefore who will transfer with it. However, it is more difficult where only part of a service or business is going to transfer and if you have employees who work across the entire service or business.

Are you losing any key employees yourself? If you are and you want to make sure they are retained, you will have to consider ways to do that. For example, you might move them into other parts of the business before the transfer. We will be looking at practical issues like this in more detail in our June session.

The next point on the slide is more of a problem for the incoming employer. As we have heard the employees transfer across with all of their pre‑existing rights and liabilities with a few exceptions such as pensions and criminal problems. The incoming employer must work out how to replicate benefits that the employees are entitled to and that can often be a problem, especially where you have insurance type benefits or where the employee is entitled to benefits which are linked to the outgoing employer's business. So, for example, access to a share option scheme.

The incoming employer has to consider if there are any pre‑existing issues in the transferring workforce that need to be dealt with. For example, long term sickness absence or ongoing disciplinary issues.

The next point is Information and Consultation. Jane has already mentioned that the potential maximum liabilities are 13 weeks' gross pay (or a quarter of the wage bill) if you get it wrong. So, it is very important to build in sufficient time to any transaction or transfer to make sure you do a proper process.

Finally, it's important to work out if there are any risks which arise due to the specific deal you are working on. For example, this might be issues such as a transferring workforce with large amounts of accrued holiday or maybe transferring employees are entitled to a very generous bonus or if there are going to be a lot of redundancies to right size the service right from the start. I will come on to how we might deal with those in a moment.

Another example of risks that may arise include that after the transfer the incoming employer wants to make some changes to terms and conditions of employment or working conditions. They might need to fit in with existing shift patterns, for example.

First of all, it's important to remember that any proposed change is going to be a measure and that needs to be consulted about, even if it does not consist of the factual change. Jane mentioned that claims can arise if employees do not like the impact of the change. There might be issues to ensure that any contractual changes put in place are valid. We will discuss this in more detail in our next session (in June), looking more at those types of risks and how we can actually make some valid changes.

Redundancy situations often arise in connection with the transfer. The incoming employer can end up with too many employees post transfer. There might be more employees than it needs to carry out the work going forward or they operate from a different location and you cannot either require the staff to relocate or they do not want to.

The outgoing employer might also have a potential redundancy situation in its retained population. It may have a reduced need for staff after losing contracts that the employees worked across, for example. In all cases, redundancy dismissals need to be carried out fairly or you have a risk of claims. Post transfer redundancies are also going to be a measure.

Where there is an outsourcing situation, there is an added level of complexity. I have discussed earlier in the session there are three parties involved but where you have that transfer taking place between the outgoing and incoming providers, only one of them is going to be a party to a contract with the customer at any time. So outsourcing brings its own challenges because of that tripartite nature of the arrangement and, where there is a change in provider, the incoming employer does not have any direct indemnity protection from the outgoing employer, as you might have in a business sale.

So, all those indemnities have to be flowed through the customer. As the customer enters into a new contract with an incoming supplier, it has to consider what indemnity protection and rights it currently has under its existing contract with the outgoing supplier and also look at what obligations it is subject to. It might be asked by an incoming supplier for indemnity protection in respect of liabilities connected with those transferring staff. If the customer does not have those in its existing contract with the outgoing provider then it's going to be left exposed it if gives them to the incoming provider. Commercially, the incoming supplier has to account for that risk it is going to inherit all of those problems automatically under TUPE. It may have to increase prices, for example, if it does not get those indemnity protections. That is often an issue the customer has to consider.

The customer has to flow through any obligations it is subject to under its existing contract, in relation to those transferring employees, to the new supplier. This ensures that they comply because, otherwise, the customer is left on the hook and it could be left responsible for potential liabilities that the incoming supplier causes.

It is important not to forget about sub-contractors, if the supplier is using them to supply the services. If the supplier is subject to obligations or is given rights or protection in respect of all the staff working on the contract (and not just its own employees), then those have to be closed down in the sub-contract.

A customer has to think about managing employees during the contract, so it wants to place some controls on the supplier. Ideally, it is going to want to stop the supplier being able to move the well performing staff off the contract and poor performers onto it near to termination or materially changing terms and conditions to the employees benefit because the incoming supplier we inherit all those terms due to the automatic transfer under TUPE. Those are often called "anti-sabotage" controls, for obvious reasons.

