Beware the Hidden Costs in a Transfer of Undertakings (TUPE)
A TUPE or a Transfer of Undertakings, defined under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003, S.I. No. 131 of 2003, applies to any transfer of an undertaking, business or part of a business from one employer to another employer.
Employee’s rights and entitlements are protected during this transfer.
The Risks in Winning Contracts involving TUPE
What has become clear in case law in recent years is that it is likely that a company (Company B) who wins a contract for services, which displaces the incumbent contractor (Company A), may involve a TUPE, even though there is no relationship at all between Company A (the incumbent) and Company B (the soon to be new provider of the service).
Such a situation may result in the right of the staff of Company A to transfer to Company B under TUPE legislation which protects their existing terms and conditions.
Thus, staff at Company A who undertake the work which will now be transferring to Company B, may have the right to transfer to Company B on all the same terms and conditions of employment as they have with Company A, irrespective of what terms and conditions apply at Company B and irrespective of the terms under which Company B has won the contract.
Winning contracts for services, such as, catering contracts, security contracts, cleaning contracts, equipment maintenance contracts, etc. which involve a TUPE are undoubtedly may give rise to unexpected cost implications.
The reason for this is that the company who is the winner of the contract (Company B) is blind to the terms and conditions of employment that exist at Company A as they have no opportunity to conduct a due diligence unlike in an M & A situation or buying a company out of examinership, etc.
The Potential Costs in a TUPE
Thus, the issues which can become clear very quickly after winning a contract include the following:
- The terms and conditions of staff within TUPE scope in the incumbent company (Company A) being more favourable than the terms and conditions of the winning company(Company B) giving rise to both commercial/P&L issues as well as employee relations issues when the two groups of staff merge and conditions vary from one to the other
- The costs of redundancy of staff from Company A and/or Company B
- Inheriting costs related to outstanding bonuses, allowances or other benefits situations from Company A which Company B has no visibility of at the time of the contract tender or award
- Inheriting costs related to outstanding holidays or other leave situations from Company A which Company B has no visibility of at the time of the contract tender or award
- Inheriting a whole bag of HR or employee relations issues and potential claims such as those related to disciplinary, grievance, bullying and harassment and also pipeline cases which have yet to emerge, again which Company B has no visibility of at the time of the tender or even at the award of the contract
Another issue which often emerges is that the client (the buyer of the services), soon after the award of the contract, alters the nature of the contract or reduces the size of the contract putting further pressure on Company B, who at this stage may have inherited more than they hoped for from the previous incumbent, Company B.
Important Lessons when Tendering for Contracts involving a potential TUPE
The key lessons to be learned are to:
- If possible, find out as much as you possibly can, in advance of completing your tender, about terms and conditions which prevail at the incumbent supplier (i.e. don’t go in blind)
- Act quickly once you are aware that you have been successful in your tender
- Do not formally accept there is a TUPE before investigating and taking advice (not all situations are TUPE’s)
- There may be opportunity to argue/negotiate that some staff are not within the scope of the TUPE e.g. the work is moving to another country, the staff are not fully dedicated to that piece of work, etc.
- Allow plenty of time before start date of provision of services
- Negotiate with the client a pot of money for TUPE related costs e.g. redundancy, etc.
- Delay signing the contract
- Negotiate a longer term contract to give yourself time to spread the costs of TUPE and to harmonise terms and conditions
- Communicate quickly and clearly with transferor
- Ensure that the transferor fulfils their obligation under TUPE
- Commence communications with the affected staff (in Company A and in your own Company) as soon as possible after the award of the contract but only after a TUPE situation has been deemed to exist
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