How to manage existing staff when buying a business

When buying a business, as well as taking on a going concern, you will also be taking on the concerns of ongoing staff.

It’s vital that you tread carefully, but firmly, when taking your first steps into new management

It’s vital that you tread carefully, but firmly, when taking your first steps into new management

This is a sensitive issue: there are legal implications involved in the process and existing employees should be treated with care and transparency to ensure a smooth handover of the business.

Here are a few guidelines to avoid ruffling too many feathers, or worse, getting into legal trouble:

Inform existing staff of new employment T&Cs

If you are retaining some of the existing employees of your new business and wish to change the terms and conditions of their employment, it’s vital to gain their agreement first. If you fail to do so, a staff member could be within their rights to sue for breach of contract or even resign and claim constructive dismissal.

Existing staff should be made aware of any changes to the document that outlines their employment conditions no later than one month after they have been made.

The particulars can include anything from entitlement to sick leave and pay to pension schemes and disciplinary procedures.

Reduce staff numbers before you take over

If you want to start your new business with a smaller team, you must wait until the due diligence period is over before letting people go, but always ensure you complete this process before you take over.

As the new employer, your responsibility is to inform and consult all employees, including employee representatives, who may be affected.

With difficult decisions like these, it’s best to be upfront: the last thing you want is to start your new management with poor staff morale.

Teach yourself about TUPE

When any business is sold, any existing staff who are transferred to the new company are protected under TUPE: the Transfer of Undertakings (Protection of Employment) Regulations 2006.

This legislation protects an employee’s terms and conditions of employment, unless there is a bona fide economical, technical or organisational (ETO) reason why things should change.

Be aware that staff will also retain their period of continuous employment (ie the start date of employment will be the time they began their original employment under the old management).

The legal and technical issues relating to TUPE are many and any changes being considered to employee terms and conditions should be discussed with a solicitor before you take over the business.

You may have a legally legitimate reason to vary a contract, if it is an ETO, but you must do everything you can do avoid any potential staff claims to an employment tribunal.

Don’t rule out redundancy

Employees may still be entitled to redundancy payment despite being dismissed under legitimate ETO criteria.

It’s worth noting that this entitlement remains even if the employee has failed in a claim for unfair dismissal.

Always study existing employees’ contracts carefully.

Know the employment status of existing staff

Many small businesses have staff on ‘zero hours contracts’. If this is the case with your new business, these employees will not have the same employment rights as staff with standard contracts.

A zero hours contract is an employment agreement whereby the employer does not guarantee the staff member any work, and the individual is not obliged to accept any work offered.

The rights of your staff will depend on whether they are classed as an employee, a worker or self-employed. The former has the most rights, including the right to declare unfair dismissal after two years of service, but the latter has very few.

Make sure you read the small print in all employee contracts so you are aware of what changes you can make, and how easy/challenging that process might be.

Make the most of new contractual opportunities for SMEs

From Sept 1st 2013, business owners have had had the opportunity to offer a different kind of employment contract.

Called a ‘shareholder contract’, this agreement enables an employer to offer employee shares in their business in exchange for giving up certain employment rights.

This is contractually a breath of fresh air to small business owners who live in fear of disgruntled employees taking legal action.

As a shareholder, the employee will give up the right to claim for unfair dismissal, statutory redundancy pay and the right to take time off for training or study.

However, they will have more of a vested interest in the business as their shares could increase in value, and any gains will be tax free.

It’s clear that there is a lot to consider when faced with the existing staff of a purchased business. Most people don’t like change, so it’s vital that you tread carefully, but firmly, when taking your first steps into new management.

Nicky Tatley is senior writer at BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Nicky writes for titles across the Dynamis stable, as well as a number of other industry publications, both print and online.

 

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