The customer also needs to include the right to ask for information at an appropriate time so that it can complete its retendering processes effectively. Jane talked about ELI (employee liability information) but that is very limited in terms of content and often provided too late, 28 days before the transfer. So, under the contract, more comprehensive employee information can be obtained.

Finally, the parties in negotiation often concentrate on the start, commencement, and they do not think about exit. It is very important to think about what might happen. Do we expect TUPE to apply? If we do, we need the usual indemnity protection. As a supplier, what are you going to do if TUPE is not anticipated to apply or if it does not apply? Would you be looking to ask the customer to bear a redundancy cost, for example? This is going to be more of an issue if you have inherited a lot of people at the start of the contact and you are left bearing the costs for those people. Even if you do not expect TUPE to apply, the customer needs to make sure that it has adequate indemnity protections in place because the suppliers could change how the services are provided during the term, which could result in a transfer after all.

So, some reminders. Where there are people carrying out services or working in a business you have always got to consider TUPE, even if you do not think it is going to apply. It is much better to address any potential issues at the start rather than being tied into a position later down the road and contract negotiation. If you might be affected by a transfer, it is really important to carry out due diligence, look at who is working in connection with the business or services. Do not forget sub-contractors. Are there any risks or liabilities connected with them or is there anyone on long-term sick, any potential claims lurking around? Ideally, you want to know about these issues before the transfer, although the individuals are still going to transfer. In most cases, you might be able to agree that the seller or the customer will take responsibility for any potential liabilities or to ensure that the outgoing employer agrees to co-operate to enable the incoming employer handle an ongoing disciplinary issue.

Workforce planning is really important, as an incoming or an outgoing employer, who are you going to inherit, who are you going to be left with, will you still want key employees, are any redundancy processes needed? It is key that enough time is factored in to carry out the due diligence and the planning processes.

A properly run information and consultation process also needs time. If there are no trade unions, then the staff may need time to elect their reps. Therefore, any issues that arise due to TUPE need to be considered at an early enough stage so they can be dealt with. If there will be redundancies to make the services or a business the right size, then, first of all, who is going to pay for these? If it is for the customer's benefit or a buyer's benefit in a business sale, they might pay for these costs, for example. The timing of those redundancies are also important. Often, the parties want to make redundancies pre-transfer, especially where you have a relocation of the business or services, because this saves time and salary costs post transfer.

However, the outgoing employer can't use the incoming employer's ETO reason to make the redundancies fair. If the redundancies are made before the transfer, they will automatically unfair for employees with two years' service. You have to weigh up that risk with the benefit of getting those redundancies sorted sooner. Sometimes, it might be better to wait until after the transfer because the risk will outweigh the benefit of making redundancies before.

One way of mitigating a risk would be to use a settlement agreement to compromise any unfair dismissal claims. That involves costs as the employees have to have legal advice and usually you have to pay employees an ex gratia amount. Despite that, it might be worth it if you really need to make sure that those dismissals are made by the date of the transfer.

Another issue often arises from the requirement to inform and consult. If the transaction must happen quickly, for confidentiality reasons, for example, then the parties might agree not to undertake a proper process because the benefit of getting the deal done outweighs the risk. In that case, the party who benefits from a quick deal should also take the risk of not following the correct process, if possible.

Another way of mitigating many of the risks I have identified is to get contractual protection. I have mentioned already there is a need to ensure the supplier is required to provide employee information. During the contract or in the lead up to termination, or in a business sale, you want to get that information as part of due diligence and backed up by warranties.

A key way of obtaining protection is by using indemnities and they are used as a standard market practice to apportion liabilities pre and post transfer, deal with liabilities that might come about where a party fails to comply with its obligations (that might be information and consultation) and also where there are employees claiming to transfer who have not been identified previously.

You could also use indemnities for any specific risk that you have identified such as covering the costs of a long-term sickness absence, a large amount of accrued holiday entitlement or an ongoing disciplinary issue or potential redundancy costs at the end of a contract where TUPE does not apply.

There might also be some significant pension liabilities attached to certain employees. For example, that might happen if they came from the public sector originally. That could be covered by an indemnity for any additional costs that might result. We will be discussing those drafting issues in more depth in June.

The final point I would like everyone to take away today is that the commercial drivers of a transaction or outsourcing are always really important. Employee risks might not be the most important factor. Speed of the deal or the value of it might mean that the employment aspect and potential liabilities are secondary. You have always got to consider the employee list so the analysis and decision can be taken in a fully informed way.

