Employment law bulletin: prepare for TUPE changes

Raconteur’s resident employment law expert Jo Mackie unpacks the upcoming changes to TUPE regulations and what it means for your business

Feb 2024 Web Images

Changes to employment law continue apace, with a wide range of new legislation coming into force this year. Employers of all sizes must be aware of these.

The new right to ask for flexible working from day one, which I wrote about last month, has now commenced. Helpfully, ACAS has provided a new statutory code of practice to guide employers on managing flexible working requests.

Why employers must be wary of TUPE

In July there will be changes to TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006). TUPE is one of the subjects that can cause headaches as it is complex and carries punitive remedies for employees should the employer get the process wrong. 

The fundamental aim of TUPE is to protect employees when a business changes hands. One of its central pillars is the requirement for a business to “inform and consult” its affected employees. Failure to follow this requirement can result in an employment tribunal claim and a financial penalty. 

The remedy for employees who do not receive the correct information or consultation is called the ‘protective award’. This is a financial penalty of up to 13 weeks’ gross uncapped pay for each affected employee. 

Of course, the protective award can prove to be very costly. For example, in the case of Eville versus Grants, the employer had to pay £65,000 to the 131 affected employees after the employment tribunal found a failure to inform and consult. The case of Housing Maintenance Solutions versus McAteer found that some 200 affected employees should be compensated, with the costs involved being sufficient to cause the collapse of some smaller businesses and a significant dent in the profits of others.

Changes to TUPE

Having recognised the pain that TUPE puts many smaller employers through, the government announced proposed changes last year, with the aim of cutting over £1bn in red tape for employers and reducing the burden of the inform and consult rules. The government now intends to bring the changes forward to July 2024 to become law. 

The key change regards the size of the businesses affected by TUPE requirements. Currently, only those organisations with fewer than 10 employees (also referred to as micro businesses) can inform and consult affected employees directly on a business transfer or service provision change (also known as mergers and acquisitions). 

All other businesses must currently inform and consult with ‘appropriate representatives’ which, in the absence of a recognised Trade Union, will mean an election among volunteer employees to appoint representatives. 

This can cause delays at a time when a business often wants to move quickly to sell, acquire or transfer, in order to improve its position in the market or protect itself from loss and the risk of insolvency.

The government proposes to extend the legal definition of a micro business to mean a business with fewer than 50 employees, or to one where the number of affected employees is fewer than 10, regardless of the size of the organisation. This change will bring companies that are currently defined as small businesses into scope and reduce the burden on them. 

All new micro businesses will be able to inform and consult directly with a town hall-style meeting or written circulars, rather than incur the costs and delay of electing representatives and inviting them to meetings which have to be minuted and fed back. 

Businesses should be able to consult directly with affected employees for transfers taking place on or after 1 July. It’s also worth noting that, for the time being at least, where a business already has elected representatives in place (such as Trade Union representatives) they must continue to use them.

The changes indicate that the government is seeking to reduce the administrative burden on small businesses, while balancing the need to retain employee protections.