Responsibilities to employees

How to sell a business

When you sell your business there are a number of different obligations you may owe your employees affected by the transaction. These are designed to protect the rights of your employees, giving them the right to work under the same conditions.

You will hear reference to “TUPE” – an acronym for the Transfer of Undertakings (Protection of Employment) Regulations 2006 which is the legislation that governs the obligations owed to employees and protects the employees’ rights when a business sale takes place.

Where TUPE applies your employees automatically transfer from your business to the buyer with their terms of employment and continuity of service intact.

All related employment rights, powers, duties and liabilities become the responsibility of the buyer, subject to some limited exclusions.

In effect the buyer steps into your shoes in relation to the transferred employees.

Avoid changing terms of employment

Any attempt to make changes to an employee’s terms of employment are void if the main reason for the change is the transfer itself, unless there is an economic, technical or organisational reason (ETO).

Takeaway: As the seller you should not make any changes to your employee’s contracts, place of work or function in the lead up to your sale.

Protection against dismissal

The transferring employees are entitled to enhanced protection against unfair dismissal.

This enhanced protection also applies if an employee resigns in response to a serious breach of their contract, or the buyer makes a substantial change in the employee’s working conditions which is detrimental to them.

Takeaway: Avoid dismissing any staff for reasons that could be considered part of the sale of your business – unless there is a genuine economic, technical or organisational reason.

You must inform your employees of the sale at the right time

Both you and the buyer are obliged to inform and (if appropriate) consult your own employees who may be affected by the transfer prior to the transfer taking place. If you have fewer than 10 employees within your business then you can inform and consult directly with them. If you have more than 10 employees within your business TUPE requires you to consult recognised trade unions or elected employee representatives.

You must provide specific information to the employees, or if required their representatives, long enough before the transfer takes place to enable you to consult with them properly about it. Although the duty to inform always arises, the duty to consult only arises where you or the buyer envisages taking measures in relation to affected employees.

Failure to comply with the inform and consult obligations can expose both you and the buyer to a claim of up to 13 weeks’ uncapped pay for each affected employee.

Employee liability information

You must also provide the following information to the buyer not less than 28 days before the transfer takes place:

  • the identity and age of the employees who will transfer
  • information contained in the written statement of those employees
  • details of any disciplinary action taken against an employee in the last two years
  • details of grievances raised by an employee in the last two years
  • instances of legal actions taken by employees against you in the last two years (any court or employment tribunal claims)
  • information regarding any collective agreements (agreements with Trade Unions)

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