Buying or selling a business is an exciting step, but are you able to protect yourself and your employees during this change?

As a business owner, you have likely been affected by the various restrictions and changes within the UK over the past two years. Many of us are still adjusting to the ‘new normal’, so if your business is changing hands because of the pandemic, or you are acquiring a business opportunity, you need to ensure that you are protecting your employees, otherwise you could potentially expose yourself to very expensive claims.

First things first

While the benefits of a business sale can be clear, it’s important that it’s handled correctly so that it doesn’t lead to any costly issues for you later down the line. Key decisions such as making sure the terms of sale are laid out clearly and fairly, are necessary to avoid any disputes after the transaction has taken place.

Next, you need to consider how you’d like to sell or buy the business

  1. Asset sale An asset sale is when one company buys the assets of another company, which can include the goodwill of the business and the customer list. In this instance, the purchasing company can “cherry pick” the parts of the business they want to buy which can be an attractive way of buying a business. The seller retains all other aspects of the business that are not included in the sale. It should be noted that all employees and apprentices usually automatically transfer to the purchasing business, though this will depend on the circumstances. The employees will transfer on their existing terms and conditions, meaning they will continue benefit from the same rights and protections.Purchasers should therefore ensure they carry out effective due diligence to properly understand the potential implications with the transferring staff, including (but not limited to) any additional benefits given to the employee which must continue post-transfer. In addition, employees retain their service continuity and any potential redundancy payments are greater.

    On the other hand, sellers have an obligation to provide the purchaser with all the necessary information connected to the employees, and refrain from dismissing employees as part of the transfer, otherwise they can be exposed to liability.

    Finally, both parties need to ensure that they follow a proper inform and consult process with the employees prior to completing the sale and comply with the legislative requirements to reduce the risk of exposing themselves to a claim.

  2. Share sale A share sale is where a company or individual buys the entire share capital (or even the majority) of another company. Therefore, the company is buying all the assets and liabilities of the company.Following a share sale, the employees remain contracted with the same company, and there is no transfer of employment rights or TUPE to deal with. The buyer can then proceed to make redundancies or restructure staff as owner of the company, which can often be attractive to a potential purchaser.

What are employees’ rights in a transfer?

Your employees also have certain rights under the law that protect them from being treated unfairly. These rights include:

  • Not being dismissed where the dismissal is directly linked to the transfer and does not fall within one of the limited exceptions.
  • Being informed and consulted about the transfer. Therefore, both the purchaser and seller should ensure that a fair process is followed.
  • Preserving the employee’s rights under their contract of employment. If an employee’s terms and conditions change, they can resign and claim constructive unfair dismissal.

What happens if the employees don’t want to transfer?

The employee can either inform the transferor or the transferee (the buyer or the seller) that they object. Their contract will then end on the day the transfer completes. The employee will not be treated as having been unfairly dismissed and therefore should have no claim against either party. This means there’s no claim for redundancy pay and no claim for unfair dismissal. However, there are some exceptions to this scenario and advice should be taken.

What happens if I don’t want to transfer employees?

An employee is automatically treated as unfairly dismissed if the sole or principal reason for the dismissal is the relevant transfer. As you may expect, there are financial sanctions available if the buyer and/or the seller fails to comply with their obligations under TUPE.

TUPE Regulations can be a minefield, so if you’re considering buying or selling a business, contact Backhouse Solicitors  to speak to one of our experts.

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