When a business changes hands, employees may worry about job security, pay, and working conditions. For employers, understanding what happens to staff during a transfer is essential to avoid disputes and meet legal obligations. These issues can become particularly complex where a business is experiencing financial difficulties, enters insolvency proceedings or is sold as part of a rescue or restructuring.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are designed to protect employees when certain businesses or services transfer to a new employer. Where TUPE applies, employees will generally transfer automatically to the new employer, with their existing employment rights protected. However, the rules can be complicated, particularly when an employer is considering changing contractual terms, restructuring or making redundancies or acquiring an insolvent business.

This guide explains TUPE law for employers, including when TUPE may apply, what it means for employees and the key responsibilities employers should understand when planning a transfer. It also draws on TUPE law cases to show how the courts apply the rules.

What Is TUPE and When Does It Apply?

TUPE can apply in two main situations: a business transfer and a change of service provider. Understanding when the rules apply matters for employers, as a transfer can affect employees’ jobs, contracts, and existing employment rights.

Business Transfers

A business transfer occurs when a business, or part of it, moves from one employer to another. This might happen when a company takes over an existing business, when two businesses merge, or when a business sells part of its operations to another organisation.

For TUPE to apply, an organised business or part of a business must transfer to a new employer and retain its identity after the transfer. In practice, this means assessing the nature of the business and what carries over to the new owner. Relevant factors may include the transfer of employees, equipment, premises, customers, goodwill and intellectual property, such as copyrights or trademarks. Which factors matter most will depend on the type of business.

A change in ownership does not automatically trigger TUPE. For example, if the shares in a company are sold, the company itself usually remains the employer. TUPE would not normally apply simply because its shareholders have changed.

Service Provider Changes

TUPE can also apply when responsibility for providing a service moves between organisations. This can occur in three main situations:

• Outsourcing: A business stops providing a service itself and hires an external provider to carry it out, such as bringing in a cleaning company to clean its premises.
• Changing contractors: An existing contract ends and the service is awarded to a different provider, for example, when a business changes its catering or security contractor.
• Insourcing: A business brings a service back in-house after it was previously provided by an external contractor.

However, TUPE does not automatically apply whenever a service provider changes. Generally, the client must remain the same, the new provider must continue to provide broadly the same service, and an organised group of employees must have been assigned mainly to carry out that service.

The courts have considered what amounts to substantially the same service in Metropolitan Resources Ltd v Churchill Dulwich Ltd. The Employment Appeal Tribunal confirmed that a service provision change does not require the incoming contractor to carry out the work in exactly the same way as the outgoing provider. The key question is whether the activities being carried out remain fundamentally or essentially the same. Relatively minor changes to how a service is delivered will not necessarily prevent TUPE from applying.

For example, if a small business replaces its cleaning contractor, TUPE may apply if the cleaning service continues and the outgoing contractor has employees organised mainly to carry out that work. The group does not necessarily need to work exclusively on the service and may consist of just one employee.

By contrast, if cleaning is carried out by employees who only occasionally perform it alongside their other duties, the requirements may not be met. TUPE will also not normally apply to a contract involving only the supply of goods, such as changing a stationery supplier, or to services provided for a single event or a short-term task.

The key point is that TUPE depends on the circumstances, not merely on how a transaction or change in service is described. Employers buying or selling a business, outsourcing a function, changing contractors, or bringing work back in-house should assess whether TUPE applies at an early stage.

What Are the Employer’s Responsibilities Under TUPE?

When TUPE applies, both the outgoing employer (the business transferring employees) and the incoming employer (the business taking them on) have responsibilities before and after the transfer. Planning ahead can help employers meet their legal obligations and reduce the risk of disputes.

Identify Which Employees Will Transfer

Employers should identify which employees are assigned to the business or service being transferred. Where TUPE applies, those employees generally transfer automatically to the incoming employer under their existing employment contracts. They usually do not need to sign new contracts, and their continuity of employment is preserved.

This means employers cannot simply choose which employees to transfer. Identifying the relevant employees early is particularly important when staff work across different departments or divide their time between several services.

Provide Employee Liability Information (ELI)

The outgoing employer must provide the incoming employer with employee liability information (ELI) for employees who will transfer. This must generally be provided at least 28 days before the transfer, unless a different period is agreed. If meeting this deadline is not reasonably practicable, the information must be provided as soon as reasonably practicable.

