Background to TUPE
A transfer of undertakings occurs when a business, or part of a business, is taken over by another employer as a result of a merger, acquisition or transfer of a part or all of the business.
The relevant legislation in a transfer of undertakings situation such as this is the European Council Directive 2001/23/EC, introduced into Ireland as the European Communities (Protection of Employees on Transfer of Undertakings) Regulations SI 131/2003 (TUPE).
Protection of Employees Terms & Conditions of Employment
In general, the TUPE Regulations apply to any person who, at the time of the transfer, is working under a contract of employment, including apprenticeship or who is employed through an employment agency.
In the case of agency workers, the party who is liable to pay the wages is the employer for the purposes of TUPE.
The TUPE Regulations are designed to safeguard employees’ rights in the event of a transfer and to establish the responsibilities of both the previous owner (transferor) and new owners (transferee) of the business.
The conditions of employment and contracts of employment of individual employees involved in a transfer are protected.
Employees of a business being transferred move to the new employer with their accrued years of service, existing terms and conditions of employment and collective agreements to which they may already be subject (excluding occupational pensions).
The new employer must continue to observe the terms and conditions of employment of the transferred employees (contractual, implied and by way of custom and practice) and of any collective agreement in place until it expires or is replaced by agreement.
The new employer is under no obligation to provide a new or similar occupational pension benefit to employees who have transferred to the new business, however, the new employer must ensure that any scheme in place is properly maintained in order to protect any accrued entitlement.
HR & Employment Due Diligence
The parties involved in a transfer under TUPE can never afford to “just do it” and sort out the people or employment issues afterwards.
Prior to the transfer of a workforce, the transferee should have the opportunity to review the records and documentation of the transferor to assess its workforce and conduct a due diligence or audit of its human resources including detailed examination of the terms and conditions of employment of its transferring workforce, collective agreements, union recognition and engagement, its culture, etc.
A comprehensive HR due diligence is essential in a TUPE situation, as under the TUPE legislation, the rights, terms and conditions and benefits of transferring employees are preserved and transfer across to the new employer who takes on all the liability.
The range of key HR issues that need to be examined if the chances of success are to be optimised include:
• ensuring that due diligence provides comprehensive data on all aspects of employee reward, terms and conditions and pending/potential employment liabilities as all of these will be acquired in the transfer by the new employer
• identifying harmonisation issues post-transfer
• estimating both the timeframe and the potential cost of any redundancies
• ensuring that cultural due diligence is carried out prior to a transfer, so that integration programmes can be implemented immediately post-transfer
• communicating with affected staff and giving the necessary time, resources and processes to manage the transfer (pre and post transfer)
• moving quickly in the appointment of new management personnel as appropriate
In addition, under the TUPE legislation, the transferor and transferee must engage in a process of consultation, at least 30 days pre the transfer, with affected staff.
This section examines what should be included in HR due diligence, and provides and overview of a typical 30-day TUPE consultation process.
What should a HR Due Diligence include?
A HR due diligence should include the following.
Company Organisation & Management
An up-to-date organizational chart showing management structure, reporting hierarchy and staff groupings.
Company Operating Practices as Relevant to the Transferee
This would include looking at the operating practices of the transferor compared to your own practices.
Changes to working practices/culture
You should also at this stage establish how easy or difficult it has been in the transferor, in recent years, to introduce changes to working practices with the staff or unions (if unions are recognised).
What changes have been implemented in recent years? What was the process? How were they achieved? How long did it take? At what cost?
The transferee should compare this to what are its own change procedures, how fast it operates or moves and how easily change or new products etc. are introduced.
Resistance to change and the culture of ‘compensation’ that may exist around changes to working practices will not be easily be altered, if at all, after a transfer of undertakings.
Additionally, the TUPE legislation specifically protects the transferred employees from any changes to their T&C’s which are to their detriment.
Employee Lists & Terms & Conditions of Employment
A list of all active employees (using employee/staff number rather than name), should be provided.
This should include details of employees contract type including full-time, part-time and casual staff, fixed-term and specific-purpose contracts, apprentices and agency workers, with their terms and conditions of employment.
This should also include anyone on apprenticeship, and any agency workers employed in the retail operations, if any, as these will come under the remit of TUPE.
A list of employees who left the company in the past 2 years should be provided and their date of termination. You may want to examine their personnel files to establish if there are any claims against the company or any pending or likely (as they will do for existing employees).
You should confirm any self-employed sub-contractors are as such i.e. they are definitely not employees, as the transferee will want to reassure themselves that no claim for employee status exists or is likely to be made. An examination of sub-contractor agreements may be required later.
Employee Personnel Files
Employee personnel files should be examined to confirm the contractual and other terms and conditions of employment provided by the transferor as well as other HR matters outlined below.
Agency workers contracts and apprentice’s contracts, if any, should be included in the above examination.
Sub-contractor agreements should also be examined so as to rule out the possibility of any claims for employee status.
Contracts of Employment
Contracts of employment should be examined to establish who has or has not a signed contract; how old it is and how robust it is.
Key things to look for include:
• Date of Commencement
• Date of transfer(s) from previous transferors and any more favourable terms arising from their employment with previous trensferors
• Salary and benefits that are contractual e.g. salary, bonus, overtime, allowances, premium rates/shift premiums e.g. Saturday, Sunday, night-time, etc), sick pay, pension, insurance (medical, PHI), travel allowances, expenses, any other allowances – these may be superseded by changes to terms since the contract was introduced, new collective agreements and/or new custom and practice
• Working hours and conditions that are contractual – these may be superseded by changes to terms since the contract was introduced, new collective agreements and/or new custom and practice
• Mobility clause
• Retirement age (does the contract mention it or is it silent on this matter?)
• Redundancy terms
The contracts should be examined for terms which would be normally included in a ‘robust’ contract which may or may not be in the employee’s contracts and a gap analysis or list of important terms which are missing should be drawn up.
Any collective agreements should be examined.
Employment Court Determinations and Agreements
Reports and determinations made by the Rights Commissioners, Employment Appeals Tribunal (EAT), Equality Tribunal or Labour Court should be examined.
The employee handbook should be examined for strengths and weaknesses.
It should be compared against a robust employee handbook and the current employee handbook and key differences should be listed.
One would be looking, in particular, at any policies related to pay, benefits, leave, sick leave, redundancy terms, etc. as well as a whole host of policies covering leave, sick leave, disciplinary and grievance, drugs and alcohol, bullying and harassment, internet/email, etc.
Arising, from a HR due diligence, the transferor and transferee may wish to proceed to draw up a transfer agreement.
Employment issues factor into a number of the provisions in any thorough transfer agreement, because employment liabilities transfer in a TUPE situation to the new employer.
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