TUPE Requirements: Key Considerations in Tenders

Understanding TUPE and Its Practical Implications in Tenders and Procurement

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) represents one of the most important legal frameworks safeguarding employees' rights during business or service transitions. For organisations involved in tendering and procurement, effectively addressing TUPE is essential not only to meet legal obligations but also to ensure a smooth transition for employees and continued service delivery.

This guide offers a detailed and practical narrative, integrating actionable advice, illustrative examples, and comprehensive considerations for both procurement teams and bidders.

What is TUPE?

TUPE ensures that employees are protected when their employer changes as part of a business transfer or service provision change. These regulations mandate that employees transfer to the new employer under the same terms and conditions of their existing contracts, preserving their rights and continuity of service. For organisations, this means taking on both the benefits and liabilities associated with transferring employees.

TUPE typically applies in two scenarios:

1. Business Transfers: This occurs when a business or part of a business is sold or merged, resulting in employees moving to the new owner.
2. Service Provision Changes: TUPE is triggered when a service is outsourced, brought in-house, or re-tendered to a new provider.

In these scenarios, employees who are predominantly assigned to the relevant services or functions automatically transfer to the new employer.

Key Principles of TUPE

Under TUPE, when a business changes ownership, employees' contracts automatically transfer to the new employer. This means:

• Your employment terms and conditions remain the same
• Your continuous service is preserved
• You're protected against dismissal solely due to the transfer

TUPE also requires:

• Informing and consulting affected employees
• Transferring employee liability information to the new employer
• Protection against changes to terms and conditions related to the transfer

Origins of TUPE Regulations

TUPE regulations originated from European Union directives aimed at safeguarding workers' rights during business transfers. The UK implemented these directives through the Transfer of Undertakings (Protection of Employment) Regulations 1981.

In 2006, the regulations were updated to become the Transfer of Undertakings (Protection of Employment) Regulations 2006. This revision expanded the scope of TUPE to include service provision changes, such as outsourcing and insourcing.

The regulations have since been amended to reflect changes in UK employment law and to address practical issues that arose from their application.

Scope and Impact of a TUPE Transfer

A TUPE transfer significantly affects both employers and employees. It protects workers' rights and ensures continuity of employment when a business changes hands or services are outsourced.

Business Transfer

TUPE regulations apply when a business or part of it moves to a new owner. This includes mergers, acquisitions, and the sale of a company's assets. The transfer must involve an economic entity that retains its identity after the change.

Key points:

• All employees automatically transfer to the new employer
• Employment contracts and rights are preserved
• Collective agreements remain in force
• Pension rights may be protected

You should be aware that TUPE covers both tangible and intangible assets. This means equipment, premises, and customer lists can all be part of the transfer.

Service Provision Change

A service provision change occurs when:

• A service is outsourced to a contractor
• A contract is reassigned to a new contractor
• A service is brought in-house

TUPE safeguards employees in these scenarios. It ensures their terms and conditions remain intact when moving to the new service provider.

Important considerations:

• The service must be fundamentally the same before and after the change
• There must be an organised group of employees dedicated to the service
• Client identity is crucial in determining if TUPE applies

You'll find that TUPE can apply even if the new provider plans to deliver the service differently. The key is maintaining the core identity of the transferred economic entity.

Requirements for Employer Consultation

Both the old and new employers have a legal obligation to inform and consult with affected employees or their representatives. This process aims to reduce uncertainty and identify potential issues early on.

The consultation should cover:

• The fact that the transfer is happening
• When it's likely to take place
• The reasons behind the transfer
• Legal, economic, and social implications for employees
• Any measures envisaged in relation to employees

Employers must provide this information long enough before the transfer to allow for meaningful consultation. Failure to properly inform and consult can result in financial penalties.

Employee Rights and Continuity of Employment

Under TUPE, your existing terms and conditions of employment are protected. Your employment contract transfers automatically to the new employer, maintaining continuity of service.

You retain all previously accrued rights, including holiday entitlement and length of service. The new employer cannot change your terms and conditions solely because of the transfer.

TUPE also protects you against unfair dismissal related to the transfer. If redundancies are necessary, they must be for a legitimate business reason and follow proper procedures.

You have the right to be informed and consulted about the transfer. Both old and new employers must provide specific information about the transfer and its implications for staff.

