Do I Have to Keep Staff When Buying a Business?  A UK Guide

As business acquisition specialists, we field countless questions on company purchases on a daily basis. One of the most regular queries we hear though, is “do I have to keep staff when buying a business?”

As with most business acquisition matters, the answer isn’t a straightforward yes or no.

There are a few things to consider before this is answered. Buyers are best served by referring to the advice of the business acquisition team they’re using for their specific case. Nevertheless, this guide should at least offer some idea as to whether staff retention could be an issue.

Do I have to keep staff when buying a business?

Yes. Usually. Employees have protected by TUPE (Transfer of Undertakings Protection of Employment) rights that need to be observed. Depending on how the business sale is structured, it’s possible that you may be able to leave employees out of the deal though.

What is TUPE?

TUPE (Transfer of Undertakings Protection of Employment) regulations were put in place back in 1981 and revised in 2006. Their primary aim is to protect the livelihood of employees caught in the middle of a business acquisition.

Because of TUPE, employees need not be concerned if their place of employment is sold. The buyer of the company automatically inherits the company’s staff and the responsibilities that accompany them.

These regulations are notoriously complex and require professional guidance to navigate. If you haven’t already enlisted the help of a specialist business sales team, then mention of TUPE should prompt it. There are various legal issues that can arise if TUPE regulations aren’t properly adhered to. If you’re purchasing a company, you’ll need to know if TUPE rights will be triggered by the acquisition to avoid any problems.

When does TUPE apply?

In general, TUPE regulations apply to employees rather than workers employed by a third party to provide services for the business. This distinction has been challenged in a tribunal before however. The case in question found that TUPE did in fact apply to the third-party worker. This remains the exception to the rule at this point, but does illustrate the ambiguity present around a lot of the stipulations.

TUPE is usually triggered when a business is transferred from one employer to another. The purchaser takes on every aspect of their new acquisition (contracts, liabilities, debts, etc.) and the responsibility to look after its employees is no different.

Usually, the company involved will have to carry on trading as it did previously to qualify for TUPE. That means that a restaurant, for example,  will carry on trading as a restaurant after the takeover. Of course, this leads into several legal grey areas where it could be argued that the business has changed. Maybe an Italian restaurant has switched to selling sushi and needs specialist chefs instead. The new owner may even want to keep the name and kitchen staff but change to being a takeaway.

Such scenarios can prove difficult to classify how similar they are to the original business. Unless it’s changing to something completely different (perhaps the Italian restaurant buyer decides to change the business into a opticians), then it’s possible that its workers could qualify for TUPE.

When does TUPE not apply?

As above, if the company is changed to something entirely different, it probably wouldn’t need to concern itself with TUPE issues. That doesn’t mean, however, that businesses that merge together to create a new entity are exempt from complying with TUPE regulations. TUPE was set up for just these kinds of scenarios.

Being a UK regulation, any overseas factors can complicate matters a little. In fact, if the business in question wasn’t based in the UK at the time of the transfer, then TUPE should not apply at all. As you might expect though, nothing is entirely clear cut with TUPE, and there are certain scenarios that can catch some out. If a UK business employs overseas staff, for example, those workers may well qualify for TUPE.

TUPE regulations require a change of employer to take place, so share sales sometimes don’t need to involve TUPE. Such sales can see subsidiary businesses bought by a parent company, but operating under its own name with the same director as before. As the employer hasn’t changed, TUPE can be disregarded.

How the sale structure affects matters

A share sale normally involves the acquisition of everything relating to the company, so employees would usually fall into this. That is, of course, unless you plan to buy the business as a parent company that isn’t involved in the day-to-day operations.

This isn’t the only means of purchasing a business, however. Some may prefer to pick and choose the elements of the business that interest them. A goodwill, assets and stock sale allows buyers to separate certain parts of the business from others and purchase the elements they like. These elements could be assets such as equipment or vehicles, a premises, an IP, or even the stock itself.

When this is the case, buyers are not obliged to take on a company’s workforce. If the staff are left with the seller, they remain their responsibility.

So, do I have to keep staff when buying a business?

Not always. As the examples above have shown, regulations around the rights of staff are complex and difficult to provide a definitive answer for. In most scenarios, staff find themselves protected by TUPE, but depending on the situation, sometimes TUPE is not triggered.

Potential buyers hoping to trim staffing levels from their purchase open themselves up to legal risks. As a rule of thumb, any transaction that involves the potential transfer of staff should be overseen by a specialist.

Let us ease the stress of buying a business

We specialise in helping potential buyers to avoid the myriad pitfalls that can turn a business purchase sour. Acquisitions take a lot of time and effort to do right, and we know that our clients don’t always have enough hours in the day to do everything they’d like. That’s why we take care of every step along the way, including the handling of tricky issues such as TUPE.

As business sales specialists, we navigate the complexities of company purchases for our clients to ensure that they acquire the right business for them. Call us on 0800 975 0380, or email [email protected] for a free consultation.