Do I Have to Keep Staff When Buying a Business?

If you’re in the process of purchasing an existing company, one of your first questions could be ‘Do I have to keep staff when buying a business?’. The transfer of ownership often creates a period of upheaval for a workforce, so providing clarity about their future is essential to comply with laws around the TUPE transfer of employees. 

Here are the main areas of consideration when making this important decision.  

What Happens When Buying a Business With Employees?

If you’re buying a business with employees, announcing a transfer of ownership is a legal requirement for the seller. It is, therefore, advisable that all staff are notified via either a trade union or employee representative. However, if the business has less than 10 team members, nominating a representative might be impractical, so a director may make the announcement.

It’s the duty of the seller to confirm:

  • Details About the Transfer: Including the reasons for the sale
  • The Implications for Employees: Staff will need to be informed of the likely economic, social, legal, and technical impact of the transfer of ownership
  • New Measures: Any changes to pre-existing roles, guidelines, share schemes, policies and procedures etc will need to be clearly and fully explained
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It’s important to note that both retained staff and those not being transferred will need to know about their futures. Consultations will need to take place, during which such facts as transfer dates, changes to job descriptions, and sale reasons can be discussed openly.

How Should You Handle the TUPE Transfer of Employees?

TUPE (the Transfer of Undertakings Protection of Employment) protects the rights of existing staff during a business sale. Not only does it apply to the employees of companies of all sizes but it even applies to those that might have an international head office. In effect, any business that is transferred via an asset purchase will need to comply with the TUPE transfer of employees regulations.

The Impact When TUPE is Applicable

When TUPE transfer of employees regulation is applicable, employees’ roles will automatically transfer to you, the buyer. Employment is expected to continue, contractual terms and conditions will transfer to the buyer, and the employees’ rights will become your responsibility. The buyer will also become responsible for obligations to the employees and liabilities to the employees. Additionally, staff will be shielded from unfair dismissal and any changes affecting them must be declared ahead of the transfer date.

When TUPE is Not Applicable

If TUPE doesn’t apply, then buying a business with employees does not entail automatic transfer of the staff. However, you do have the option to retain any and all of the workforce. Finally, if TUPE is applicable but you don’t want to transfer staff, you will need to give an economic, technical, or organisational (ETO) reason for this.

What are the Valid TUPE ETO Reasons?

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TUPE ETO reasons are there to ensure that employees don’t lose their jobs simply because of the transfer of ownership. To ensure the smoothest possible transition between owners — and minimise the likelihood of wrongful dismissal claims and employment tribunals — any staff not being retained must be given an economic, technical, or organisational rationale. ETO reasons are as follows:

  • Economic: If the business has been affected by changes in the market, i.e. demand has fallen due to unforeseen factors.
  • Technical: If you’re planning to introduce new technology that existing staff would not be able to use.
  • Organisational: Should you decide to relocate the business, it may be impractical for staff to commute to a new location. 

Finally, when buying a business with employees, you have a legal right to receive employee liability information. This will confirm which staff have agreed to transfer, any ongoing grievances or legal action over the past two years, exceptional staff agreements, and detailed disciplinary records. If you don’t receive this information within two weeks of the transfer, you may have legal grounds to take the seller to an employment tribunal.

Do I Have to Keep Staff When Buying a Business?

If you’re buying a business with employees, it’s essential that you comply with TUPE regulations wherever required. When a business is transferred it’s expected that any existing staff will move with the new ownership — unless one of the valid TUPE ETO reasons applies. If you don’t want to transfer staff, the most common approach is to offer a reasonable settlement or settlement agreement to anyone affected by the decision.

Any dismissal that does not fall under an ETO may automatically be assumed to be unfair. In this scenario any liabilities may become your responsibility, leaving you exposed to potential legal action for breaching employment law. To ensure that the TUPE transfer of employees is handled correctly, it’s important to take legal advice during the whole process to ensure that you’re acting correctly and are covered.

Reliable Legal Advice for Buying and Selling a Business

When buying a business there are a huge number of essential factors to consider. These include, but are not limited to, financial due diligence, legal assessments, examining existing contracts, the welfare of employees, potential liabilities, business valuation, and market analysis. Therefore, a well-executed strategy, thorough research, and professional legal advice are absolutely essential for a successful and timely acquisition.

Thursfields is a full-service law firm that specialises in creating comprehensive strategies that are tailored to your circumstances. Our expertise means we can help with mergers and acquisitions, corporate governance, employment matters, financial disputes, and much more. Everything we do is built around you.

While we understand that purchasing or selling a business hinges on results, we also appreciate that it can be an intricate, demanding, and time-consuming process. Therefore, we approach your situation with an open mind and in service of your objectives. Contact us today for further information on how we can help.

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