Responsibilities to employees if you buy or sell a business

A 'relevant transfer', ie a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 and/or the Service Provision Change (Protection of Employment) Regulations (Northern Ireland) 2006 (known collectively as TUPE) apply - occurs when:

• An economic entity is one which is stable and is transferred from one business (part or undertaking) to another, ie the entity is sold as a going concern and retains its identity after the transfer. This is known as a business transfer (standard transfer).
• A client engages a contractor to do work on its behalf or reassigns such a contract, including bringing the work in-house - this is known as a service provision change (extended transfer).

An economic entity

An economic entity is defined as an organised grouping of resources, eg a grouping of employees and assets such as premises and computer equipment that has the objective of pursuing an economic activity. Some transfers will qualify as both a business transfer and as a service provision change, eg outsourcing a service will often meet both definitions.

Examples of business transfers

• Sale of the whole or part of a business where the business continues in a similar format.
• Merger of two businesses.

Service provision change

Examples of service provision changes are where:

• a business contracts its security arrangements to an outside security business (outsourcing)
• a business decides to hire its own staff to provide catering to replace an outside catering business (in-sourcing)
• the contract to clean a client's premises is transferred from one cleaning contractor to another

TUPE applies equally to relevant transfers of large and small businesses, and to public and private undertakings. This means there would be a relevant transfer if you sold your business or if your business bought and operated another business.

Note that TUPE generally applies to second and subsequent transfers of the same undertaking. This means that, if you sell a business or part of a business that you previously bought or relinquish a contract that you previously took over, the employees you took over will now transfer to the new employer - as per the Court of Justice of the European Union (CJEU) interpretation of TUPE.

When TUPE does not apply

Not all transfers are relevant transfers. TUPE does not apply when:

• A client buys services from a contractor on a one-off basis - rather than the two parties entering into an ongoing relationship for the provision of the service.
• There is a transfer of share takeover - when a company's shares are sold to new shareholders, there is no transfer of the business - the same company continues to be the employer.
• A business transfers assets only - then there is no transfer of a business as a going concern eg if the equipment is sold.
• There is a transfer of an undertaking situated outside the UK - although similar provisions apply in the European Union.
• There is a change in business identity - if the work or organisational structure changes radically.

Whether TUPE applies in any particular case depends on all relevant circumstances. In the event of a dispute, only an industrial tribunal or a higher court can decide this.

Where TUPE applies, existing employees of the undertaking transferred automatically become employees of the business that takes the undertaking over. It is unlikely that agency workers fall within the definition of 'employee' for the purposes of TUPE ie they do not automatically transfer, it seems, on current law.

If you think you may become involved in a transfer situation to which TUPE applies, you should consider obtaining legal advice, as the legislation in this area can be complex. Choose a solicitor for your business.