Make a smoother transfer

Winning or losing contracts and getting stuck with unexpected staff can be an occupational hazard. The basic rule is that if the contract is transferred in the same form to the new contractor, the new contractor will have to take over the employees on the contract.

That all sounds straightforward. But there are so many arguments over when a contract will be in the same form as it was before. What happens when only part of the contract is transferred or when the contract is split into parts? Who are the employees 'on the contract'? This is the joy of the Transfer of Undertakings (Protection of Employment) Regulations, commonly known as TUPE.

The regulations are designed to protect employees when the business in which they are employed is transferred to a new owner. This can include when a new contractor is appointed. TUPE only comes into play when the employees are working in a 'stable economic entity' ie an organised grouping of people and assets – and where this grouping is substantially the same after the transfer.

When TUPE applies, all the employees assigned to the contract before the transfer automatically transfer their employment to the new contractor. They are transferred on the same employment terms they had previously. The only exception is occupational pension entitlements. It is impossible to make them change their terms if the reason for the change is the transfer - any changes which are agreed will be unenforceable by the contractor (although the employees will be able to rely on any advantageous new terms).

The new contractor will also be liable for any employees that the outgoing contractor dismissed before the transfer and because of it, unless the outgoing contractor had a reason such as redundancy for the dismissal. If any employees are dismissed because of the transfer, their dismissals will be automatically unfair. This includes where the incoming contractor simply refuses to take them on. The only exception is where there is a reason such as redundancy for the dismissal. Even then, the contractor will still have to act properly to avoid a finding of unfair dismissal

A recent contract under the spotlight was to refurbish property for the London Borough of Southwark. When Southwark put it out to tender, it split the region into North and South and invited separate bids for each area. The existing contractor, Botes Building Ltd, lost out. Fairhurst Ward Abbott (FWA) won the tender for the North region.

The basic rule is that when a contract is transferred in the same form to a new contractor, that contractor will have to take over the employees on the contract.

As far as Botes was concerned, its staff which had been working on the contract automatically transferred to FWA. It refused to take on any of the staff and eight of them brought unfair dismissal claims - against both Botes and FWA because they could not be sure whether their employment had transferred or not.

FWA argued that TUPE did not apply to the retender of the contract because it had been split in half, so it could not be the same contract. Also, it did not take over any of Botes' staff, plant or premises. The tribunal disagreed – it found that the two contracts for refurbishment were essentially the same as the old single contract. So any employees assigned to the North region would be automatically employed by FWA.

But which employees were assigned to the North region? Six of the employees had spent most of their time in the North area for four months before Botes lost the contract. Botes had inherited them from Southwark when it won the contract originally and had to pay them at a higher rate than its other staff because of this. Botes apparently made sure that they spent more time in the North area after it knew it had lost the contract so that it could get rid of them to FWA. The court decided that Botes had genuine business reasons for allocating them to the North region. They were definitely assigned to the contract and their employment transferred to FWA.