Buying A Business: The Existing Employees

When someone new takes over a business, the business is transferred as a going concern, and the employees automatically start working for the new owner under the same terms and conditions.

Workers are protected under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), when all or part of a business is bought or sold. Under the regulations, the terms and conditions of the employees who transfer in the sale are preserved. This means that in almost all cases, the new employer cannot change the transferred employees’ terms and conditions to match those of its existing employees.

In order for the TUPE regulations to apply, there is certain criteria that needs to be considered.

What is a transfer?

The TUPE Regulations require that there is a “relevant transfer” and this occurs when:

  • a stable economic entity is transferred from one business to another and
  • that entity retains its identity after the transfer.

A stable economic entity is defined as an organised grouping of resources, e.g. a grouping of employees and assets, such as premises and computer equipment, that pursues an economic activity.

TUPE applies equally to relevant transfers of large and small businesses, and to public and private undertakings. This means there would be a relevant transfer if you sold your business or partnership or if your business bought and operated another business.

(Note that TUPE also generally applies to second and subsequent transfers of the same undertaking. This means that if you sell a business or part of a business that you previously bought or relinquish a contract that you previously took over, the employees you took over will now transfer to the new employer.)

What is not considered a transfer

Not all transfers are ‘relevant transfers’. TUPE does not apply in the following instances:

  • Transfer by share takeover: when a company’s shares are sold to new shareholders, there is no transfer of the business the same company continues to be the employer.
  • When a business transfers assets only, e.g. if equipment is sold.
  • Transfers of undertakings situated outside the UK – although similar provisions apply in the European Union.
  • Change of business identity, e.g. if the work or organisational structure changes radically.
  • Whether TUPE applies in any particular case depends on all relevant circumstances. In the event of a dispute, only an employment tribunal or a higher court can decide this.

Where TUPE applies, existing employees of the undertaking transferred automatically become employees of the person who takes it over.

If you are considering buying or selling a business and would like further information or assistance with the process then you can get in touch with one of our Solicitors in the Commercial department who will be happy to help.

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