If part of a business is being transferred overseas, or services offshored to another country, you will need to consider both the UK legal implications and any applicable local employment laws in the jurisdiction where the business/services will be carried out.
Although the issues are complex, and you will need to take advice on your specific circumstances, we have set out below some key issues to think about in relation to outgoing cross-border TUPE transfers.
Which laws are relevant?
TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) imposes specific obligations on employers and protects employees when the work they do is transferred from one business to another. It may apply to:
- A business transfer where the undertaking is situated in the UK immediately before the transfer (even if those employed in the undertaking ordinarily work outside the UK); and
- A service provision change, where there is an 'organised grouping of employees' situated in Great Britain immediately before the change (for example, if a business decides to offshore its IT services from the UK to a supplier located abroad).
TUPE may therefore apply even if the buyer / new service provider has no presence in the UK or will perform the services from overseas going forward.
Local laws in the jurisdiction where the business or services will be transferred to may also have an impact so arranging to take legal advice at an early stage is sensible.
What practical issues should we think about at the outset?
Identify the nature of the transaction and seek early advice on whether TUPE might apply. Work out the number of employees involved and who will be 'in scope' to transfer under TUPE.
If TUPE applies, the key legal principles that you need to be aware of are that:
- Employees assigned to the undertaking or service will be in scope to transfer to the transferee on their existing terms and conditions (with limited exceptions) and any changes to these may be void.
- A dismissal will be automatically unfair if the sole or principal reason for the dismissal is the transfer itself, unless it was for an economic, technical or organisational reason entailing changes in the workforce (ETO reason) (e.g. a redundancy due to work being transferred overseas). If there is an ETO reason the general unfair dismissal rules apply.
- There is an obligation on the transferor (the seller / outgoing employer) to provide certain information about the transferring employees (the 'employee liability information') to the transferee (the buyer / new service provider) at least 28 days before the transfer.
- Both the transferor and transferee have to inform and in some circumstances consult with trade union or employee representatives in relation to the transfer and any connected measures.
What happens if the jobs will not exist in the UK after the TUPE transfer?
A key feature of a cross-border transfer is that the jobs are likely to cease to exist in the UK after the transfer. If this is the case, there will be a potential redundancy situation.
As the in-scope employees will have no relationship with the transferee, it is often more practical for the transferor to deal with any redundancies pre-transfer. However, pre-transfer dismissals are likely to be automatically unfair (as the transferor can't rely on the transferee's requirements when trying to establish an ETO reason).
Therefore, you will want to find a pragmatic commercial solution. Objection letters and tri-partite settlement agreements (waiving claims against the transferor and transferee) are often used to avoid the transfer of staff and deal with the risk of claims.
If alternative jobs are available (with either the transferor or transferee) this may have an impact on what process is followed.
Are employees entitled to the same terms and conditions if they agree to work overseas?
If the employees' current roles are redundant, unless you are entering into settlement agreements (see above), consider whether any alternative employment is available for those who have the two years' service required for unfair dismissal protection. If there are no vacancies in the UK, it may be reasonable to consider offering roles in other locations if available.
In many cases employees would not want to relocate outside the UK to accept alternative employment. However, if they do, that offer of alternative employment (arising out of a redundancy situation) may be subject to different terms and conditions. There may also be local laws to take into account in deciding what terms should be offered. In some cases, the alternative employment may not be practical for work permit or other reasons. Take advice on these issues as it is a complex area.
What consultation requirements apply?
Factor in time for TUPE consultation, and collective redundancy consultation where that is triggered. In both cases, if necessary, allow time for the election of appropriate representatives, and seek advice on the timing of and process for consultation and any dismissals.
There is an obligation to consult collectively if there is a proposal to make at least 20 employees redundant at one establishment within a period of 90 days. If collective redundancy consultation is required, it can start before the TUPE transfer date if both parties agree - there can be benefits of doing so in terms of minimising costs.
Remember that in addition to collective consultation, there may also be individual redundancy consultation requirements (although settlement agreements can waive potential individual consultation claims).
What claims can employees bring?
Potential claims include (i) failure to inform and consult under TUPE (which could cost up to 13 weeks' uncapped pay per affected employee); (ii) failure to comply with collective redundancy consultation obligations (which could cost up to 90 days' uncapped pay per affected employee); (iii) unfair dismissal or constructive unfair dismissal (iv) failure to pay enhanced and/or statutory redundancy payments; (v) failure to make notice payments; and (vi) claims for salary for the period that it would have taken to fairly implement any redundancies.
Who typically bears the risk of employee claims?
Although you cannot contract out of TUPE, you can contract around it. Consider who is going to bear the risk of potential claims. Decide what indemnities and warranties you require in the commercial contract and which party will shoulder potential liabilities in connection with the transferring employees. In practice, although the outgoing UK employer often takes responsibility for making any redundancies pre-transfer, the costs and risks associated with any related claims are contractually agreed between the parties in advance.
What other things should we consider?
- Seek early advice on any other international local laws that may apply to the transaction.
- If you are offshoring, consider whether trade unions may threaten industrial action and the impact that offshoring may have on staff productivity and morale.
In all cases planning is essential so that the UK and non-UK employment law issues can be taken into account. Brodies can assist you in obtaining international legal advice if necessary.
If you require advice in relation to any of the above, or in relation to your own circumstances, please contact a member of our Employment and Immigration Team.
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