The best way to describe TUPE - the Transfer of Undertakings (Protection of Employment) - and how recent changes to the regulations could affect you, is to picture the following scenario: an employee could wake up one morning to find that they have a different employer to the one they had the night before, simply because their old firm lost a client account. Alternatively, a partner of an accountancy firm could find that their star performer has been transferred to a competitor without as much as a goodbye drink.

It is possible that you are already aware of TUPE - it is a 25-year-old law, under which employees automatically transfer from one company to another when a business is sold. What many people are not aware of, however, is that recent changes to TUPE regulations mean that it is now even more likely to apply to them.

TUPE has been around since 1981. In order to apply, there must be an organised grouping of employees which has, as its principal purpose, the carrying out of the services on behalf of the client. There is no guidance as to the percentage of time spent by an employee, or a team of employees, which is necessary to meet the definition of 'principal purpose'.

The Department of Trade and Industry has stated that there must be an identifiable team of employees dedicated to meeting one particular client's needs. However, the DTI has been unclear as to whether or not employees and teams must work exclusively for one client in order to fall within the definition.

TUPE is designed to protect employees and can apply to just one employee. It is the employees who bring claims under TUPE, not the firms.

TUPE has always applied to all industries. But in April 2006, a new category of TUPE transfers, known as a 'service provision change', was introduced. This applies when a service is outsourced, reassigned or contracted in. While it was always possible for TUPE to apply when a client moves its contract for professional services, such as accountancy, from one firm to another, it is now more likely to apply.

To reduce the likelihood of TUPE applying when a client moves its business elsewhere, a firm should ensure that there are no employees or teams who only work on one client account and that no employee or team spends more than 50% of their time working on any one client account.

The good news is that employees can opt out of a TUPE transfer. The bad news is that employers cannot. If accountancy firms want to retain key staff they should consider providing incentives to get these employees to stay.

Staff who do not opt out will be left to the mercy of the new firm, but the new firm cannot simply get rid of the new staff without an economic, technical or organisational (ETO) reason (ie, redundancy). If redundancies are needed, the new staff will have to be treated the same as the new firm's existing staff and a fair redundancy exercise carried out.

TUPE only applies to employees, not freelancers. If a firm genuinely engages people on a self-employed basis, TUPE will not apply to them. However, employment tribunals look at the substance and not the form of an employment relationship. Any attempt to label a worker a freelancer, when in reality that person is an employee, will not be effective.

If a client account is of short-term duration, TUPE may not apply. The 2006 regulations refer to the client's intentions in order to ensure that the focus is on the substance rather than the form to prevent the evasion of TUPE. Therefore if a client deliberately breaks up what should be a longer term contract into a series of smaller contracts of short-term duration, an employment tribunal would look at the client's intention to ensure that each contract is in reality distinct and not part of a deliberate design to avoid the regulations. It also means that if a client engages a contractor repeatedly, as long as the intention at the outset was for the contractor just to be engaged in relation to a single event of short-term duration, that would not amount to a relevant transfer.

There is a duty on both the outgoing and incoming firms to inform and consult with representatives of their employees who may be affected by the transfer, prior to the transfer taking place. A change under the 2006 regulations is that both firms will be potentially liable for all of the losses incurred as a result of the outgoing firm's failure to consult with staff.

If there is a relevant transfer under the 2006 regulations, there is a new duty upon the outgoing firm to notify the incoming firm of various details about the employees who are assigned to the business that is the subject of the transfer. This is known as the 'employee liability information'. The information must generally be provided not less than 14 days before the transfer. A failure to provide this information renders the outgoing firm liable to a claim being brought by the incoming firm.

Under TUPE, employees dedicated to a lost client account transfer to the new firm, whether or not the old or new firm considers that TUPE applies and whether or not they desire this outcome.

Before taking on a new client account, a firm could seek an indemnity from the client to cover liabilities that it inherits with the new account. It could also seek an indemnity in respect of any future losses when the account is lost.

New business for accountancy firms post-TUPE 2006 may be a poisoned chalice. All rights and liabilities in respect of the transferring staff move to the new firm. The employees cannot be dismissed (by either the old or new firms) unless it is for an ETO reason involving a change in the workforce, and their terms and conditions cannot be changed, even if the new firm wishes to harmonise their terms. Also, if an employee has a claim against the old firm, for example, for sexual harassment, the new firm will become liable for this claim, even if the harasser does not transfer.

As an employee or employer you cannot simply ignore TUPE. It will affect you and it is here to stay.

Karen Tickner is a solicitor in the employment group, Mishcon de Reya