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Business Sale or Purchase – Impact of TUPE Regulations

What is TUPE?

The purpose of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is to protect the rights of employees when a business or undertaking, or part of a business or undertaking, transfers to another undertaking.

TUPE applies when there is a business transfer or a service provision change. A business transfer is where an economic entity, i.e. an organised grouping of resources that has the objective of pursuing an economic activity, transfers to a new owner and remains an identifiable economic entity after the transfer. A service provision change occurs, for example, when a client engages a contractor to carry out some work on its behalf i.e. contracting out, retendering, or bringing work in house from a previous contractor.

TUPE does not apply when the business transfer occurs by:-

  • share takeover
  • transfers of assets only (e.g. sales of equipment alone)
  • supply of goods or services for clients own use (i.e. no business transfer)
  • transfer outside the UK (Check legislation of destination country)
  • some bankruptcy and insolvency situations

Most SME business sales are completed through share takeover or sale of assets.

What is the impact on a share takeover?

When buying a business through a share takeover the TUPE regulations do not apply. However it is important to be aware that, in addition to the employees, you will also be getting the responsibility to honour all existing employment contracts, terms and conditions of employment. You will be taking responsibility for any on-going disputes, tribunal claims and collective agreements relating to the employees.

It is essential to conduct thorough “due diligence” in order to fully understand exactly what and who is transferring. Ask for detailed information on any existing disputes or claims, including public and employer liability claims against the current employer so that these can be reflected in the transfer contract.

If, after the purchase, you want to change employee terms and conditions as the TUPE regulations do not apply this is permitted using accepted methods.  There are three methods of changing terms and conditions

  • with express agreement of the employee through consultation,
  • by dismissal and re-engagement on new terms if employee refuses (risky because of unfair dismissal potential),
  • by implied consent – impose contract anyway and if employees continue to work to the new terms and conditions they are deemed accepted.

Any staff reductions following the purchase will need to follow the formal dismissal process as this will be a redundancy situation. You should follow any policies and procedures that are in place. The first step is to place the affected employees “at risk” of redundancy whilst you consult with them or the staff representatives on ways to avoid the redundancies. Remember that if more than 20 employees are “at risk” you must hold collective consultation meetings with elected staff representatives. A fair process with formal correspondence and meetings must be followed to ensure that risk of Employment Tribunal claims are minimised. If the employees cannot be redeployed or there are no manageable alternatives then, unfortunately the redundancy must be confirmed and individual consultation completed. Any redundancy payments will be based on employees’ age and length of service with the company including the time before your ownership.

What is the impact on a business purchase through transfer of assets alone?

Once again the TUPE regulations do not apply. The main question is what happens to any employees that will not transfer with the assets? In the first instance the affected employees should be placed “at risk” of redundancy. You should then begin consultation with the staff representatives or individuals on ways to avoid the redundancy situation. The consultation should explore all the redeployment options before any conclusion can be made regarding redundancy.

Conclusions

If there is any doubt over whether TUPE is applicable to your situation it is essential to seek legal advice. Changes to employment terms and conditions and dismissals in any situation must be handled correctly in order to avoid any Employment Tribunal claims. An experienced HR advisor can help you to achieve your aims and to minimise the risk of claims.

Alan Berck-May
Director ABM HR Services Ltd

www.abmay.co.uk