ELI includes employees’ names and ages, their written employment particulars, relevant disciplinary and grievance records for the previous two years, applicable collective agreements, and information on certain employment-related legal claims.

This information helps the incoming employer understand the employees’ existing terms and circumstances before assuming responsibility for them. The outgoing employer must ensure the information is accurate and up to date. Failure to provide the required information or providing inaccurate information may allow the incoming employer to claim compensation.

The incoming employer should review the information carefully and raise any concerns before the transfer. It may also need to conduct additional employment checks to assess staffing costs, benefits and potential liabilities.

Inform and Consult Employees

Both employers must inform the appropriate employee representatives about the transfer. These may be recognised trade union representatives or elected employee representatives. The information must cover matters such as why the transfer is taking place, its legal, economic and social implications and any measures expected to affect employees.

Employers must provide this information even if they do not plan to make changes affecting staff. Where measures are proposed, they must also consult the relevant representatives, genuinely consider their views and seek agreement where appropriate.

If there are no recognised trade union or employee representatives, an employer may be able to inform and consult employees directly. This is generally permitted where the employer has fewer than 50 employees, or where fewer than 10 employees are transferring, subject to the statutory conditions.

Protect Employees’ Existing Rights

The incoming employer generally assumes the transferring employees’ employment contracts and relevant employment liabilities. It must therefore take care when considering changes to pay, holiday entitlement, working hours or other contractual terms.

The rules governing contractual changes and dismissals are particularly important and are explained below.

What Happens to Employees’ Contracts and Rights?

When TUPE applies, employees generally move to the new employer with their existing employment rights protected. Their length of service carries over, so their employment is treated as continuous rather than starting again on the transfer date. This can affect entitlements that depend on length of service, including statutory redundancy pay.

The incoming employer generally takes over existing contractual terms and conditions, including pay, working hours, holiday entitlement and other contractual benefits. Relevant collective agreements may also continue to apply, subject to specific legal rules. Employees should not lose their existing contractual rights simply because their employer has changed.

Outstanding entitlements must also be considered. For example, accrued but unused holiday will generally transfer to the new employer, along with relevant employment liabilities. Depending on the circumstances, the incoming employer may also become responsible for sums owed to employees under their contracts.

Employees do not usually need to sign a new contract simply because the business or service has transferred. The incoming employer should review the existing terms and ensure that payroll, holiday records and other employment arrangements continue correctly. Any new paperwork should accurately reflect the employee’s protected terms and should not be used to introduce changes that TUPE does not permit.

There are special rules for certain pension rights, so employers should not assume that every aspect of an existing pension arrangement transfers in the same way as other contractual benefits.

Can the New Employer Change Employees’ Terms and Conditions?

Generally, an employer cannot change employees’ contractual terms simply because of a TUPE transfer. This includes reducing pay, altering working hours, or removing benefits to bring transferred employees’ terms into line with those of existing staff. This is known as harmonisation and is not normally permitted when the reason for the change is the transfer itself.

Changes may be possible in certain circumstances. For example, an employer may be able to make changes for a reason genuinely unrelated to the transfer, where the existing contract permits the change or where a qualifying economic, technical or organisational (ETO) reason involving a change in the workforce applies. Employers should not assume that obtaining an employee’s agreement automatically makes a transfer-related change lawful.

An ETO reason might involve changes to the number or functions of employees, such as a genuine restructuring. The circumstances must be assessed carefully before any changes are made.

In Hazel & Anor v The Manchester College, the Court of Appeal upheld the finding that dismissing employees who refused to accept reduced pay as part of a harmonisation exercise was automatically unfair. Although the employer had wider cost-saving plans, which included redundancies, the reason for dismissing these employees was the harmonisation of their terms, rather than a change in the workforce. The case illustrates why employers should seek legal advice before attempting to change transferred employees’ contracts.

Redundancy and Unfair Dismissal Following a TUPE Transfer

A TUPE transfer does not prevent all redundancies, but employees cannot be dismissed simply because the business has changed hands. A dismissal will generally be automatically unfair if the sole or principal reason is the transfer itself, unless a specific legal exception applies.

