Staff are usually the most important asset in a successful business, however when it comes to the transfer of a company to a new owner employees can become an afterthought resulting in costly litigation. In this article we will be looking at the legal obligations on the buyer and seller towards staff.
Q1) What is TUPE?
TUPE or the Transfer of Undertakings (Protection of Employment) Regulations 2006, is the key law that governs the circumstances when an employee’s employment may transfer from one employer to another, and the extent to which a transferred staff members employment rights are protected. Whilst this is the general position, there are lots of exception such as when the function of the business changes sufficiently or is fragmented.
The TUPE can also apply to a situation when a contract for a service changes from one provider to another. For example, if the local authority changes its service provider for domiciliary care for residents in specific area to a new provider, the TUPE regulations may apply.
Q2) Will there be a TUPE transfer if I buy the majority of shares in a limited company?
In the vast majority of cases, this would not trigger a TUPE transfer as the employer remain the company, it is just the shareholders that change. There are exceptions to this, the main one being that the majority shareholder is another business and exerts such a degree of control over staff members that it may be said that in reality the majority shareholding business is in reality the employer, and thus there has been a transfer. This is a complex area of law.
Q3) Do you have to consult with employees if there is to be a TUPE transfer?
Yes, if the purchaser envisages taking measures related to the TUPE transfer. Broadly speaking, measures are any changes to the employment arrangements whether this be positive or negative changes. Before the transfer but following the seller providing to the buyer information about staff, the buyer should then write to the seller and inform the seller of what measures the buyer intends. There can be financial and legal implications for the seller and buyer if they do not adhere to their obligation with regards to informing and consulting with affected staff members.
Q4) What if the seller has not complied with its legal duties to its staff?
One of a number of common situations is that the seller’s contracts of employment do not comply with the legal requirements as set out in the Employments Rights Act 1996. Whilst outside the scope of this article, the buyer in this situation can seek indemnities from the seller against any liabilities arising from the seller failures, however the seller should remedy the situation as soon as they are able following the transfer.
Q5) Who consults with staff?
If there are less than 10 staff members within the business that is being sold, then the seller can consult with its staff members directly in good time before the transfer (unless special circumstances apply). If the business has 10 of more employees then consultation will need to take place through employee representatives. This is not straight forward and professional advice should be obtained. Whilst there is no legal obligation to do so, it is often a good idea for the seller to invite a representative of the buyer to attend one or more employee/ employee representative TUPE consultation meetings.
Q6) Can changes to the workforce be made following the TUPE transfer?
Yes, although it is more accurate to say ‘potentially’. This is a complex area and will depend on the change that is to be made, the reason for the change, whether the changes arises from the TUPE transfer or are due to some unrelated reason.
Q7) Can the buyer dismiss employees following a TUPE transfer?
Yes, although again it is more accurate to say ‘potentially’. It will depend on the reason for the dismissal (ie, whether it is redundancy, misconduct or some other reason) and what rights the particular employee has, for example whether or not they have sufficient service to have gained the right to not be unfairly dismissed. This can be a complex area and as such professional advice should be obtained.
Should you require support and advice in relation to selling or buying a care home or any other business, we can assist you with both the commercial transaction and ensuring that you comply with obligations towards staff.
For cost effective, insurance backed, employment law and HR support for your business, Ison Harrison’s new In-House: Employment Law and HR service is the ideal solution.