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Business Sales and Acquisitions: What happens to the employees?

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Business Sales and Acquisitions: What happens to the employees?

Many companies and employers alike will no doubt of heard of the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006, more commonly known as TUPE. TUPE applies to most business transfers as well as the assignment of contracts (though this element is outside of the scope of this blog) and where there is a ‘relevant transfer’:-

  • The contracts of employment of those employees employed by the transferor and automatically transfer to the transferee on their existing terms, with the exception of old age, invalidity and survivors' benefits under occupational pension schemes;

Where employees refuse the transfer, their contracts are terminated by operation of law, they are not dismissed. The new business takes on the transferring employees under the terms of their pre-existing contracts, changes are only permitted in specific situations and if you do decide to make changes – those changes will be void if the sole/principal reason is the transfer itself (here are limited exceptions to this rule).

Importantly, employees are then subject to a special protection against dismissal for those with the relevant level of service and those who are forced to resign, by virtue of a repudiatory breach of contract or significant changes to their working conditions (to the employee’s detriment), are treated as deemed dismissals. So, in a nutshell, a constructive dismissal is still protected under TUPE.

Of course, it is possible to protect against claims by a disgruntled former employee by way of a Settlement Agreement, which is a confidential agreement in which the employee is often paid some element of compensation in return for a formal waiver against possible claims they could bring before the Employment Tribunal. However, where this is being doing alongside a relevant transfer, there are several complications with the usual form Settlement Agreement. In those circumstances, a ‘tripartite’ Agreement should be used with transferor, transferee and employee all being party to the same.

TUPE issues, by their very nature, are time sensitive and need to be dealt with cautiously. Our employment team are on hand to advise you on all aspects of the TUPE implications, the provision of suitable settlement agreements and of course, all aspects of the commercial transaction. If you do feel as though the TUPE requirements may confer obligations on you, then do not hesitate to seek professional assistance as soon as possible.

Please contact the team on 01942 246 241 to discuss further.

James Ford

Litigation Department