TUPE Regulations: A Guide for Employers and Employees

The Transfer of Undertakings (Protection of Employment) Regulations 2006 — universally known as TUPE — is one of the most important pieces of employment law for businesses buying, selling, or outsourcing services. Getting TUPE wrong can result in automatic unfair dismissal claims, injunctions, and unlimited compensation. This guide explains the key rules for both incoming and outgoing employers.

1. What is TUPE?

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended in 2014). It implements the EU Acquired Rights Directive and has been retained in UK law post-Brexit.

The core purpose of TUPE is to protect employees when the business or service they work in changes hands. It automatically transfers employees from the outgoing employer (transferor) to the incoming employer (transferee) on their existing terms and conditions, preserving their continuity of employment as if they had always worked for the new employer.

The practical effect is that employees cannot be dismissed simply because the business is being transferred, and they do not need to sign new contracts — their existing contracts transfer automatically by operation of law.

2. When does TUPE apply?

TUPE applies in two main situations:

Business transfer

A business transfer occurs when there is a transfer of an economic entity that retains its identity. Key indicators include:

• The transfer of goodwill, customers, or assets
• The business continues doing the same (or similar) activity after the transfer
• Employees are taken on by the new owner

A business transfer can be of a whole business or just part of a business (for example, a division or branch), provided that part operates as a distinct economic entity. A share purchase where the company itself changes ownership does not trigger TUPE — because the employer (the company) remains the same.

Service provision change

A service provision change (SPC) covers three scenarios:

• Outsourcing — a client takes an activity performed in-house and contracts it out to an external provider
• Re-tendering — an outsourced service is awarded to a different contractor
• Insourcing — a client brings a service back in-house from an external provider

For SPC to apply, three conditions must be met: (1) immediately before the transfer there must be an organised grouping of employees in Great Britain whose principal purpose is to carry out the activities; (2) the activities must be carried on by the transferee after the transfer; and (3) the client must intend the activities to continue, rather than being a one-off task.

3. Who transfers?

Employees assigned to the organised grouping of resourcesthat is transferring will transfer automatically. “Assigned” means the employee's work is principally associated with the transferring business or service — not merely occasionally or incidentally involved.

The following do not transfer under TUPE:

• Independent contractors or freelancers (they have no employment contract)
• Agency workers supplied by a third party (unless they are employees of the outgoing entity)
• Employees assigned to other parts of the business not included in the transfer

Where an employee is only partly assigned to the transferring activity, the tribunals apply a multi-factor test. If the principal purpose of the role is the transferred activity, TUPE will apply. Employers cannot cherry-pick which employees transfer.

4. Rights protected

All existing contractual terms transfer with the employee, including:

• Pay, including any bonuses and commission structures
• Working hours and location
• Annual leave entitlement
• Continuous service (for redundancy pay, unfair dismissal qualifying period, etc.)
• Accrued but untaken holiday
• Restrictive covenants
• Collective agreements incorporated into individual contracts

TUPE also protects non-contractual benefits that have hardened into custom and practice. The incoming employer cannot simply override these.

Crucially, the incoming employer cannot harmonise terms downward simply to match existing staff pay scales. Changes for a reason connected to the transfer are void, even if both parties agree them. Beneficial changes (improvements to pay, holiday, etc.) are permitted.

5. Measures and consultation

TUPE imposes a duty to inform and consult appropriate representatives of affected employees. “Affected employees” includes not only the transferring employees but also any employees of either employer who may be affected by the transfer (such as remaining staff who will absorb new duties).

The information that must be provided includes:

• The fact and proposed date of the transfer
• The reasons for the transfer
• The legal, economic, and social implications for affected employees
• Whether any measures are envisaged in relation to affected employees

“Measures” means any action, step, or arrangement that the employer envisages taking — including changes to working practices, locations, or redundancies. If no measures are envisaged, the employer must say so.

If there are 10 or more affected employees, the minimum consultation period for collective redundancies (30 days) applies where redundancies are planned. There is no fixed minimum for TUPE consultation itself, but it must be meaningful — not a rubber stamp.

Where there is no recognised trade union, employers must elect employee representatives specifically for the purpose of the consultation. Micro-businesses (fewer than 10 employees) may inform and consult each affected employee directly.

6. ETO reason

An Economic, Technical or Organisational (ETO) reason is the only basis on which an incoming employer can lawfully dismiss an employee or change their terms in connection with a transfer without it being automatically unfair or void.

For an ETO reason to be valid, it must:

• Be economic (e.g. the business is not commercially viable at current staffing levels), technical (e.g. a change in production method), or organisational (e.g. a restructuring of management layers)
• Entail a change in the numbers or functions of the workforce — a desire to harmonise pay or cut costs alone is not an ETO reason

Even with a valid ETO reason, the dismissal must still be reasonable under normal unfair dismissal rules. A fair procedure must be followed, including genuine selection criteria and meaningful consultation with individuals at risk.

7. Redundancy and TUPE

Pre-transfer dismissals connected to the transfer are automatically unfair — there is no qualifying period of employment required for a claim. This applies whether the dismissal is made by the outgoing or the incoming employer.

The incoming employer can make transferring employees redundant after the transfer if there is a genuine ETO reason, provided:

• The redundancy is not pre-planned solely to make the acquisition more attractive (a “pre-packaged redundancy”)
• A fair redundancy process is followed
• Redundancy pay (statutory or enhanced) is calculated using the employee's full continuous service, including service with the outgoing employer

8. Pension

Occupational pension rights do not transfer automatically under TUPE in the same way as other contractual terms. However, the incoming employer must provide pension protection under the Pensions Act 2004:

• The incoming employer must offer a pension scheme (occupational, stakeholder, or auto-enrolment compliant)
• The incoming employer must match employee contributions up to 6% of pensionable pay

Enhanced defined benefit (final salary) pension rights do not transfer, though they may be contractually protected if the original contract incorporates them as a term. In the public sector, the Fair Deal policy provides additional protections requiring broadly comparable pension provision.

9. Service provision change — detail

The service provision change rules (inserted in the 2006 Regulations and not part of the original EU Directive) have three limbs that must all be satisfied:

1. Organised grouping — there must be an organised grouping of employees whose principal purpose is to carry out the activities on behalf of the client. A single employee may constitute a grouping.
2. Client intention — the client must intend the activities to be carried out by the new provider or in-house team, not to terminate them altogether.
3. Not mainly supply of goods— the exception for contracts “wholly or mainly for the supply of goods” means a warehouse distribution contract may not trigger TUPE, but a facilities management or cleaning contract will.

The courts have confirmed that a single-customer activitycan constitute a service provision change, even where the employees involved serve multiple clients part of the time. The key is whether there is an organised grouping principally dedicated to that client's activities.

10. Practical checklist

For outgoing employers (transferors):

• Identify all employees who are assigned to the transferring activity
• Prepare Employee Liability Information and provide it at least 28 days before transfer
• Elect or identify employee representatives and commence consultation in good time
• Prepare a TUPE notification letter for affected employees
• Ensure all holiday, sick pay, and bonus records are up to date for handover

For incoming employers (transferees):

• Request and review employee liability information as early as possible in due diligence
• Plan any post-transfer measures and include them in the consultation process
• Do not issue new employment contracts — confirm in a welcome letter that existing terms are preserved
• Transfer HR records, payroll setup, and pension enrolment before the first pay date
• Budget for any ETO-based restructuring costs (redundancy, consultation, possible tribunal risk)

Key facts at a glance