There is speculation that the pressure many businesses have been facing due to the coronavirus lockdown will mean more businesses changing hands over the next few months. It was welcome then, that the Government provided guidance to the rules on furlough leave, to explain the interplay with the TUPE regulations.

However, there are still some questions to be answered and employers are advised to be cautious.

Usual position under TUPE

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations. Under TUPE, following a business transfer or a service provision change, employees transfer automatically to their new employer, which has taken over the business or service, on (broadly speaking) the same terms and conditions of employment.

TUPE provides employees with additional protections from being dismissed as a result of the transfer. The employee also keeps their continuity of employment.

Can an employee be furloughed by the new employer?

Business transfers

Employers are likely to be able to claim for employees who transfer under TUPE upon a business (asset) transfer. This is when a business or part of a business moves from one employer to another, for example, where there is a business sale, takeover or merger.

The guidance from HMRC on the Coronavirus Job Retention Scheme states that employers of new employees who have transferred to them under TUPE can put these employees on furlough.

The Treasury published a second a direction to HMRC on the Coronavirus Job Retention Scheme on 22 May. This confirms that if, on 28 February the employee was employed by a different employer, but has now transferred to the new employer under the TUPE regulations, the new employer is allowed to claim through the Coronavirus Job Retention Scheme.

Service provision changes

A service provision change includes where a client outsources so a contractor provides a service on its behalf, or there is an insourcing exercise, or where a service contract is re-assigned by a client to another provider of services, for example, a contract to supply IT support that is transferred to a new supplier.

It is less clear whether new employers following a TUPE transfer via a service provision change, will be able to claim for their new employees under the Coronavirus Job Retention Scheme. Some service provision changes will amount to a ‘business transfer’ under TUPE, but this will not apply to all.

This would seem to contradict the purpose and intentions of the scheme, but the government guidance and Treasury directions to HMRC do not mention service provision changes.

Unfortunately, in the absence of further clarity from the government, it is not possible to say with certainty that employees who have transferred to a business as a result of a service provision change are covered by the Coronavirus Job Retention Scheme. Employers are advised to contact HMRC if this is a concern.

Extension to insolvent transferors

A Treasury direction to HMRC includes a specific provision which allows buyers of insolvent businesses in compulsory liquidation to place employees of that business on furlough. (TUPE would not usually apply in these circumstances.) This exception will apply where TUPE would have protected the employees were it not for the company being in compulsory liquidation.

Can a new employer access the Coronavirus Job Retention Scheme after 10 June?

The Coronavirus Job Retention Scheme entered a new phase from 1 July 2020 as the government introduced flexible furloughing and started the slow process of winding down the scheme with an end date of 31 October 2020. New rules apply to this second phase.

After 10 June a new employer can furlough employees transferred under TUPE, provided the employees were furloughed for the minimum 21 consecutive days between 1 March and 30 June. But, there is a limit to the number of employees who can be claimed for, being the total of both the maximum number claimed by the new employer in any one claim ending on or before 30 June and the number of transferred employees who had been furloughed for a minimum of three consecutive weeks between 1 March and 30 June (this latter number is subject to the maximum cap applying to the previous employer).

There is an exception to the requirement of being furloughed for 21 days prior to 30 June for employees returning from various types of family leave, for example, maternity leave, subject to various other qualifying requirements.

Practical tips for employers

The guidance and directions from the Treasury have provided clarity on business transfers but have left a notable gap in relation to service provision changes.

Employers who were involved in a business transfer after 28 February can be more confident that they will be able to claim under the scheme for their newly acquired employees.

The interplay of TUPE and the Coronavirus Job Retention Scheme rules are complicated and this article is only a summary. In some cases, it will be advisable to seek professional legal advice.

Henry Cross is a solicitor in the employment team at Stephens Scown. For more information, please call 01872 265100 or email solicitors@stephens-scown.co.uk. The coronavirus situation is changing rapidly and Stephens Scown’s Covid-19 Insights Hub is kept up to date with the latest updates.

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