TUPE Buying & Selling a Business
Part of the consideration when buying or selling a business is for the parties to ascertain whether or not their transaction is subject to the rules under the Transfer of Undertakings (Protection of Employment) Regulations 2006, known as the TUPE Regulations.
What is TUPE?
Tupe is a set of regulations which are legally binding to protect employees by making sure that their contractual rights, responsibilities and continuous service transfer to the buyer. TUPE has implications that influence and bind both the seller (the employer) who is making the transfer (also known as the transferor) and the buyer (new employer) who is taking on the transfer (also known as the transferee).
When does TUPE apply?
There are two situations when TUPE may apply:
- In business transfers
TUPE regulations apply if a business or part of a business moves to a new owner or merges with another business to make a new company/employer.
- In service provision transfers
TUPE regulations also may apply in the following situations:
- a contractor takes over activities from a client (known as outsourcing).
- a new contractor takes over activities from another contractor (known as re-tendering).
- a client takes over activities from a contractor (known as in sourcing)
How does TUPE affect the buyer of the business?
- The buyer steps into the shoes of the previous employer. This means they must take on the existing employees along with their existing contracts of employment.
- The buyer must introduce themselves and consult with their new employees to ensure they are aware of the changes or harmonisation.
- The buyer cannot ask the seller to dismiss any employee before buying. Any employee who is dismissed (even by redundancy) because of the transfer of business may be automatically deemed to have been unfairly dismissed. As the buyer of the business you have also potentially purchased the liability of these employees and you can, therefore, be deemed to be responsible for any compensation due to the affected employees.
- The buyer cannot change or dismiss an employee because of the transfer, even after you have bought the business, unless there is an economic, technical or organisational reason under the TUPE Regulations.
- After the transfer the buyer may need to consider harmonisation of contracts of employment. This is a complex area and we would strongly recommend that you take specialist legal advice when considering this action.
How does TUPE affect the seller of the business?
- Upon the sale of the business, the seller must consult with their employees to ensure they are aware of the changes.
- Where employees are represented by a Trade Union recognised for collective bargaining purposes, an authorised official of that union must be informed and consulted of the sale.
- Where there is no Trade Union, the seller must inform and consult other employee representatives, who could be new representatives elected for the purpose. There are rules that apply where new representatives are specially elected for the purpose. It is strongly recommended that employers seek specialist legal advice to avoid potential employment tribunal claims.
- All employees should be consulted with and given adequate time for consultation.
- When employees transfer out of your business, you must give the new employer certain information about those employees. Any failure to do so could result in the grounds for a claim.
- The employer must tell any employees affected by a TUPE transfer:
- that the transfer is to take place,
- when it is to take place,
- the reasons for it,
- the legal, economic and social implications of the transfer,
- any measures the employer or the vendor envisage taking in relation to the affected employee.
Conforming with TUPE regulations is essential for compliance. Understanding exactly what is required from you as the buyer or seller is crucial and there is a lot to consider with regards to the regulation which is why we recommend seeking professional legal advice in relation to TUPE. It is important to note that some of the liability may fall joint and severally therefore making both the buyer and seller liable for any wrong doings and potential Tribunal claims. An example of this relates to the relief providing to successful Claimant’s of up to 13 weeks pay for the Parties failure to sufficiently consult.
Our employment team is able to provide you with the necessary guidance and advice to ensure you have the correct documents in place to protect both yourself as the employer and your employees. It can be a minefield, but we can help you navigate your way through it. We offer no-obligation initial appointments and can meet you at any of our office locations in Market Harborough, Leicester or Wigston. You can call the team directly via 0116 212 1000, alternatively complete our online contact form and we will get back in touch with you.