Nick Evans, Partner in the Employment Team, discusses the potential minefield of TUPE when selling your business.
Many business owners will be aware of TUPE. Some may have had experience of dealing with TUPE transfers as a result of acquiring or disposing of businesses or parts of a business, or perhaps through service provision changes where contracts have been won or lost. For others, and indeed for many lawyers, TUPE can be something of a minefield.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 aka TUPE, apply in particular when businesses are sold as a going concern, though not on share sales. As such, for any business owner who wants to maximise the value from selling their business (and who is not engaging in a share sale), it is likely that a consideration of the TUPE implications will be necessary. Also, any buyer will be keen to ensure that any TUPE obligations on the seller have been met so as to avoid any potential claims, against the buyer, after the sale.
TUPE is sometimes seen as problematic but with proper advice and planning, the implications of TUPE on a disposition can be both managed and even utilised to create maximum value for the sale.
It is worth noting that when TUPE applies to a transaction, the employees engaged in the business being sold have the right to transfer with their work i.e. unless they object, they will transfer and the new employer (the buyer) steps into the shoes of the old employer. As a result it is the new employer who is now liable to the employees in relation to anything that has happened during their employment.
The key points to note are:
- TUPE applies as a matter of law – you can’t contract out or agree it won’t apply
- Employees who are “assigned” to the business, part of the business, engaged in providing services transfer on their existing terms and conditions and continuity is protected
- Certain restrictions on dismissals and changes to terms and conditions
- Information and Consultation obligations arise in respect of affected staff (on both seller and potentially the buyer)
- Seller needs to supply Employee Liability information
- Liabilities pass to the buyer
Often the transfer of a skilled, experienced workforce will be desirable as a buyer may want to continue operations before perhaps looking at integration and efficiencies. Alternatively a seller (of part) may want to retain certain key staff in other parts of the business. In other cases the buyer will not necessarily want all the staff to transfer and if that is the case then it is important that provision is made and agreed between the parties to ensure that there is no unnecessary risk attached to the transaction. For example, where redundancies are likely it will normally be better that these are made after the sale rather than before (perhaps with some agreed financial adjustment between the parties).
Similarly, the obligation to inform and consult with representatives will often mean that representatives need to be appointed to deal with that process, to receive information and consult. Whilst this can be of concern, properly managed this exercise can be beneficial in terms of ensuring continuity of production / business process and optimum conditions for sale. Likewise a buyer will need to be satisfied this process has been dealt with as a failure may implicate them after the transfer.
Thus, the best advice on business sales where TUPE issues may arise is:
- Get early expert advice on what TUPE implications may arise
- Assess all steps required to discharge TUPE obligations
- Assess risk / likely consequences if commercial pressures dictate some shortcuts are required
For more information on this topic or an the services that we offer please contact Nick Evans on 020 7822 4141 or email firstname.lastname@example.org.