Where a dismissal is connected with the transfer, but the reason is an economic, technical or organisational (ETO) reason involving a change in the workforce, the dismissal may be fair, provided the other legal requirements are met. An ETO reason might involve a genuine need to restructure the business, reduce the number or types of roles required, or change employees’ functions.

If an employer relies on redundancy, there must be a genuine redundancy situation. Simply wanting to reduce costs or harmonise terms and conditions will not necessarily satisfy the legal test.

The importance of considering the timing and reason for dismissals was illustrated in Spaceright Europe Ltd v Baillavoine & Anor. The Court of Appeal considered the dismissal of a chief executive by administrators before a business was sold as a going concern (a business that keeps trading). The dismissal was found to be connected with the subsequent transfer and automatically unfair because it was not for a qualifying ETO reason involving changes in the workforce. The case demonstrates that employers cannot avoid TUPE protections simply by dismissing employees before a business transfer takes place.

Even where a qualifying ETO reason exists, a dismissal is not automatically fair. Employers must still follow a fair process, including appropriate consultation, fair selection where relevant, and where required, consideration of suitable alternative employment. Collective consultation obligations may also apply where the employer proposes a sufficient number of redundancies.

Employees dismissed in connection with the transfer may be able to bring claims for automatic unfair dismissal or ordinary unfair dismissal, depending on the circumstances. Employers considering redundancies before or after a transfer should therefore seek legal advice before making decisions about redundancies or communicating proposed dismissals to staff.

What Happens to Employees When a Business Is Insolvent?

Special rules apply when a business is transferred while the existing employer is insolvent. The position depends on the type of insolvency proceedings involved.

Where a business enters administration with a view to being rescued or sold as a going concern, TUPE will generally still apply. Employees may transfer automatically to the new employer, with their existing employment rights protected.

However, some outstanding employee payments, such as wages, holiday pay and redundancy payments, may be treated differently under the insolvency rules.

The position is different where a company enters insolvency proceedings with the aim of closing the business and selling its assets, under an insolvency practitioner. In these circumstances, TUPE’s usual protections may not apply, meaning employees will not automatically transfer to a new employer.

In Key2Law (Surrey) LLP v De’Antiquis, the Court of Appeal confirmed that administration does not fall within this exception (Regulation 8(7)), even if the company later goes into liquidation.

For employers considering buying an insolvent business, understanding the type of insolvency proceedings is essential. It can affect whether employees transfer, what employment liabilities the new employer takes on and the overall cost of the acquisition. Taking legal advice before completing a purchase can help avoid unexpected obligations.

What Should Employers Do Before a TUPE Transfer?

Preparing early can help small and medium-sized employers avoid unexpected costs, employee disputes and delays during a TUPE transfer. The following steps can help keep the process organised and reduce legal risks:

Identify employees who may transfer

Establish which employees are assigned to the business or service being transferred, particularly where staff work across departments or hold multiple roles.

Review employment terms and liabilities

Check employment contracts, pay, benefits, holiday entitlement, relevant collective agreements and any ongoing disciplinary, grievance or employment tribunal matters.

Exchange the required information

Ensure the outgoing employer provides accurate employee liability information by the applicable deadline.

Identify potential risks

Consider disputes, outstanding payments, proposed redundancies, or planned changes to employees’ terms and conditions that could create legal or financial problems.

Plan communications

Decide how and when employees and their representatives will be informed about the transfer. Clear, timely communication can help manage uncertainty and provide employees with an opportunity to raise concerns.

Consult where required

Identify any proposed measures affecting employees and ensure that the appropriate information and consultation duties are met.

Obtain legal advice

Seek advice before agreeing to contractual changes, restructuring roles, or making redundancies. TUPE rules can be complex, and decisions made before a transfer may have consequences afterwards.

Taking these steps early can help employers understand their obligations, plan the transfer effectively and reduce the risk of costly disputes.

How Witan Solicitors Can Help

TUPE transfers can pose complex legal and practical challenges for employers, particularly when addressing employee rights, contractual changes and restructuring.

Witan Solicitors can help your business understand its TUPE obligations under employment law, manage the transfer process and minimise the risk of disputes during your insolvency proceedings.

Contact our experienced team on 0300 303 2071 or email us to discuss how we can support your business.