TUPE and Insolvency – A Guide for Employers and Employees

What happens to TUPE employees when a business becomes insolvent?

TUPE regulations safeguard employee contracts during a change of business ownership. In insolvency cases, an employer’s responsibilities towards TUPE employees depend on whether the insolvency procedure is terminal or non-terminal.

 

What do employers and employees need to know about TUPE and insolvency?

TUPE regulations aim to safeguard employee contracts during a change in business ownership, ensuring the transfer of employment contracts. The Transfer of Undertakings (Protection of Employment) regulations mandate both old and new employers to adhere to specific procedures and protect employee rights. However, in cases of insolvency, the protection for employees differs.

Regulation provisions ease employer obligations under TUPE during insolvency, promoting the rescue of struggling businesses and their sale to new owners.

The first consideration is the type of insolvency process—whether it’s terminal or non-terminal.

 

What is terminal insolvency?

Terminal insolvency proceedings, such as compulsory liquidation and Creditors’ Voluntary Liquidation (CVL), exempt TUPE regulations when offering employment to the outgoing company’s staff.

• Dismissals by the new owner aren’t automatically deemed unfair
• No automatic transfer of employment contracts and their current terms
• Broader modifications can be applied to employment contracts
•  

 

Members’ Voluntary Liquidation (MVL), while a liquidation process, only applies to solvent companies and falls outside the TUPE regulations’ scope.

 

Non-terminal insolvency and TUPE

Non-terminal insolvency proceedings, such as Company Voluntary Arrangements (CVAs), pre-pack administration, and administrative receiverships, have distinct implications. In pre-pack administration, new owners, often the directors of the failing company, may acquire the underlying business.

In non-terminal insolvency scenarios:

• Contracts, along with employees’ original starting dates, are automatically transferred
• Post-transfer dismissals may be considered unfair
•  

 

When TUPE regulations apply, employees can anticipate these outcomes in their specific situation.

 

TUPE and Employees: Understanding Relaxed Rules

When an employer’s business faces insolvency, the regulations safeguarding employee contracts are somewhat relaxed.

(i) The right to information and consultation

Both the previous business owners and the new buyers must engage in consultations with employees regarding the upcoming changes and their impact. This obligation to inform and consult extends to smaller companies with fewer than 10 employees. In such cases, owners can directly consult with employees if no formal representatives are representing them.

(ii) Changes to employment contracts

Employees may experience changes to their contracts, termed ‘permitted variations,’ by the insolvency practitioner (IP) or the new owner. Modifications to employment contracts must adhere to established rules and procedures. The goal is to secure the overall survival of the business and must be agreed upon by the relevant trade unions or employee representatives.

 

Statutory payments that employees can claim

The National Insurance Fund (NIF), established by the government to cover statutory payments like redundancy and the state pension, allows claims for the following:

• Pay in place of notice
• Up to eight weeks’ arrears of wages
• Up to six weeks’ outstanding holiday pay
• Unpaid pension contributions
•  

As of April 2018, these payments are capped at £525 per week; for claims before this date, the cap is £489 per week. Any amount exceeding these statutory limits becomes the responsibility of the new employer.

 

 

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Additional TUPE Considerations for Employers and Employees

If a business buyer times their purchase after the company officially enters liquidation, TUPE regulations won’t apply, and they’re not obliged to make outstanding payments to transferring staff. However, if the transfer occurs before liquidation, the new employer becomes responsible for payments like arrears of wages and unpaid holiday entitlement.

In the case of a Company Voluntary Arrangement (CVA), some positions may become redundant to enhance the business’s long-term survival. If the company can’t afford redundancy payments after entering a CVA, affected staff can apply to the Redundancy Payments Service (RPS) for statutory payments.

Navigating TUPE regulations is intricate, and non-compliance is possible without careful consideration of the legislation. For professional guidance on insolvency matters, our experts at Vanguard Insolvency can assist. Call our team for a free same-day consultation; we have 100 national offices.