Many purchasers of a business pay insufficient attention to the issue of its employees, forgetting that a business usually is what it is because of its employees. It is not uncommon for purchasers to carry out minimal due diligence into employee issues, which can result in costly problems.
This article deals with some of the most common myths and misunderstandings surrounding the employment aspects of business transfers where:
1. If I don’t want an employee - I can ask the seller to make them redundant
Employees are protected under the Transfer of Undertakings (Protection of Employment) Regulations 2006. Under the Regulations anyone who is employed in the undertaking (or part thereof) immediately prior to the transfer is automatically transferred to the Buyer on their existing terms and conditions.
Any dismissal in connection with a transfer is automatically unfair unless it is for an economical, technical or organisational (ETO) reason entailing changes in the numbers or functions of the workforce.
On first glance it would appear that this would entitle the Buyer to require the Seller to make redundant those employees, but unfortunately for the Buyer it must be the ETO reason of the dismissing party.
A Buyer still needs to proceed with caution though, as even if they do have a potentially fair reason for dismissing transferring employees, they still have to follow a fair procedure in carrying out any dismissal.
2. The employees are paid too much – I can change their contract terms after completion.
Employees’ terms and conditions are protected and any attempted change will be void, unless it is for an ETO reason or the reason has nothing to do with the transfer.
A change can be made to contract terms where the contract allows it, but any change is likely to be unfair if the reason for the change is the transfer.
Even if employers and employees agree changes/harmonisation between themselves, they are unlikely to be binding because the rights provided by the TUPE Regulations cannot be signed away even though both parties have agreed the changes.