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TUPE - Friend or Foe?

 

The Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”) was enacted in order to protect
employment rights in situations where employees transfer from one entity to another.

Key Considerations
What this means in practice is that if a business transfers from one entity to another, employees are entitled to the same remuneration, benefits and rights from their new employer. There is little doubt this important legislation has protected some vulnerable employees from scrupulous employers who may otherwise have sought to reduce their terms of employment through a transfer.

Whilst the principle of this is commendable it does in practice have some downsides, particularly in the arena of insolvency. When a Business is Insolvent the only way employees can transfer to a new owner is if the Buyer takes on all the employee liabilities, which in some situations can be material. But does TUPE protect an employees wider interest in terms of maintaining employment? Take the recent closure of British Homes Stores (“BHS”) as an example. 11,000 staff have lost their job as a result of the closure of over 160 stores. Any Buyer coming in to acquire the trade and business of BHS would do so taking on all the employee rights and obligations under TUPE. In this case it would have meant having to plug a large hole in the BHS Pension Scheme, a liability that nobody was prepared to inherit. Whilst the employees are in no way to blame for the closure of the Stores, if TUPE did not exist would the Business have survived and a large number of jobs saved?

When a Business is Insolvent there is a reason why. Sometimes this could be that the costs are out of kilter with income and the only way the Business can be made viable and profitable is to restructure the cost base of the Company. If all other suppliers and creditors are in the same boat, should employees be treated differently TUPE is a very important piece of legislation that is here to stay. But whilst the protection of employees is paramount are there certain situations where an exception can be made? Should staff be given the opportunity to decide for themselves whether to accept a change in the terms of their employment in Insolvency where the status quo is not viable? Is employment on reduced terms better than having no job at all?

How can Keenan CF help you?
Keenan CF are Northern Ireland’s leading independent transaction and restructuring Advisors. Our Corporate Restructuring team delivers market leading Restructuring and Insolvency solutions, in complex situations. Our team which boasts a wealth of experience is sharply focused on adding value from the outset by assigning senior people with the right mix of skills and experience.

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