Treating employees fairly when you sell up

When a business is bought or sold, there are certain regulations that govern the employment rights of the members of staff.

These rules are laid down in the Transfer of Undertakings (Protection of Employment) Regulations 1981 or TUPE. The regulations apply to any group of employees (and assets) that is transferred from one owner to another and that retains its identity after the transfer.

In other words, the regulations cover employees of a business that is transferred from one owner to another as a going concern. The TUPE regulations stipulate that, as long as certain conditions and circumstances hold, those employees must start working for the new employer under the same terms and conditions as were agreed between them and the former employer.

As from 6 April 2006, the TUPE regulations were amended to include the transfer or sale of long-term business relationships for contracted services such as cleaning or catering.

There are circumstances in which a transfer does not fall under the TUPE regulations. These include transfers by share takeover (where only shares are sold and the company continues to be the employer); transfers in which only equipment is sold; and transfers in which the organisation or work of the business alters fundamentally.

Selling a business

When selling a business, an employer must inform and consult employees about the sale and how this may affect them.

Under the Information and Consultation of Employees Regulations, it is a statutory obligation on the part of any employer with more than 150 employees to inform and consult those employees about any significant changes to their employment. In April 2007, the Regulations apply to employers with more than 100 employees, and in April 2008 to employers with more than 50 employees.

Employees who choose not to transfer with the business are deemed to have resigned and are not entitled to any redundancy pay.

Any employee who is dismissed because of the transfer, or because of an issue associated with it, and who has been employed by the business for at least a year, will be regarded as unfairly dismissed. Employees can be dismissed fairly but only under specific economic or organisational circumstances; in effect, these usually mean the insolvency of the business being transferred.

Buying a business

An employer who acquires a business or part of a business must take over the employment contracts of the employees just before the transfer.

The new employer assumes responsibility for the employees' employment rights and any collective agreements, including recognition of the trades union representing the staff.

The new employer should not alter the terms and conditions of the transferred employees as a direct consequence of the transfer, such as bringing them in line with those of the employer's own workers.

The new employer must inform and consult representatives of the employees who are transferred. If the new employer has any plans that will affect the transferred employees, details of those plans must be conveyed to the previous employer before the transfer takes place so that the employees may be consulted.

This is only a brief and incomplete introduction to the rules on business transfers and employees. When a business, or part of a business, is being transferred, it is essential that the owners who are selling and the owners who are buying take professional advice on their legal responsibilities