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TUPE

An asset purchase is likely to be subject to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

If this is the case, the buyer will in most cases acquire all of the employees employed in the business at the time of the transfer on their existing terms of employment, together with any rights and liabilities relating to them.

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GENERAL ISSUES TO CONSIDER

 

There are a number of issues relating to employees that both the seller and buyer should consider on an asset purchase:

  • Both the seller and buyer will want to ensure that all employees, workers and consultants working in the business at the time of the transfer will be transferred to the buyer.
  • Any such employees are likely to be transferred under TUPE (unless they are only temporarily assigned to the business). Both parties will usually want to ensure that anyone working for the business who is not transferred under TUPE (including any workers or consultants) will pass to the buyer under the terms of the asset purchase agreement.
  • If TUPE does apply, the parties will need to agree how any liabilities relating to the employees will be apportioned between the seller and the buyer.  It may be necessary to include appropriate indemnities in the asset purchase agreement.
  • The parties will need to consider if the standard warranties will be appropriate, or if it is necessary to put in place additional protection.
  • In a simple transaction the transfer date is likely to be the completion date but when the transfer takes place will be a question of fact. A transfer may be affected by a series of transactions not necessarily between the same parties.
  • The seller will want to identify any liabilities relating to the transferring employees that it will retain following the transfer.

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INFORMATION & CONSULTATION

If TUPE applies, it will be necessary to inform all affected employees of the proposed transfer and, if it is envisaged that any measures will take place in connection with the transfer, consult with appropriate representatives of the affected employees.

The definition of “affected employees” is wide enough to catch employees who will remain with the seller and existing employees of the buyer, provided they will be affected by the transfer.

Both parties will need to check if “appropriate representatives” of any affected employees already exist. If not, it will be necessary to carry out elections.

If the buyer envisages taking any measures in relation to the transferring employees, it should notify the seller of those measures as soon as possible so that the seller can comply with its information obligations under TUPE.

The transferor (the seller or, in the case of a change in service provider, the original service provider) must provide the transferee (the buyer or, in the case of a change in service provider, the new service provider) with certain information about the transferring employees (the “employee liability information”).

Otherwise, an employment tribunal will award the transferee such amount as it considers just and equitable, subject to a minimum award for each employee.

STAFF DISMISSALS

It may be necessary to make redundancies or other dismissals? If so, which groups of employees are affected, will the dismissals take place before or after completion and who will bear the costs? It may be necessary to include appropriate indemnities in the acquisition agreement.

Any proposed dismissals are likely to trigger the information and consultation obligations under TUPE but may also give rise to other obligations to inform and consult.

Who will be responsible for conducting the information and consultation and who will bear the cost of any breach? Again, it may be necessary to include appropriate indemnities in the acquisition agreement or enter into an agreement in relation to the pre-transfer consultation.

Other considerations include issues relating to:

  • Terms of employment
  • Due diligence and “employee liability information” and
  • Post-completion

DEALING WITH TUPE IN PRACTICE

It is important to ensure that all of the above are appropriately dealt with and relevant documents drafted accordingly to provide such protection from future liability.

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