A complete guide to TUPE regulations, employment law, and managing the workforce through a business acquisition — from legal obligations and due diligence to redundancy, restructuring, and post-acquisition integration.
When entrepreneurs buy businesses, they need people to work in them and run them. That might mean keeping all the staff already in the business, just some of them, or even none of them, because of the way things will be integrated.
It's likely you will have legal obligations towards those existing staff. As the incoming employer, you have to make sure you are aware of your responsibilities and liabilities, and take care to abide by employment law. The penalties if you don't can be punitive.
The key legislation applying to existing employees is the Transfer of Undertakings (Protection of Employment) Regulations 2006, more commonly known as TUPE. It applies to the employees of UK businesses, no matter what size the business may be.
TUPE protects employment terms and conditions, but allows for redundancies to be made. However, you may not dismiss an existing employee without a valid reason, and doing so could lead to a claim for unfair dismissal. Being aware of TUPE regulations and taking steps to ensure compliance can help make the transition of ownership run smoothly.
If a business with existing employees is to be sold, the seller is legally required to announce the change of ownership. If there are ten or fewer staff a director can make the announcement. If more people are involved, then an employee representative or trade union official should notify staff.
The announcement should cover three key areas: details of the transfer including the reason for the sale; what the implications are for employees; and what changes there will be to the status quo — job roles, share schemes, etc. Consultations need to be carried out during which all issues may be discussed.
TUPE applies when a business or part of a business moves from one employer to another, meaning the legal entity that employs people changes — as happens with mergers and acquisitions.
If the deal is a share sale, there is continuity of business and the staff continue to work for the same entity. There is no change to the legal identity of the company, so TUPE does not apply.
UK employment law and TUPE regulations mean that when a business changes ownership, an employee may only be dismissed for a valid reason. Once that has been established, it is usual to offer a settlement agreement to those affected. The minimum amount of redundancy pay due is set out in law.
Take advice as necessary to make sure you remain compliant with regard to employment rights and avoid facing legal action for breach of employment law.
As part of the due diligence process, you should review staff Employee Liability Information (ELI). This includes:
ELI must be provided at least twenty-eight days before the transfer date. You need this information to get a clear picture of the business's employees and your employment obligations.
TUPE obliges both the outgoing employer and the new buyer to inform staff members about the transfer and to consult with them about what that means to them. Things to be discussed include changes in pay (amount and/or pay date) and changes in working patterns and/or conditions.
If there is an HR department, potential buyers should consult with it. If there isn't, consult with the seller, and possibly their solicitor. Whatever the setup, make sure staff are kept informed.
It's unlikely you will have the knowledge and expertise to navigate the process of transferring employees yourself. The best thing to do is to get the specialist support you need. Hiring an HR professional to handle this part of the process for you is a good move, and you might also want to consult with a solicitor for legal advice.
The new employer accepts responsibility for employees and their employment rights on completion of the sale. Abiding by TUPE helps ensure they are treated fairly.
Continuity of employment is assured by TUPE and means that for existing staff who will remain in the business the changeover is seamless. Things including employment contracts, benefits and entitlements, holiday and sickness entitlements and length of service are preserved during the changeover and continue afterwards.
Employment contracts will continue from the outgoing employer to the new owner, so it's important you appreciate your obligations. Review contracts and ensure you fully understand them and your resulting obligations. If there is anything you need to change, do it through consultation and negotiation.
If you are going to be instigating redundancy as a result of the takeover, tell people as soon as possible. Be open and honest, and let them know where they stand. Make sure communications come from you or your HR person, and aim to head off rumour and supposition.
Any public sector employees transferred to a new company in the private sector are covered by TUPE — whether through outsourcing, public-private partnership, or privatisation. Be aware that there might be specific procedures to follow, including consultation with trade unions.
You can't change an employee's terms and conditions just because of the business sale and transfer of ownership — there have to be legitimate reasons. That's where TUPE ETO reasons come into play. If the reason is economic, technical or organisational (ETO) then terms and conditions of employment may be changed. The employee needs to agree to the change.
Related to how the business is performing. If the condition of the market and the level of competition means demand has dropped, then restructuring may be necessary and staffing levels might need to be reduced. Equally, if things are looking positive, they might need to be maintained or increased.
Related to the equipment used or processes followed. If these are outdated, then investment in new technology and implementation of more up-to-date processes might result in a need for fewer staff. However, a skilled, flexible workforce could represent competitive advantage that could be leveraged for growth.
Related to the structure of the business. If you decide to relocate, it might not be possible for employees to commute to the new location. They also involve core values, culture and morale. Keeping existing staff in place can help mitigate disruption, as should open and clear communication throughout.
While employee retention strategies matter in all sectors, it can be argued that, when buying an existing business, the services sector warrants especial care and consideration — because the people are the product.
There are legal obligations to existing staff that business owners must abide by. You must also maintain high ethical standards throughout the acquisition process.
Put yourself in the shoes of the people affected — they deserve to be treated honestly and fairly, and, especially if you need to keep them on board, it makes sense to do that. The better people might find it easier to gain work elsewhere and you don't want to lose them. As well as the cost of employing and training someone new, a great deal of experience can walk out the door when you lose an existing member of staff.
The other side of the coin is the punitive actions that the company might be opened up to if things are not handled properly and a new employer fails to meet their liabilities. It is absolutely worth putting the work in to make sure you get this right, and to take legal advice where necessary.
When you plan to buy an existing business there's a lot to take into account. Dealing with transferring employees can be time-consuming, and it's a high-risk area should you get things wrong and leave yourself open to unfair dismissal claims. Taking advice from experts is a wise move. Dealmakers FastTrack programme helps you navigate all aspects of buying a business. It could be the ideal next step.
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