Understand TUPE employee transfers

TUPE - What happens to employees

When you buy a business as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) typically apply. This means employees automatically transfer to you with their existing rights and terms.

What TUPE means for you as the buyer

• Automatic transfer: Employees transfer to you automatically with their existing employment terms, continuous service, accrued holiday, and redundancy entitlements
• Protected terms: You cannot worsen terms and conditions because of the transfer. Redundancies, pay cuts, or benefit reductions are automatically unfair unless for an Economic, Technical or Organisational (ETO) reason
• Inherited liabilities: You inherit liability for unfair dismissal, discrimination claims, and outstanding grievances from before the transfer
• Pension obligations: You may need to provide comparable pension arrangements

Consultation requirements

The seller must inform and consult affected employees about:

• The fact of the transfer
• When it will happen
• Reasons for the transfer
• Legal, economic, and social implications
• Measures the new owner will take (changes you plan to make)

The seller must also provide you with employee liability information at least 28 days before completion. This includes:

• Identity and age of each transferring employee
• Employment particulars (job title, start date, pay, hours)
• Information on disciplinary procedures or grievances taken within previous 2 years
• Information on court or tribunal cases brought within previous 2 years
• Information on collective agreements affecting the employees

When TUPE does NOT apply

TUPE won't apply if:

• Asset purchase only: You buy assets (equipment, stock) but don't take on the business as a going concern
• No economic entity transferred: The business operation doesn't continue (e.g., buying assets to use differently)
• Insolvency administration: Different rules apply if buying a business in administration

However, deliberately structuring the transaction to avoid TUPE can be challenged. Tribunals look at the substance of the transaction, not just its legal form.

Dealing with employee liabilities

During due diligence, review:

• Employment contracts: Current terms, notice periods, restrictive covenants
• Employee liability information: Request this from seller at least 28 days before completion
• Ongoing issues: Disciplinary procedures, grievances, potential tribunal claims
• Pension obligations: Defined benefit vs defined contribution, consultation required
• Trade union recognition: Collective agreements transfer automatically

Negotiating protection in the SPA

Use the Sale and Purchase Agreement to protect yourself:

• Seller warranties: Seller promises no undisclosed employment claims or issues
• Indemnities: Seller compensates you for pre-transfer employment liabilities that crystallize post-completion
• Price reduction: Reduce purchase price to reflect known employment liabilities or redundancy costs

Making changes after TUPE transfer

You can make changes to employee terms, but only if:

• For an ETO reason: Economic, Technical, or Organisational reason unrelated to the transfer (e.g., genuine business restructuring)
• After a reasonable period: Immediate post-transfer changes are likely transfer-related
• With employee agreement: Employees can agree to changes (but agreement may be challenged if made under pressure)

Dismissals or changes made because of the transfer are automatically unfair. Wait at least 6-12 months and demonstrate genuine business reasons unrelated to the acquisition.