Pension Rights and Obligations

Your pension rights are partially protected under TUPE. Occupational pension schemes don't automatically transfer, but the new employer must offer a minimum level of pension provision.

For defined contribution schemes, the new employer must match your contributions up to 6% of your salary. If you were in a defined benefit scheme, the new employer isn't required to provide an equivalent, but must offer a defined contribution scheme.

You should carefully review any changes to pension arrangements following a TUPE transfer. Seek advice if you're unsure about your rights or the implications for your retirement planning.

TUPE in Tenders: A Step-by-Step Guide

Understanding TUPE’s implications in procurement can feel complex, but a structured approach ensures compliance and practicality. Below, we explore the essential steps:

Step 1: Confirm Applicability

The first step is to determine whether TUPE applies. This typically involves reviewing the nature of the contract and confirming whether an “organised grouping” of employees currently delivers the service in question. Early engagement with stakeholders is critical to clarify TUPE’s relevance.

Step 2: Obtain and Share Employee Information

Comprehensive employee data is crucial for bidders to accurately price their proposals and prepare for the transition. Information to gather includes:

• Job titles, pay rates, and length of service.
• Details of benefits, pensions, and ongoing grievances.
• Information about disciplinary actions or tribunal cases.

Ensure this data is anonymised to comply with data protection laws and shared at an early stage in the tender process. Address challenges such as “phantom workers” (employees listed but not actively involved in the contract) and incomplete or incorrect data.

Step 3: Develop Clear Tender Documentation

Drafting transparent tender documents is essential. Include:

• TUPE-related clauses specifying the responsibilities of incoming and outgoing providers.
• Requirements to maintain employee terms and conditions.
• Details of pension obligations and potential liabilities.

Use standardised templates or specimen clauses to maintain consistency.

Step 4: Evaluate Bids for TUPE Compliance

Bid evaluation should assess bidders’ ability to manage TUPE effectively. Key considerations include:

• Evidence of experience with similar transitions.
• Detailed cost breakdowns that account for inherited employees.
• Clear strategies for onboarding and employee engagement.
• Plans for managing pension obligations, including LGPS requirements.

Step 5: Plan for Service Fragmentation

When services are divided among multiple providers, careful planning is needed to allocate employees fairly. Collaboration between outgoing and incoming providers, supported by role analyses and facilitated discussions, can ensure an equitable distribution.

Step 6: Prepare for Hidden Costs

TUPE often entails unforeseen costs. Be prepared for:

• Pension scheme contributions and bond requirements.
• Harmonising benefits between existing and transferred employees.
• Training and integration expenses for transitioning staff.

Transferring Terms and Conditions

When a TUPE transfer occurs, employees' terms and conditions are protected. This includes pay, holiday entitlement, and other contractual benefits. Understanding how these elements transfer is crucial for both employers and employees.

Harmonisation of Employment Contracts

After a TUPE transfer, your employment contract transfers to the new employer. Your existing terms and conditions remain in place, including:

• Working hours
• Holiday entitlement
• Sick pay arrangements
• Pension contributions

It's important to note that the new employer cannot simply change these terms. Any alterations must be carefully considered and justified.

The new employer may seek to harmonise contracts across their workforce. However, they can only do this if there's an economic, technical or organisational reason involving changes in the workforce or workplace.

Implications for Pay and Bonuses

Your pay structure should remain unchanged after a TUPE transfer. This includes:

• Basic salary
• Overtime rates
• Shift allowances

Any bonuses or commission schemes you're entitled to should also transfer. If you have unpaid bonuses at the time of transfer, these become the responsibility of the new employer.

It's worth noting that one year after the transfer, employers can renegotiate terms and conditions in collective agreements. However, this must not result in less favourable terms overall.

If you're concerned about changes to your pay or bonuses, it's advisable to seek advice from your union representative or an employment law specialist.

How Does TUPE Work in Social Value Commitments and Local Recruitment?

From a bidder's perspective, TUPE adds specific challenges when aligning social value commitments with local recruitment goals. The key considerations include:

Avoid Double-Counting TUPE Staff in Social Value Targets: Employees transferring under TUPE cannot be counted towards local job creation targets or similar social value metrics. Targets for creating new opportunities must focus solely on roles generated directly by the contract​.

