How will a business transfer affect my pay and other terms and conditions of employment?

If a business is transferred from one owner to another, your terms and conditions of employment (except for pensions) are automatically transferred as well. Your rights derive from the Transfer of Undertakings (Protection of Employment) Regulations, commonly called TUPE.

If you are transferred to the new business, your terms and conditions of employment, including your continuity of service, are protected. The effect of the transfer is as if you were still employed by your previous employer.

Your new employer will take over responsibility for all the employment duties owed to you by your old employer, except as regards pensions.

In practical terms this means, for example, that if your old employer discriminated against you, or if your old employer has not been paying you the National Minimum Wage, legal liability for those wrongs passes automatically to your new employer on the transfer date. However, the position is complex, so you should seek advice from your rep, especially if you think you may have a claim. Deadlines are always very short in the employment tribunal, so don’t delay.

As regards pensions, if you were entitled to join or were a member of your previous employer's occupational pension scheme, under rules brought in by the Pensions Act 2004, the new employer must offer you the opportunity to participate in an occupational or stakeholder pension scheme.

If you are transferred from the public to the private sector, your pension is likely to be subject to a non-statutory code known as the Fair Deal for Pensions. Unions helped to negotiate the protections contained in the Fair Deal. If you need advice or guidance about Fair Deal, ask your union rep.

TUPE provides some limited protection to your terms and conditions after a transfer.

Important changes were made to the law in January 2014. Since that date, the extent of protection depends on whether or not your contract terms were 'incorporated from a collective agreement' negotiated with a trade union.

If you contract terms are not 'incorporated from a collective agreement', for example, if your statement of employment particulars simply sets out your contract terms in full, without reference to any collective agreement, any change to those terms because of the transfer will be void (i.e. ineffective and unenforceable by the employer) unless the reason for the change is an economic, technical or organisational (ETO) reason ‘entailing changes to the workforce’.

Examples of typical 'ETO' reasons might include:

  • Where the new employer doesn't offer some of the services that were offered by the old employer, meaning that some jobs have to change and/or some redundancies are needed;
  • Where the new employer operates different equipment, meaning that incoming employees need to change their job roles and retrain (again, some redundancies could result);
  • Where merging two workforces together means that some roles are duplicated, so that redundancies are likely to be needed; or
  • Where the new employer is based at a different location, beyond a reasonable commute, and incoming employees have to agree to change their jobs (for example, negotiating to work from home) in order to avoid being made redundant.

In all these cases, the employer could make changes to job roles, and changes to wages and hours consequential on the change, even though the need for the change results from the TUPE transfer, without infringing TUPE. However, your employer would still need to act fairly under the general law of unfair dismissal and not discriminate against employees in breach of the Equality Act 2010.

Your new employer is not allowed to cut the wages or other contract terms of the incoming workforce solely to bring them into line with lower wages being paid to its existing workforce. This would be an unlawful breach of TUPE. This is because the change to the contract terms is taking place just because of the transfer and there is no 'ETO' reason 'entailing changes to the workforce' to justifying those contract changes.

The position is now more complicated where the contract term has been incorporated from a collective agreement. It will be clear from the statement of employment particulars that must be given to the employee within two months of their start date, whether any contract terms have been incorporated from a collective agreement, because the law says that the statement must clearly identify that collective agreement.

Since January 2014, changes to contract terms incorporated from a collective agreement are no longer a breach of TUPE if:

  • Any variation takes place more than one year after the transfer date; and
  • The contract terms, when considered together, are no less favourable to the employee than those in place immediately before the transfer.

The law also says that transferred employees will lose the benefit of any improvements to contract terms (including any pay increases) that are negotiated under a national, sector or industry-level collective agreement after the transfer date, unless the new employer agrees. This is the case even if the transferred employees’ written contract document states clearly that their contract terms are subject to that national or sector-level collective agreement.

This is the effect of a decision of the European Court of Justice known as Alemo-Herron v Parkwood Leisure Limited [2013], which was codified into English law by changes to TUPE made in January 2014.

Take urgent advice from a union negotiator if an employer threatens to undo collectively agreed terms after a TUPE transfer because the law is complex and time limits are very short.

Remember too that inducing workers to abandon collectively agreed terms carries a potential financial penalty to be paid by the employer (section 145B, Trade Union and Labour Relations Consolidation Act 1992).

Strong union organisation offers the best chance of resisting the downgrading of your employment terms following a TUPE transfer.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.