Understanding TUPE

If you're selling your business, the TUPE regulations govern how your staff must be treated as you hand over to the new owner. Steven Eckett explains

The problem

I have decided to sell my two pubs this year. What do I need to know about TUPE?

The law

The Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as TUPE, automatically apply to the transfer - normally by sale - of the whole or part of a business. These rules are nothing new, having been in force since 1981.

The basic concept of TUPE is that when a business or part of a business is transferred, the employees automatically transfer by operation of law to the new owner. This means that the buyer inherits the staff of the business on their existing terms and conditions of employment, including their continuity of employment. Any dismissal as a result of the transfer is automatically unfair. TUPE is not a voluntary scheme - any attempt to disapply or contract out of it is void.

Generally speaking, TUPE applies to asset sales, not share sales. However, recent cases indicate that where the sale results in the consolidation of the business into the holding company, or where the share sale is used as a device to avoid TUPE, the employment tribunal may apply TUPE anyway.

Seller's perspective

Information and consultation

You must inform and consult with staff, either directly or through representatives, about the transfer. If there is inadequate information and consultation, the buyer and the seller are jointly and severally liable for an award of compensation of up to 13 weeks' gross pay per employee. It is, therefore, especially important that sellers engage with staff.

You should tell them about the fact of the sale, who the buyer is and timescale. You should also invite the buyer to communicate with the staff to answer any questions about the transfer and how it will affect the business and their jobs.

Employee liability information

The seller must provide the following information to the buyer at least 14 days before the transfer is due to take effect:

• The identity and ages of relevant staff and particulars of their terms of employment, including hours worked, pay, length of service, etc.

• Details of any collective agreements and details of disciplinary action, grievances or court/tribunal proceedings brought in the previous two years or any potential action that the seller reasonably believes might occur.

If the seller fails to provide this information, then the buyer can complain to the employment tribunal, which can award compensation of at least £500 per employee. This liability is separate from any liability for failing to inform and consult.

Buyer's perspective

In terms of preparing for a TUPE transfer, a buyer actually needs to do very little other than join in the information and consultation process. However, TUPE also transfers any outstanding liabilities in respect of the employees to the buyer. You should, therefore, keep a close eye on the seller to ensure that he is complying with his liabilities, as you will be primarily responsible for these following completion.

Check list

In preparing for a sale, make sure that you have carried out the following:

• If you have a significant number of employees, you should organise the election of employee representatives to consult with.

• When you have a buyer lined up, speak to them about any changes they are planning and inform your staff - or their representatives - about these.

• Consult early and adequately with your staff.

• Put together all the information the buyer will need. If your employees do not have written terms and conditions of employment, consider putting these in place before the sale.

Remember

Your staff are the most important part of your business. Make sure you involve them early in the sale process to ensure that you do not run into problems.

Contact

Steven Eckett, head of employment, stevensdrake, 01293 596900