TUPE when selling a business can affect employment contracts, employee rights, consultation requirements and the responsibilities of both buyers and sellers. However, not every business sale triggers TUPE.
Understanding when the regulations apply can help business owners prepare for a transfer, meet their legal obligations and reduce the risk of employment disputes.
Key takeaways
- TUPE may apply when a business or part of a business transfers to a new employer.
- Affected employees generally retain their contractual rights and continuity of employment when TUPE applies.
- Buyers and sellers must meet relevant information requirements and consult affected employees where required.
What is TUPE when selling a business?
TUPE is UK employment legislation designed to protect employees when the business they work for transfers to a different employer.
Where the regulations apply, eligible employees generally transfer automatically to the new employer on their existing employment terms.
Their continuity of employment is preserved, meaning their previous service with the seller counts towards their employment with the buyer.
For example, if a café is sold as an operating business and its employees transfer to the new owner, TUPE may protect those employees during the change.
The regulations also establish responsibilities for employers, particularly concerning employee information, consultation and employment liabilities.
Does TUPE apply when selling a business?
Whether TUPE applies depends on the structure of the transaction and the circumstances of the transfer.
TUPE in an asset sale
TUPE often becomes relevant when a buyer acquires an operating business through an asset purchase.
For TUPE to apply as a business transfer, there must generally be a transfer of an economic entity that retains its identity.
This means the buyer takes over an identifiable business or part of a business that continues operating, rather than simply purchasing unrelated assets.
For example, a buyer acquiring an established restaurant, including its operations and workforce, may be involved in a qualifying TUPE transfer.
However, purchasing equipment or stock alone does not necessarily trigger TUPE.
TUPE in a share sale
TUPE does not normally apply to a straightforward share sale.
This is because the employing company remains the same legal entity, even though ownership of its shares changes.
Employees continue working for the same employer under their existing employment contracts.
However, if a share sale is accompanied by a separate transfer of business activities to another employer, TUPE may become relevant to that additional transaction.
What happens to employees when a business is sold?
Where TUPE applies, employees assigned to the transferring business generally move to the new employer automatically.
Several important protections apply.
Employment contracts and benefits
The new employer generally takes over the transferring employees’ existing contractual terms, including:
- Salary and contractual pay arrangements
- Working hours
- Holiday entitlement
- Contractual benefits
- Notice periods
- Other employment terms and conditions
Certain occupational pension rights are treated differently, although separate pension protections may apply.
Continuity of employment
Employees generally retain their existing length of service following a TUPE transfer.
For example, someone with eight years of continuous service before the sale will normally retain that service with the new employer.
This matters because some statutory employment rights, including redundancy pay, depend on continuous service.
Protection against unfair dismissal
Employees cannot normally be dismissed simply because their employer is changing.
Where the sole or principal reason for dismissal is the transfer itself, the dismissal will generally be automatically unfair.
An exception may apply where there is a genuine economic, technical or organisational reason involving changes in the workforce, provided the dismissal is otherwise lawful.
Can employees refuse to transfer under TUPE?
Yes. Employees can object to transferring to the new employer.
Where an employee objects, their employment generally ends on the transfer date, without the objection itself being treated as a dismissal.
They will not normally be entitled to redundancy pay simply because they refused to transfer.
However, different legal consequences may arise where the transfer involves substantial detrimental changes to working conditions or other circumstances that give rise to employment rights.
Employers should therefore handle objections carefully and assess the individual circumstances.
What are the seller’s responsibilities under TUPE?
When TUPE applies, the seller has specific obligations before the business transfers.
Identifying affected employees
The seller should establish which employees are assigned to the transferring business or part of the business.
This is particularly important where only one division or trading operation is being sold.
Employees who remain with the seller may also be affected by the transfer and need to be included in relevant information and consultation arrangements.
Informing and consulting employees
Employers must provide required information about the transfer to appropriate employee representatives, or directly to employees where the relevant rules permit.