Emphasise Additionality: Social value commitments must reflect "additionality," meaning benefits beyond the core requirements of the contract. For example, if existing TUPE employees already fulfil contract needs, social value proposals should demonstrate how you will deliver incremental benefits through new roles or community initiatives​​.

Focus on Upskilling and Community Engagement: While TUPE staff remain protected, you can enhance your social value offering by proposing upskilling initiatives, apprenticeships, or training programmes for these employees. This supports workforce development while adhering to TUPE obligations​.

Be Specific and Measurable: Clearly outline commitments such as the number of new jobs for local residents or specific training hours. Provide evidence, such as partnerships with local organisations or recruitment pipelines, to demonstrate how these commitments will be fulfilled​.

Align Social Value Metrics with Contract Scope: Ensure that local recruitment targets focus on areas within the contract's geographic scope, as defined by the procuring authority. Include only spend and initiatives directly attributable to the contract and under your contro.

Top TUPE Tips

For Bidders and Suppliers

1. Challenge Information: If you suspect inaccuracies in TUPE data, raise formal clarification questions. You have the right to seek accurate information to evaluate the implications of taking on employees.
2. Understand Rights and Obligations: Familiarise yourself with TUPE, including maintaining employee terms, potential liabilities, and redundancy processes.
3. Plan for Pensions: Investigate pension arrangements thoroughly. Understand whether you need to join the LGPS or offer a comparable scheme, and factor these costs into your bid.

Top TUPE Tips for Procurement Teams

1. Provide Accurate Information: Work closely with outgoing contractors to gather correct, anonymised employee data, including all liabilities, disputes, and pension entitlements.
2. Set Expectations Clearly: Outline TUPE responsibilities in tender documents, including the measures letter detailing the handling of transferring employees.
3. Ensure Equal Treatment: Share identical levels of detail with all bidders to ensure fairness and compliance with procurement regulations.

At Thornton & Lowe, we offer bid writing services and consultancy to bidders. As a supply chain consultancy we also support public sector buyers via our outsourced procurement services, which includes guidance and preparation for TUPE.

Real-Life Scenarios in TUPE Management

Scenario 1: Outsourcing Facilities Management

An organisation outsourced its facilities management services, triggering TUPE. The incoming provider faced challenges due to outdated employee records, which delayed the transition. This was resolved through collaborative reconciliation of data and detailed communication.

Scenario 2: Re-tendering Social Care Services

A re-tendered contract for social care involved employees transferring to a new provider. Concerns over pension arrangements emerged, as the new provider struggled with LGPS compliance. Phased contributions and indemnities helped resolve the issue.

Scenario 3: Grounds Maintenance for a Housing Association

A housing association re-tendered its grounds maintenance services. TUPE applied, transferring several long-serving employees. Discrepancies in pension details were clarified early through formal queries, ensuring a smooth transition and alignment with service standards.

Scenario 4: Fragmented IT Services

A local authority split its IT services among three new contractors. TUPE applied differently across teams, leading to disputes over employee allocation. Role analysis and mediated discussions ensured fair distribution and compliance.

Practical Checklists

For Procurement Teams

• Identify if TUPE applies and clarify early.
• Gather and anonymise Employee Liability Information.
• Include detailed TUPE clauses in tender documents.
• Assess pension implications and ensure compliance.
• Ensure all bidders receive the same information.

For Bidders

• Review TUPE data thoroughly; raise clarifications if needed.
• Calculate full costs, including pensions and integration.
• Prepare a detailed employee transition plan, including onboarding and training.
• Ensure compliance with GDPR when handling data.

Challenges and Complexities in TUPE

TUPE transfers involve several intricate legal and operational challenges. You need to navigate redundancies, outsourcing scenarios, and insolvency situations carefully to comply with regulations and protect employees' rights.

Redundancies and Dismissals

When dealing with TUPE transfers, redundancies and dismissals are complex issues. You must handle them with caution to avoid unfair dismissal claims. Redundancies directly related to the transfer are automatically unfair, unless there's an economic, technical, or organisational (ETO) reason.

You should consider:

• Consulting affected employees before the transfer
• Exploring alternative roles within the new structure
• Ensuring a fair selection process if redundancies are unavoidable

Remember, TUPE aims to protect employment rights. You can't simply dismiss employees to make the business more attractive to buyers.

