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When a business is sold the buyer and seller both have obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006. The Regulations are designed to safeguard the employment rights of employees involved in the transfer.

When Do The Regulations Apply?

The Regulations apply when a business or undertaking, or a part of one, is transferred to a new employer regardless of its size and whether or not it operates for profit.

  • The Regulations do not cover share sales or asset only sales. However, it is not always clear when the proportion of assets being acquired amounts to an undertaking for the purposes of the Regulations. If in doubt, appropriate advice should be sought.
  • When selling your business you must provide certain information about the transfer to trade union representatives, on behalf of your employees. In addition, if you or the buyer is planning to take any “measures” in connection with the transfer, you are required to consult with the representatives about the measures you or the buyer intend taking. “Measures” may include, for example, the buyer planning to make redundancies or changing work location following the transfer.

If there are no union representatives then you must inform and consult with appropriate employee representatives, and if there are none, arrange an election of representatives.

As the seller, you also have an obligation to provide certain information in writing to the buyer at least 14 days before the transfer. This information includes:

  • The identity and age of all transferring employees
  • Their particulars of employment
  • Details of any disciplinary action or grievances within the last two years
  • Details of court or tribunal cases, claims or actions brought by employees within the last two years or that may be brought by employees, and
  • Any collective agreement which will take effect after the transfer.

Any failure to comply with the obligations could lead to an Employment Tribunal ordering a financial penalty of up to 13 weeks pay plus £500 against you in respect of each affected employee.

As a buyer, you also have obligations under the Regulations. All employees who transfer to your employment do so on their previous terms and conditions, and with their continuous employment preserved. Any variation to the transferring employees’ contracts of employment (including changes agreed with the employees) will be void if the principal reason for the change is the transfer or a reason connected with it. However, variations in terms and conditions can be achieved in certain very limited circumstances.

You also have obligations to inform and, if taking “measures”, consult with representatives of existing employees that will be affected by the transfer. For example, if a new acquisition will mean an increased workload, or a change in working practices, for your existing head office staff then you are obliged to consult. Although this obligation is often overlooked in practice, the potential sanction is 13 weeks pay for each affected employee.

We can help and advise you, as seller or buyer, on all of your obligations and responsibilities under the Regulations to ensure a smooth transfer. For further information in relation to this article, please contact Louise Connacher.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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