Updates to TUPE legislation: benefits for small businesses

Introduction 

For almost 50 years, UK businesses have had to grapple with the Transfer of Undertakings (Protection of Employees) Regulations (“TUPE“) which has led to extensive case law as well as legislative amendment.

As such, the UK government is finally proposing to lessen the burden on employers through its newly enacted Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (“the 2023 Regulations”) which came into force on 1 January 2024. Regrettably it stops short of the more radical changes being suggested as part of the consultation.

What is TUPE? 

TUPE is the UK’s implementation of the EU’s 1997 Acquired Rights Directive, enacted to protect a person’s employment rights in the event that their employer:

1. transfers, either in whole or in part, to a new owner (i.e., when a business is sold); or
2. where a service provision changes (e.g., when a business, which has engaged a contractor to do work on its behalf, reassigns that contract or brings the work back “in-house”).

If one of these TUPE events are triggered, employers will be required to inform and/or consult with the employees who are affected by the proposed transfer or their appropriate elected or nominated representatives (if the employees so choose).  Failure to do so (or to do so properly), may lead to employers being liable to pay each affected employee a protective award of up to 13 weeks’ full pay.

That can be a staggering amount of money to be paid out which may place employers, particularly small employers, in real financial difficulty. Clearly, this part of the 2023 Regulations is designed to be ‘employer-friendly’, but, practically, will only really benefit small businesses during M&A transactions or when appointing or changing contractors.

What are the proposed changes?

Prior to 2014, all employers (whether small, medium or large) had to allow its affected employees to either nominate or elect a representative or representatives to participate in the consultation process on their behalf.  Even if there were only a handful of employees where it made no real sense to have a representative, failure to give the employees the option could put the employer at potential risk of protective awards.

In 2014, TUPE was amended again exempting micro-businesses (i.e., employers with fewer than 10 employees) from having to hold such nominations or elections thereby allowing employers to inform and/or consult with their employees directly.  However, this really did only apply to very small businesses since for example if a small subsidiary was part of a group, this would not be exempt and nor would a business which was still small but with 12 to 15 employees.  In reality there was very little difference between a small business with 9 employees and one with 12.

The 2023 Regulations has applied that same exemption to small-scale transfers that occur in the following circumstances:

1. Where an employer has less than 50 employees, irrespective of the size of the transfer; or
2. Where the proposed transfer includes less than 10 employees, irrespective of the size of the employer.

It must be noted that, for this exemption to apply, the transfer must occur on or after 1 July 2024 and there must not already be an elected employee representative or representatives in place (or a trade union where a collective bargaining agreement applies). Otherwise, employers must carry out their obligations to inform and/or consult as per the current rules set out under TUPE.

Summary and Reflection on the Wider Consultation

In effect, the government is cutting out ‘the middleman’ from the consultation process in a larger number of cases. While this is a positive step for start-ups and small businesses who may be entertaining bids for acquisition or looking to appoint or change a contractor, this is a very limited change when so many potential changes were contemplated in the consultation on TUPE reform for example removing the service provision change element of TUPE or contemplating how changes post transfer could be made more easily.

It is a shame that, despite having had the opportunity to address some of the more complex and burdensome TUPE provisions, the Government did not do so at the time. In any case, this reform does help small businesses and perhaps it is the start of further reformation.

SMB is a full-service law firm. Our Corporate/Commercial departments frequently advise on business transactions with our Employment team offering legal advice on the technically challenging components imposed by employment law. So, if you are entertaining a transaction or whether there are any pitfalls in engaging a contractor, SMB is happy to help.