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TUPE and Administration Process Explained
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What is TUPE in company administration?
The Transfer of Undertakings (Protection of Employment) – or TUPE regulations – serve to protect the rights of employees when the company they work for enters into an administration process. If the company is sold as part of the exit out of administration, existing employee contracts will transfer over to the new company ensuring not only continuation of employment but also the preservation of existing terms, conditions, and period of continuous service.
TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations, ensures that the rights of employees are protected when a business is sold out of administration. It safeguards the current terms and conditions of employment, and provides for the safe transfer of contracts to the new employer.
Contracts cannot be varied or terminated apart from under certain conditions. The regulations can be complex, and both employers have specific duties and obligations.
As the outgoing employer, you’ll need to make sure that staff understand what is happening at every stage, and how the sale will affect them. TUPE rules don’t apply if the business is going to be liquidated and closed down.
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In company administration, the aim is to achieve one of the following outcomes:
- Company rescue as a going concern – only if this is not possible can the following option be considered:
- Achieving a better result for the creditors than if the company is wound up – if this is also not possible:
- The administrator must realise one or more assets with a view to paying the associated secured/preferential creditors
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The terms and conditions of each contract are covered. This includes an employee’s length of service which transfers to the new employer. TUPE also covers an employee’s rights with regard to their working hours, as well as their entitlement to claim arrears of holiday pay and other monies.
The existing and new employer must let employee representatives know what will happen during the process, and the reasons why it is happening. If the business employs fewer than 10 people, they can communicate directly with the employees.
- Why their employment contracts are being transferred to a new company
- When the transfer will take place
- How it will affect them as employees
- Whether there are any plans for reorganising the business
The number of agency workers the company is using, and the type of work they are carrying out
Employee’s pension rights are protected up until the time of transfer, but the new employer is under no obligation to continue running the same pension scheme.
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As the outgoing employer, you must also provide the new company with certain information about your employees:
- Details of their identity and age
- Employment details including disciplinary records for the last two years
- Any outstanding claims or grievances made against the old company during the previous two years
- Details of any collective agreements
This is known as Employer Liability Information, and must be provided to the new employer at least 28 days before the transfer takes place. Employees should be given a statement of employment from their new employer once the transfer has completed, confirming that their terms and conditions of employment have not changed.
Directors sometimes leave themselves open to claims of unfair dismissal around the time of a transfer. This is a similar danger for the new company if they let employees go after taking on their contracts.
You must have specific reasons for dismissing a member of staff at this time. If it is proved to be for anything other than ‘economic, technical or organisational reasons entailing changes in the workforce’ (ETO), you could face an employment tribunal and a charge of unfair dismissal.
This is a complex legal area and it’s a good idea to get professional advice on this and on making variations in a contract. TUPE regulations allow for certain variations to be made - if they will help to reduce the number of job losses, for example.
Employees have the right to resign before the transfer takes place, in which case there is no need for them to give notice – they simply inform you of their intention as the outgoing employer.
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Members of staff may be eligible to claim payments from the National Insurance Fund. If they are unable to claim the full amount of arrears, the incoming employer becomes liable to pay the shortfall.
Real Business Rescue can provide detailed advice on all aspects of the TUPE process. Being such a complex area with a high potential for error, it’s a good idea to seek professional guidance as a priority.
Further Reading on TUPE and Administration Process Explained
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