Outsourcing and Insourcing Scenarios

TUPE regulations apply to outsourcing and insourcing situations, adding complexity to service provision changes. You need to determine whether TUPE applies in each case.

Key considerations:

• Identifying the 'organised grouping of employees'
• Assessing whether the activities will remain fundamentally the same
• Evaluating if there's a genuine transfer of assets or undertaking

TUPE cannot be avoided by contract, so you must plan for its potential application early in any outsourcing or insourcing process.

Employer and Employee Responsibilities

During a TUPE transfer, both employers and employees have specific responsibilities and rights. Understanding these obligations is crucial for a smooth transition and to avoid potential legal issues.

Handling Breach of Contract

In a TUPE transfer, employment contracts remain intact. If either party breaches the contract, there may be consequences. As an employer, you must honour existing terms and conditions. Failure to do so could result in claims for constructive dismissal or breach of contract.

Employees have the right to object to the transfer, but this may end their employment without redundancy pay. If you, as an employer, make substantial changes to working conditions, employees might claim this as a breach.

To avoid breaches, maintain open communication and consult with employees about any proposed changes. Document all agreements and changes carefully.

Managing Sick Leave and Absences

Sick leave and absence policies transfer with the employees. As a new employer, you must honour existing sick pay arrangements and absence management procedures.

You should review current policies to ensure they align with your company standards. However, any changes must not be less favourable to employees.

Keep accurate records of sick leave and absences before and after the transfer. This helps manage any ongoing issues and prevents disputes.

Consider implementing a return-to-work interview process for employees coming back from sick leave to support their reintegration.

Calculating Length of Service and Redundancy Pay

Employees' continuous service is preserved during a TUPE transfer. This affects various employment rights, including redundancy pay calculations.

To calculate redundancy pay:

1. Determine the employee's length of service, including time with the previous employer
2. Use the employee's age and weekly pay (capped at £571 as of 2024)
3. Apply the statutory formula: 0.5, 1, or 1.5 week's pay per year of service, depending on age

Remember, contractual redundancy schemes may be more generous and must be honoured if they exist.

Keep detailed records of employees' start dates and any breaks in service. This information is crucial for accurate calculations and avoiding disputes.

Key Takeaways and Recommendations

1. Confirm TUPE’s applicability early to avoid surprises.
2. Collaborate closely with all stakeholders to ensure accurate data and smooth transitions.
3. Use detailed, consistent tender documents to define responsibilities clearly.
4. Engage legal and HR experts to manage pensions and complex liabilities.
5. Communicate transparently with employees and bidders to build trust.

Frequently Asked Questions

TUPE transfers involve complex legal considerations that affect both employers and employees. Understanding the key aspects of TUPE is crucial for navigating these transitions smoothly.

Can my terms and conditions of employment be changed following a TUPE transfer?

Generally, your terms and conditions of employment are protected under TUPE. The regulations are designed to safeguard employees' rights when a business changes hands.

However, changes may be permitted if they are not related to the transfer or if there's an economic, technical, or organisational reason requiring changes to the workforce.

In what circumstances does TUPE not apply to a business transfer?

TUPE may not apply in certain situations. These can include transfers of shares, where the employer remains the same, or in some cases of bankruptcy or insolvency proceedings.

Transfers occurring outside the UK may also fall outside TUPE's scope.

What is the duration of protection under a TUPE agreement?

TUPE protection doesn't have a specific time limit. Your transferred terms and conditions remain in effect indefinitely, unless changes are made for valid reasons unrelated to the transfer.

It's important to note that normal employment law still applies, allowing for future changes with proper consultation and agreement.

Which employees are eligible for transfer under the TUPE regulations?

Employees who are part of the transferring undertaking or business at the time of transfer are typically eligible for TUPE protection.

This includes full-time, part-time, and fixed-term employees. Agency workers and self-employed contractors generally do not fall under TUPE regulations.

What protections does TUPE provide to employees?

TUPE offers several key protections. It ensures the continuity of your employment and preserves your existing terms and conditions.

Your previous length of service is recognised, and you're protected against dismissal solely due to the transfer.

What are the employer's obligations during a TUPE transfer?

Employers have specific responsibilities during a TUPE transfer. They must inform and consult with affected employees or their representatives about the transfer and its implications.

Employers are also required to provide certain information to the new employer about transferring employees. Failure to meet these obligations can result in financial penalties.