When the assets of a business or part of a business are transferred to a third party, both the employer and employees face important questions about the future of their contracts and terms of employment. Understanding how employment contracts are impacted is crucial for ensuring a smooth transition. Compliance with the relevant legal regulations is also key to ensure employers do not breach their legal obligations and avoid claims such as unfair dismissal.

The Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as TUPE, play a central role during this process. TUPE is there to protect employees’ rights and ensure that their existing contracts remain in place after the move to the new employer.

When a company is acquired via a transfer of shares, the existing employment contracts of the employees remain in place. When a business is transferred via a sale of its assets, the contracts of the employees working in that business are transferred to the new owner. This means that the terms, including salary, job role, and working conditions, must remain unchanged and cannot be varied to the individual’s detriment. Employees are not required to sign new contracts just because of the move, and the new employer inherits all existing contracts of employment. New contracts or updated terms can be offered later, provided the proper legal procedures are followed.

Self-employed individuals are generally not protected under TUPE; however, it is important to ensure that they are not “disguised employees”, that is to say contractors who, for all intents and purposes, fulfil the same roles as permanent employees and don’t have the same freedoms as genuine contractors, despite the label of “contractor”.

If changes to employees’ roles, salaries, or other terms after the acquisition are planned, these changes must be justified and comply with the TUPE regulations. Any alterations that negatively impact employees need to be carefully managed and communicated to avoid potential disputes.

If the new owner offers new a contract or updated terms, employees have the right to review and negotiate these terms. If the reason for any variation of contract is the transfer itself, this will generally be void under TUPE and may also be excluded from a settlement agreement in certain circumstances.

In Solectron Scotland Ltd v Roper (2004), the employees, who originally worked for BT, were transferred to Solectron. They were eventually made redundant on Solectron’s redundancy terms. The employees were successful in claiming that BT’s more favorable redundancy terms applied and had not been validly varied.

It’s crucial to ensure that any business complies with TUPE regulations during the relevant transfer and communicates effectively with employees. Navigating an acquisition involves careful consideration from both sides. By understanding the key aspects of TUPE and maintaining open communication, both employers and employees can manage the transition effectively and minimize disruptions.

With it looking likely that Labour’s plans for a new Employment Rights Bill will include laws to “strengthen the existing set of rights and protections for workers subject to TUPE processes”, it is more important than ever that employers stay abreast of any developments in this rapidly changing employment landscape.