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Selling a business to another business in the UK contains various hurdles. These include negotiating a fair sale price and relevant sale and purchase documentation. However, business owners must consider their legal obligations regarding existing staff members. This article will explore the tasks required before and upon completion of a business merger to help ensure you fully comply with UK law.
Do Employees Lose Their Jobs When Businesses Merge?
Employees do not automatically lose their jobs upon their employing company merging into another business. In most circumstances, employees will keep their existing jobs, salaries and length of service.
Employees stay in place despite a change in corporate ownership because of the Transfer of Undertakings (Protection of Employment) Regulations 2006. This may also be known as ‘TUPE’.
What Does TUPE Do?
The TUPE regulations ask corporate sellers and purchasers to carry out specific tasks to ensure that employees are kept up-to-date with the sale of their employer.
Then, upon reaching the business transfer date from one owner to another, the staff should be transferred alongside all premises and equipment. This is known as a ‘TUPE transfer’.
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What is a TUPE Transfer?
Under a TUPE transfer, all staff will automatically transfer to the new business unless they object before the transfer date. Occasionally, an employee may reject if they prefer to do something other than work for the new company. For example, suppose an employee works for an electronics company after leaving a larger company. That employee might object to a TUPE transfer back to their previous employer if they did not enjoy working there. If an employee objects in writing before the transfer date, you can take them to have resigned as of the last day with their current employer.
An Example
Suppose you run an Italian restaurant business, and a larger international restaurant chain wishes to purchase your smaller company.
You agree and inform your staff of the potential sale and prospective sale date. Only one staff member objects to the TUPE transfer and the remainder offer no objection.
Consequently, you must update all staff (including the objector) throughout the sale process. Part of this process should involve you confirming the conditions of employment, which will remain the same following the TUPE transfer, which usually include their:
- start date and length of service;
- job title;
- location of work; and
- salary.
Changing any of these terms is very risky and could breach TUPE. Accordingly, most businesses avoid changing these factors close to the sale and purchase of the employer.
Upon reaching the transfer date of the business, all non-objecting staff will transfer to the larger chain and the sole objector will be taken to have resigned the night before.
Why is it Important to Follow TUPE?
Most business owners selling a company are keen to follow TUPE for two main reasons:
- they want their staff to keep their jobs and avoid dismissal; and
- they want to prevent a breach of TUPE.
Generally, businesses want to avoid breaching TUPE. This is because non-compliance can result in employees filing successful unfair dismissal complaints at an Employment Tribunal.
For example, a simple failure to keep affected employees up-to-date with a business sale (known as a duty to inform and consult) can result in a payment of 13 weeks’ pay to each employee. If you have a significant workforce, this can quickly become a substantial financial burden.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
Key Takeaways
UK law wants to ensure three main things happen to employees within a business merger. Firstly, it wants employees to be informed of the upcoming sale and any changes to their employment situation. Secondly, it seeks to keep staff employed following the merger under their original employment contracts. Lastly, it only wants employees to avoid a TUPE transfer to the new company if they specifically object in advance. Naturally, most business owners want to ensure their staff retain employment when selling their company to another business. Accordingly, full compliance with TUPE can help achieve this.
If you need assistance ensuring the fair handling of employees during a business merger, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Many business owners (correctly) recognise the TUPE regulations as being a complex area of law. This way, the old and new employers will likely obtain legal advice to ensure they handle the business merger correctly.
TUPE aims to ensure that staff will transfer on the same (or equivalent) terms as those at their original company.
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