TUPE Or Not TUPE ' Transfer Of Undertakings And Employee Relationships

• Published date: 07 July 2023
• Subject Matter: Employment and HR, Contract of Employment, Employee Benefits & Compensation
• Law Firm: Waselius & Wist
• Author: Mr Jouni Kautto

In the handover of a business, the employees are transferred to the new employer as pre-existing employees. While handing over a business is not an inherently problematic process, it requires caution on the part of the employer, as the relevant regulations are widely applicable, sometimes in unexpected situations.

Change of ownership and continuity of employment relationship

A transfer of undertaking - conventionally known as a Transfer of Undertakings (Protection of Employment) (TUPE) transfer(1) - refers to any arrangement where a business is transferred from one entity to another. The basic structure of the TUPE transfer is an acquisition of business carried out as an asset transaction. The establishment of a joint venture can also match the characteristics of a TUPE transfer if one or more of the participants have carried out similar activities before and transfer these activities to the new joint venture.

No matter the underlying circumstances, the effects on the employees are always the same. The employment relationships of the transferring employees shall continue uninterrupted, and the terms of the employees' employments shall remain unchanged. Employees transfer to the new employer as pre-existing employees, as the matter is often carried out publicly.

Lost tender may result in TUPE

The regulations concerning the TUPE are designed for business acquisitions, but in legal praxis, the scope of the regulations has been extended to cover other situations - for example, where the company and business activity changes while another entrepreneur continues the same business in the same location. In legal practice, the norms regarding the TUPE have been applied, for instance, to the change of operator in a coffee shop, the outsourcing of cleaning and even to a sale of a truck. In cases where there has been no contractual relationship between the new and the old entrepreneur, but both have entered a contract with a same third party, either a customer or an employee, the regulations also apply. As the key assets that were needed to run the business have ended up in the hands of the new entrepreneur, the courts have ruled that the entire business has been transferred from the old entrepreneur to the new entrepreneur.

The nature of the business determines which assets are the key in the assessment. If the business relies on the intellectual property rights developed by the company, the transfer of the business cannot take place unless the new entrepreneur...