TUPE: do we have to accept an employee from our competitor?

HR conundrum: A competitor has lost a tender to us. On learning it had lost the tender, it transferred an employee from another part of its business to the contract that’s transferring to us. We take the contract on in three months. We accept TUPE applies generally but do we have to take this particular employee?

Louise Bloomfield, Partner at DAC Beachcroft replies…

Louise Bloomfield, Partner at DAC Beachcroft.

The euphoria of winning a tender can often be tempered when you realise that the incumbent (or transferor) has used the Transfer of Undertaking (Protection of Employment) Regulations 2006 (“TUPE”) as an opportunity to offload employees from other areas of its business, potentially to avoid redundancy costs if the contract loss means they have to consider a reorganisation, or simply to move a “problem” to you.

Despite potentially inheriting an issue you had not anticipated, your bid for the work is likely to have been carefully constructed and costed to ensure that your pricing for the work takes account of the transferring employees and skills you need to be able to fulfil the contract.  Gaining an extra person(s) not anticipated can have a detrimental impact on profitability, and can also mean you have to consider redundancies or a reorganisation which were never part of your plans or costs.

Do we have to take the employee?

Firstly, put TUPE to one side, and ascertain what the contract says between the incumbent and the body awarding the contract.  More often than not there will be exit provisions in the original contract which say that when the contract is coming to an end, the incumbent cannot change the identity of the staff that would transfer to a new provider.  If this is the case, this would contractually stop them from swapping staff in and out prior to transfer.

Also, contracts may also include indemnities in your favour which state that if the incumbent does this, you have the benefit of being able to recover costs such as redundancy pay and legal fees, which may be enough to put them off.

Furthermore, check the bid documentation and contract to see if there are any protections afforded to you by the contracting body in such circumstances.  If needs be, and if the circumstances permit it, you may need to consider revising your pricing proposal to take account of the unforeseen employee costs. Of course, this may have significant implications as to your successful appointment.

What does TUPE say?

If the contract doesn’t help you and you cant revise the price, it’s worth going back to the TUPE Regulations and reminding yourself as to how you assess whether someone transfers or not.  The test is:

  1. Are they an employee? Note TUPE has a wide definition for “employee” which is likely to include workers.
  2. Are they employed by the transferor?
  3. Are they assigned to the organised grouping of resources or employees which is transferring?
  4. Were they employed in the organised grouping of resources or employees immediately before the transfer?

The important part of the test in this situation is point 3 – if you can show that the person whom the incumbent has moved to the part of the business which is transferring to you is not “assigned” to that part, you have a ground to challenge their transfer.

This will very much be a question of fact such as is the move just a temporary one; what percentage of time are they spending on the services transferring; are they doing any other work for the incumbent?  Ask lots of questions and don’t be afraid to challenge in these circumstances – sometimes the challenge alone can be enough to make losing incumbents change their mind!  Whilst TUPE may apply to the transfer of services and you may have accepted this position, this does not mean that it applies to every employee allegedly assigned to the service.

What if they are assigned?

The employee themselves may not wish to transfer. They could choose to object to the transfer which would bring their employment to an end before the transfer.  However, it is more likely that you will need to consider what you are going to do with the employee on transfer.  Of course, having the employee may be just what you need. Keep an open mind about this and see whether you can usefully engage the employee.

Before the transfer happens, you will need to fulfil your obligations of providing information to the incumbent about the measures you intend to take in respect of the transferring employees, so this can be provided to the employee representatives as required by TUPE.  If it is clear, once you have carried out your analysis, that you do not want or need all of the employees transferring, you will be telling the incumbent that a potential measure you will take is redundancies.

Although the incumbent is your competitor, if you are able to have a sensible discussion with them, it is worth exploring whether a deal could be done before the transfer to facilitate any redundancy under a settlement agreement that has both you, the incumbent and the employee as a party to it. This is often a neat solution in situations where there are more employees than needed, giving both you and the incumbent protection, and minimising unrest for all concerned.

If no deal can be done, you may need to accept the transfer of the employee and deal with the implications of them being surplus to requirements in the usual way, and follow a normal redundancy process.  Dismissing them solely because of the transfer will leave you on the sharp end of an automatic unfair dismissal claim, which potentially has broader (and distracting) employee relations and service delivery implications.

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