TUPE transfers
The problem
Many restaurants, hotels and other hospitality businesses come a cropper with their employees when they try to buy or sell their business. For example, in a reported case before an employment tribunal in 2003, an Italian restaurant in central London was sold to new owners who wished to run the business as an Indian restaurant. The tribunal decided that the new business had to take on the manager of the previous Italian restaurant or face a claim of unfair dismissal, as the business had been sold as a going concern.
The law
Under the Transfer of Undertakings (Protection of Employment) Regulations 1981, commonly known as TUPE, when a business is sold from one party to another, the employees of that business automatically transfer to the new owner. The new owner takes on all liabilities in relation to those employees who have transferred, including personal injury claims, at the time of the transfer.
The only terms and conditions of employment which do not transfer to the new employer are those in relation to occupational pension schemes, although this is due to be reviewed by the Government next year.
Bizarrely, the courts have decided that even where employees who have transferred agree to a change to their terms and conditions of employment with the new employer, those changes, if related to the sale of the business, are not valid.
TUPE also provides that both the buyer and the seller of the business must consult with employees before the sale to let them know that the transfer will take place and what, if any, changes will be made, such as relocation.
If the old employer provides share options as an incentive, the right to those share options transfers, but of course the new employer simply does not have those shares. In those circumstances, the law says that similar benefits must be provided by the new employer.
Expert advice
The crucial question is whether TUPE applies. Essentially, TUPE applies if a business or part of a business is sold as a going concern.
Say, for example, a hotel business purchases a property currently being used only as a restaurant: it would be hard to see that a tribunal would consider that a relevant transfer. However, the parties should be mindful of the fact that tribunals have in the past (as in the above example) considered that the sale of an Italian restaurant to an Indian restaurant chain did constitute a relevant transfer.
Given the grey areas, buyers and sellers should ensure that they have adequate protection in the purchase agreements to deal with the possibility that TUPE may apply.
It is imperative that the buyer of the business carries out a thorough investigation of the business before buying, and that it obtains the necessary protections in any purchase agreement by way of indemnities or warranties.
For example, the buyer should ensure it has indemnities from the seller in relation to any acts or omissions by the seller prior to the point of transfer. If there is an outstanding personal injury claim, for example, this will ensure, first, that the buyer is aware of what it is and, second, that the costs of the claim will be met by the seller.
The buyer should also be aware that it might have some difficulty in changing terms and conditions of employment for employees who transfer to it, particularly if the terms it offers are less favourable.
Check list
Businesses should consider the following when buying another business:
Is it going to be sold as an ongoing concern that will continue to operate in the same way?
Check that full details have been provided in relation to employees, including start dates, ages and salary details. If the seller is reluctant to provide those details because of data protection, agree to them being provided on a no-names basis.
Consider how the terms and conditions of employees who might transfer over are different from those of your existing employees.
Consider how and when to consult with employees who may transfer to the new employer.
Be clear about your legal position.
Beware!
If the above considerations are overlooked, the implications of the sale of a business can have an enormous impact on the way in which the new employer is able to run the new business.
Contacts
Rebecca Emmett
Squire, Sanders & Dempsey
020 7189 8162
ACAS operator helpline
08457 474747
