Automation and AI are rewriting the rules on UK outsourcing contracts and TUPE
The Transfer of Undertakings (Protection of Employment) Regulations 2006, or TUPE, is facing new challenges as AI, automation, and cloud shift how services are delivered.
The issue started with tech transforming the workforce behind outsourced contracts. In many cases, AI and bots replace human workers entirely. This sparks legal uncertainty over whether TUPE still applies when staff aren’t transferred. 
A McKinsey report says 92% of companies plan to boost AI and tech investments, yet only 1% are truly AI-mature. That maturity gap is creating major operational and legal gray zones during supplier changes.
TUPE kicks in if the “new service is fundamentally the same” as the old one. Replace onsite IT engineers with automated cloud helpdesks? Maybe no TUPE. Robots vacuuming floors while humans still clean surfaces? TUPE likely sticks.
Even hybrid or phased transformations muddy the waters. Automation combined with ongoing human tasks creates tricky “fundamentally the same” debates.
Here’s the fallout:
- If TUPE doesn’t apply, outgoing suppliers or customers shoulder the cost of redundancies.
- If TUPE applies but automation slashes headcount, the incoming supplier pays redundancy costs — unless unplanned contract terms say otherwise.
Suppliers and customers are scrambling to update contracts. Key moves:
- Redundancy cost clauses covering TUPE gaps
- Clear TUPE risk allocations
- Contract timing that pins who pays for mid-term automation job cuts
- Exit planning for AI/service shifts that break TUPE rules
Rebecca Jones, legal director at TLT, warns:
“Too often, TUPE is treated as an afterthought. But in tech-driven transformations, it needs to be front and center – from procurement through to contract exit.
As AI and cloud continue to reshape service delivery, suppliers and customers need to rethink their assumptions, update their contracts, and collaborate across functions to manage the legal, financial, and human risks.
Early planning, clear contractual terms, and a focus on employee impact will be key to managing the risks and opportunities of service transformation. TUPE is just one of many reasons why AI demands a people first mindset.”
Executives ignoring the TUPE shakeup could face costly disputes and lawsuits as automation remakes outsourcing. Contracts across tech deals need urgent rewrites to handle AI’s impact on jobs—and legal obligations.
