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TUPE briefing note

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (July 2006).
Should an exception be made for private equity as the private members bill suggests?

(Extend the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 to the acquisition and disposal of substantial shareholdings by private equity companies)

There is no basis in logic or law for such an extension. It is unnecessary and would be grossly unfair.

What is TUPE?

TUPE is the acronym for the "Transfer of Undertakings (Protection of Employment) Regulations 2006". TUPE was put in place to comply with EU legislation in order to make sure that when a company sells a business to another company, in an ‘asset sale', the employees who work in that business have their jobs and terms and conditions of employment protected. The employees automatically transfer to the company that is the new owner of the business.

For example if Walker Manufacturing sells its pen making business to WH Smith, those employed in this business who were employees of Walker Manufacturing before will now become employed by WH Smith on the same terms and conditions and with continuity of employment intact.

The basic intention is to ensure that employees are not denied their employment protections by being left behind in a company which no longer operates the business that they work in because that business has been sold.

Does TUPE apply to private equity?

TUPE applies to all ‘asset sales'. So yes, it applies to all companies, including ones that are private equity-backed.

So why do people think TUPE doesn't apply to private equity?

Usually, when one company wants to buy another (including when a private equity firm backs a buyout) it will buy the shares of that company, rather than its assets. It is a ‘share sale' rather than an ‘asset sale'. In the sale, the company remains intact and just has a new owner. The company still owns the assets, and still employs the employees. The employees retain all their employment protections. There is therefore no need for TUPE.

For example when KKR bought Boots it bought the company's shares. This means that it is buying the Boots company - including assets, employees etc

TUPE exists to protect employees that can be left behind when a company sells a business. In a ‘share sale' employees remain employed throughout by the same company so there is no need for TUPE to apply.

Should TUPE be extended to cover "share sales"?

First, this is clearly a matter for Parliament, and it is worth noting that the TUPE regulations were last updated as recently as 2006 following a lengthy and extensive consultation process.

Second, this is not necessary because other legislation protects workers employment rights, and gives them access to information and rights to consultation, and those protections apply after a share sale just as they do at any other time.

The employees retain their existing employment protection and the identity of their employer does not change. In relation to any concerns regarding potential job losses there is existing employment legislation which already requires information and consultation with employee representatives where 20 or more job losses are envisaged.

In relation to concerns regarding pensions, once again there is existing employment legislation requiring information and consultation with employee representatives where significant changes are intended.

If employees want further rights to be informed and consulted a mechanism to achieve this is already available­ - ICON.

Third, TUPE derives from a European directive. As recently as June of this year, the European Commission concluded that there was no justification to extend the directive to a change of ownership of shares.

Further information

FOR FURTHER INFORMATION PLEASE CONTACT THE BVCA

 +44 (0)20 7492 0400

 policy@bvca.co.uk