Now, we have just got a few minutes for some questions.

Siobhan: Thank you very much to Hannah and to Jane for that and thank you to everyone who has been submitting their questions throughout the webinar.

We have quite a few and let's not waste any time, so we will kick off straightaway. I have been putting them together so that we can literally run through them as quickly as possible.

First, we are going to ask Jane a question about ELI. Can the transferor provide a supplementary document setting out other contractual benefits that are not covered by ELI?

Jane: They can. There is nothing to stop you supplementing your basic obligations under TUPE. I suppose the only thing I would say is you need to be mindful in that situation of the data protection obligations. As you are giving something that is not required under regulation 11, then you are going to have to comply separately with data protection obligations because you will not be in that legal exemption for complying with an obligation under statute.

Siobhan: There is another question on data protection which links to whether you need a privacy notice and/or explicit consent from employees to give information to the new employer?

Jane: In an employment context, consent does not generally work because of the inequality of the bargaining position and so relying on employee consent generally is not the best way to go. It is best to find some other basis for passing on the information. Your privacy notice, the transferor's privacy notice, hopefully will envisage a situation for a legal obligation to pass on the information and you would be able to rely on that. If you do not have a privacy notice at all then you should probably be remedying that anyway and certainly if it is a fast moving TUPE situation and you need to tell people then I would recommend telling them if it is not already covered by the privacy notice.

Siobhan: OK thank you, Hannah one for you. If an employee transfers in and then there is a redundancy situation after that, which terms relating to the redundancy package will apply, is it the old terms or the new employer's terms?

Hannah: It is going to be the old terms because the employee transfers across with all its existing rights and liabilities. So, the terms and conditions that they were entitled to at the time of the transfer, transfer across with them. So, if there is a redundancy process after the transfer then it is going to be the old employer's terms that are applicable.

Siobhan: OK we have a question on the service provision change test. Is it right that for that test both parties need to be in the UK?

Hannah: No, that is not the case. For a service provision change to apply, you need to have an organised grouping of employees situated in Great Britain and there is no obligation for the incoming employer to be inside the UK. So, you do end up with a practical issue, you can have TUPE applying but really there will be a redundancy because it is most likely that employees are not going to either want to relocate overseas or not going to be able to and you might also have a difficulty in enforcement. So, the issue is how practically to deal with the redundancy process and who is going to pick up those costs? Also, doing it as fairly as possible without complication and hopefully getting the incoming employer to take part but they just might not.

Siobhan: Thank you for that, and another question linked to redundancy is for Jane. When do you inform the employees - when do you have to declare during the initial consultation process that there might be a potential redundancy situation following the transfer? When do we have to do that?

Jane: Well, it is clearly a measure. Redundancy is going to be a measure. So, if you are the transferor and you envisage having to make redundancies yourself because, perhaps, of the shared service and some of the staff supported by that shared service are going to transfer and there is diminishing work for those left behind, then you should be cracking on with that fairly early on in the information and consultation exercise because you need to make sure there is enough time for that.

Similarly, if you are the transferee, if you have settled plans that you are going to need to make redundancies, perhaps you will be overstaffed or maybe you have a different way of doing things, it is a measure. That is not sufficient to mean that TUPE does not apply but it might just mean that you do not need as many people. Then you should be flagging that as a measure and, ideally (given that it is protection of employment), you would be engaging with that early on. Sometimes, because it's particularly confidential, people do not want to reveal their plans and, as Hannah was picking up at the end, there is always a risk v benefit analysis to carry out there. What is the real commercial driver for this and actually is an information and consultation award not that important in the grand scheme of things? So, it is always going to depend on context but the general rule of thumb, if you want to be compliant, is to get the information out there earlier rather than later.

Siobhan: Thank you, I think looking at the time, we probably need to wrap up the questions at that point. Which just leaves me to say thank you very much to our presenters and thank you to everyone who has engaged so enthusiastically with the questions. We are sorry if we have not reached your question and there were a number appearing on changes to terms and conditions. We will get in touch with you but these are the kind of issues that we will be discussing in more detail in our next webinar, in June. We will send out information about that and please do sign up to that if you are interested. We hope today has been useful and hope you will join us in June. Thank you.