Transfer of Undertakings (TUPE)

Transfer of Undertakings (TUPE)

The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (the “Regulations”) safeguard the rights of employees when there is a change in the legal owner of the business or part of the business in which they are employed. This area of law is commonly referred to as “TUPE”. The purpose of TUPE is to protect employees from dismissal or other adverse consequences where the business in which they are employed changes hands.

What about the transfer of a contract?

While the transfer of a contract (i.e. the right to perform a service or function) is not specifically mentioned in the Regulations (unlike in the UK TUPE Regulations), the European Court of Justice (and in Ireland, the Employment Appeals Tribunal (the “EAT”)) has determined in several cases that the Regulations can apply where there is a change in the provider of a service.

This can come about in four ways:

1. Contracting out activities – When a company contracts out part of its business (e.g. cleaning or payroll) to another company;
2. Changing contractors – When a company decides to change contractors for a function that has already been contracted out (known in TUPE law as a “second generation transfer”);
3. Contracting-in an activity – A company may bring in-house an external contractor to work alongside existing employees to avail of external expertise or to help with specific projects; or
4. In-sourcing a previously contracted out activity – When a company decides to bring a service back ‘in-house’ that was previously contracted out.

In any of the scenarios above, the Regulations might apply if the function, which is the subject of the contract, is a separate economic entity in itself. Case law has established that it is not sufficient that there is a transfer of the right to perform a service or a function by itself — a transfer of “significant tangible or intangible assets” or a transfer of a “major part” of the employees performing the function must, in addition, have taken place.

Originally, it was considered that TUPE would not affect outsourcing, that is to say, the transfer of contracts between outsourcing entities or the loss of a tender. But after a series of cases known as Spijkers, Schmidt, and Süzen, the European Court of Justice found that, as long as the work consists of a stable economic entity and as long as it is not limited to just one works contract, then any loss of a tender can, in theory, become a TUPE situation.

In order to trigger the application of the TUPE Regulations, an outsourcing, insourcing or change in service provider must involve the transfer of an economic entity which retains its identity. This means that the function must essentially be the same after the transfer. Take cleaning as an example – the cleaning function is the same whether it is done by direct employees of an organisation or whether it is outsourced to a third party.

At the same time as a function is outsourced or insourced or where there is a change in service provider, there must also be an associated and related transfer of significant tangible or intangible assets or the transfer of a major part of the workforce engaged in that particular function, in terms of numbers and skills.