Do existing staff have to stay on after a sale?

If a company is sold, do new owners have to employ the existing staff on the same terms as their original contract?

There are several key questions to answer when looking at what rights existing staff have when the business they work for is sold. They centre around the TUPE regulations.

What are the TUPE regulations (TUPE)?

TUPE is the Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended by the 2014 Regulations). They were created to protect the rights of existing staff when the business or commercial contract that they are working for changes ownership.

When TUPE applies to a company sale, the existing staff of the old company are transferred to the new company on the same terms and retain exactly the same hours and rate of pay and other contractual benefits that they had with the old employer.

>See also: Holiday entitlement for new employees

When does TUPE apply?

For TUPE to apply the business sold must remain fundamentally the same after the change of ownership – i.e. the employees will be doing the same job for the same clients. This is usually the case in most sales and is usually known as a business transfer.

TUPE also applies to situations where there is a service provision change. A service provision change can include situations in which work is reassigned. It can be where an activity is outsourced to a third party or, vice versa, when an activity is brought in house. It also applies to cases where a contract to provide a service, such as a catering or security contract, is won or lost. There are a few exceptions to this rule, so it is always advisable to speak to an HR or employment law expert as early in the process as possible to get specific advice.

Which businesses are covered by TUPE?

TUPE applies to all businesses in the UK regardless of sector or size.

>See also: Calculating holiday allowances for part-time staff

Which employees are covered by TUPE?

TUPE applies to most employees whether they are on permanent or fixed term contracts. It doesn’t usually apply to agency workers or self-employed people. In a service provision change, there can be some tricky issues about who transfers, but this is not usually the case in a straightforward sale.

What period of continuous employment do transferred employees have?

An employee’s period of continuous employment is important as it is used to calculate entitlements to statutory payments such as notice and redundancy. Transferred employees will retain their full period of continuous employment, so from the date they started employment with the old employer (unless they were also transferred to that company which means their continuous employment would start from the earlier start date). It is important to watch out for this where there have been lots of transfers of a contract to new service providers.

What other key obligations are imposed on employers by TUPE?

As well as the obligation to maintain terms and conditions referred to above, there is also an obligation on both the outgoing and incoming employer to consult with the employees prior to the transfer. The outgoing employer has an obligation to provide the incoming employer with key information about transferring employees not less than 28 days before the transfer.

An incoming employer may wish to change transferred employees’ contracts to bring them in line with those of existing employees. However, it is not usually possible to change the terms and conditions of a contract unless it is expressly allowed in the contract, for example minor admin changes, or when there are economic, technical, or organisational issues. These are referred to as ETOs.

There are many technical issues surrounding TUPE and any changes being considered to terms and conditions should be discussed with HR or employment law professionals as early as possible in the process. There may be a lawful reason to vary a contract if it is an ETO, but you do not want to put yourself at risk of claims to an employment tribunal.

It is also worth bearing in mind that there is no time limit on how long employers are prevented from changing any terms and conditions which have been protected by TUPE.

Laura Ranaghan is a consultant and team manager at CitrusHR

Leave a comment