For most business owners, the first worry about selling the business isn’t always about price. Most times, it’s about the people. You will most likely know their names, maybe even their families, who’s got a mortgage and who is close to retirement. The reassuring news it that employees have real protection when a business changes hands, whichever way the sale is structured. Here is how that protection works in plain English, including the 2 ways a sale happens, what TUPE means, where its limits are, and where Elliston Veda stands in all of this.
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Two ways a business is sold, and why it matters for staff
Most private acquisitions happen in one of two ways. One of them is a share sale, where the acquirer purchases the company itself, including all shares. This means the company that is directly employing the staff does not change, meaning their contracts, pay, holiday, and length of service continue on just as before. Under current law, the acquisition itself changes nothing about staff employment, and any change a new business owner wants to make needs the same agreement and legal process.
The other sale is referred to as a business sale or asset sale, where the acquirer purchases the business out of the company, including its trade, assets, contracts, and the staff. In this scenario, because the employer has now changed, the law steps in to protect the team as they move across. This protection is called TUPE.
What is TUPE?
TUPE = Transfer of Undertakings (Protection of Employment) Regulations 2006. It applies when a business, or an identifiable part of a business, is sold as a going concern. Simply meaning it carries on trading under a new owner. In this scenario, the employees generally transfer automatically to the new acquirer.
What transfers with them
In cases where TUPE is applicable, there are three things to consider:
- Staff jobs: they keep their current terms including pay, holiday entitlement, and working conditions.
- Continued service: the length of their service remains preserved, which matters for redundancy rights, notice periods, and other entitlements built up over years.
- Contracts: their contracts remain largely unchanged. The acquiring business / owner steps into the shoes of the old employer so to speak. (There are a few technical exceptions, such as around some occupational pension rights, which a professional legal adviser will be able to discuss with you).
Simply put, the staff do not have to reapply for their own jobs, and their contract terms cannot be rewritten because of the acquisition. That protection has no expiry date, however the options a new business owner does have are covered below.
Staff protection against unfair treatment
Two more aspects of TUPE also matter. Firstly dismissing any member of staff because of the acquisition is automatically unfair, a person cannot legally be let go simply for being part of the sale. Secondly, there is a duty to inform and consult. Before the acquisition is complete, affected employees must be informed through their representatives or, in smaller businesses, often directly and consulted where changes are proposed that will affect them.
This duty sits mainly with the current employer, so as the current business owner you are part of getting this right, and the acquirer must share information about their intentions in good time. A good acquiring party makes this very simple and easy for you, rather than leaving you to figure it out. We’re in this together.
TUPE is the starting point, not a ceiling
Here is an aspect some acquirers gloss over, and one we at Elliston Veda never will. TUPE is the starting point, not a guarantee of jobs forever. It stops employee contract terms being stripped away overnight, and the purpose is to protect people at the moment of acquisition, which is exactly the time when most business owners worry about it the most.
What it does not do is freeze the business at any point in time. A new business owner can still make changes as required, including redundancies, for genuine economic, technical, or organisational reasons, provided the proper and legal process is followed. What isn’t allowed is changing terms simply because the acquisition happened, however much time has passed.
So the real position is this. TUPE is a strong protection at the point of acquisition completion, it is not a promise that nothing will ever change. Any acquirer who tells you that every job is guaranteed until retirement is either misinformed or telling you what they think you want to hear. We would rather you be informed so you can make informed decisions.
When do staff find out?
This is a fairly common question. Business owners sometimes worry that staff may get the wrong idea whilst discussions are being had (not even confirmed). This could unsettle the team as they may be unsure of what the future holds for them. The early stages of an acquisition are usually done in private, this includes conversations, valuations, and any due diligence which could also be under an NDA (Non-Disclosure Agreement). The staff will most likely find out once a deal is in the final stages after the preliminary research stages are complete.
In a share sale, there is usually no legal requirement to consult staff in advance, hence many business owners choose to share with the team at or near completion. In a business or asset sale however, the inform and consult duty described above is required before the transfer of ownership. The exact moment varies acquisition to acquisition, and your solicitor will help you plan it. A good acquirer should never force that moment to be earlier than it needs to be.
What Elliston Veda values
The law sets the minimum requirement, but we strive for our own values. We do acquisitions because of the people behind them. A capable and strong team is one of the main reasons we’re interested in any business in the first place, and damaging that would ruin what we value in an acquisition, which is simply not an option.
This is also a reason why we do not follow any staff cost-cutting approach. It’s not our intention to suggest that no role will ever change, as no acquirer can make that promise. What we can say, plainly and simply, is that people are one of the core reasons we buy.
Questions to ask anyone discussing buying your business
If you find yourself in the situation where another party is discussing buying your business, then it helps to know what to ask, so you can make fully informed decisions about the future of your business and the staff behind it.
- Are you buying the company, or the business out of it? A share sale and an asset sale protect your staff in different ways, as covered above. A serious buyer explains which they intend, and what it means for your people, without being asked twice.
- Which roles, if any, do you expect to change, and why? The telling answer is the honest one. You now know no buyer can promise that nothing will ever change, so treat “everyone stays, forever” as a warning rather than a comfort. A serious buyer tells you what they know, what they do not know yet, and how they will decide.
- Who runs the business day to day after completion? This surfaces their real plan for your managers, and for you and your handover.
- What has happened to the teams in businesses you have bought before? If the honest answer is “this would be our first”, that is not a red flag on its own. How they have prepared, and how straight they are about it, tells you more than a rehearsed track record.
- How and when do we tell the team, and will you meet my key people before completion? A serious buyer wants to agree the moment and the message with you, not leave it to chance. Anyone casual about this is casual about your people.
Any serious acquirer should be able to answer these to your satisfaction. Vague, impatient, or even dismissive answers are worth noting. Notice that none of these questions asks for a promise: they ask for a plan, which is much harder to fake. We also have a post about discerning a serious buyer from a time-waster which goes into a little more detail on this topic.
A first conversation
For any established owner, the team will definitely be a topic of importance and rightly so. If you would like to talk through what a sale could mean for your business and people, all fully private and confidential, then email office@ellistonveda.com or book a discovery call with us, no obligations.
Notice: We share general information, our opinions and interpretations, not legal, tax or financial advice. We do not offer or create an adviser relationship of any kind. Please speak to a qualified solicitor on legal matters, and to your accountant or a regulated adviser on tax and financial matters.
Sources:
1. Business transfers, takeovers and TUPE, gov.uk
2. Transfer of Undertakings (Protection of Employment) Regulations 2006, legislation.gov.uk
