Responsibilities to employees if you buy or sell a business

Employees who transfer have their continuity of employment preserved. This means that those who had, for example, 18 months of service with their previous employer have - at the time of the transfer - 18 months' service with the new employer.

This is important as it means that employees with enough continuous employment maintain their right to claim certain employment protection rights, eg the right to claim unfair dismissal (one year's continuous employment). Employees also have the right to claim a statutory redundancy payment (two years). See continuous employment and employee rights.

Dismissals before the business transfer

An employee still transfers if they would have been employed in the undertaking immediately before the transfer had they not been unfairly dismissed - either because of the transfer or for a reason connected with the transfer.

The employee will be able to lodge a complaint at the Industrial Tribunal for unfair dismissal against either the previous or the new employer - as long as they have at least one year's continuous employment.

The Labour Relations Agency (LRA) provides an alternative to the Industrial Tribunal under the LRA Arbitration Scheme. Under the scheme claimants and respondents can choose to refer a claim to an arbitrator to decide instead of going to a tribunal. The arbitrator's decision is binding as a matter of law and has the same effect as a tribunal.

Employers do, however, have the 'ETO defence' - see below.

Dismissals after the business transfer

If you dismiss a transferred employee either because of the transfer or a reason connected with it, their dismissal is automatically unfair.

In certain circumstances, individuals may require at least one year's continuous employment.

The LRA Arbitration Scheme can again provide an alternative to the Industrial Tribunal.

Employers do, however, have the 'ETO defence' - see below.

The ETO defence

If there is an economic, technical or organisational (ETO) reason entailing changes in the workforce, a Transfer of Undertakings (Protection of Employment) Regulations 2006 and/or Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006 (known collectively as TUPE)-related dismissal may be fair.

However, even with this defence, the dismissing employer must still follow a fair dismissal procedure. See dismissing employees.

ETO reasons are narrow in practice and effectively amount to a genuine redundancy situation, eg insolvency of the transferred undertaking.