This includes:
- The proposed transfer date and reasons for the transfer
- The legal, economic and social implications for employees
- Any measures expected to affect employees
- Relevant information about agency workers
Where measures are proposed, employers must consult appropriate representatives about those changes.
Measures might include changes to working patterns, workplace locations or operational arrangements.
There is no fixed statutory minimum consultation period for every TUPE transfer. However, employers must allow sufficient time before completion to meet their obligations.
Providing employee liability information
The seller must provide the buyer with specified employee liability information, generally at least 28 days before the transfer.
This includes:
- Employee identities and ages
- Employment terms and conditions
- Relevant disciplinary and grievance information
- Applicable collective agreements
- Certain existing or potential employment claims
The information must be accurate and updated where relevant circumstances change.
Providing it early allows the buyer to assess employment obligations and identify potential issues before completion.
What are the buyer’s responsibilities under TUPE?
The buyer generally becomes responsible for the employment rights, duties and liabilities associated with transferring employees.
Before completion, buyers should review:
- Employment contracts and pay arrangements
- Holiday entitlements and outstanding leave
- Employee length of service
- Relevant pension arrangements
- Existing grievances and disciplinary matters
- Potential employment claims
The buyer must also inform the seller about any measures it envisages taking in relation to transferring employees.
This allows the seller to communicate the relevant information during the TUPE process.
Buyers may also have information and consultation obligations towards their existing employees where those employees are affected by the transfer.
Can employment contracts be changed after a business sale?
TUPE restricts changes to employment contracts where the sole or principal reason is the transfer itself.
For example, a buyer cannot generally reduce employees’ wages simply to align them with the buyer’s existing workforce.
Changes may be permitted where there is a genuine economic, technical or organisational reason involving changes in the workforce and the relevant legal requirements are satisfied.
Changes unrelated to the transfer, or otherwise permitted under employment law, may also be possible.
Employers should obtain appropriate advice before altering transferring employees’ contractual terms.
Can employees be made redundant after a business sale?
TUPE does not prevent every redundancy following a business transfer.
However, employees cannot lawfully be dismissed simply because the business has changed ownership.
Redundancies may be possible where there is a genuine economic, technical or organisational reason involving changes in the workforce.
For example, a restructuring that genuinely reduces the need for particular roles may create a redundancy situation.
Employers must still follow applicable employment law, including fair selection procedures, consultation requirements and statutory redundancy payment obligations where relevant.
What happens if TUPE rules are not followed?
Failure to comply with TUPE can result in financial and legal consequences.
Where employers fail to meet their information and consultation obligations, an employment tribunal may award compensation of up to 13 weeks’ uncapped gross pay for each affected employee.
Failure to provide accurate employee liability information can also result in claims against the seller. Compensation can be at least £500 per affected employee where a claim succeeds, subject to the tribunal’s assessment.
Dismissals or contractual changes that breach TUPE protections may lead to separate employment tribunal claims.
These risks make early planning important, particularly where a sale involves several employees or proposed workforce changes.
How can sellers prepare for TUPE before completing a sale?
Business owners can reduce potential complications by reviewing their employment arrangements before the transaction reaches completion.
Practical preparation includes:
- Review employment records: Check contracts, working arrangements, holiday entitlements and relevant employee information.
- Identify transferring employees: Establish which employees are assigned to the business or operation being sold.
- Discuss proposed changes: Ask the buyer whether any measures are expected to affect employees.
- Plan communication: Identify the appropriate representatives and allow sufficient time for information and consultation.
- Prepare employee liability information: Ensure the required information can be supplied accurately and within the statutory deadline.
Taking these steps early can help buyers assess employment obligations and reduce the risk of avoidable delays.
FAQs about TUPE when selling a business
Does TUPE apply to every business sale?
No. TUPE generally applies where a qualifying business or undertaking transfers to a new employer. A straightforward share sale does not normally trigger TUPE because the employing company remains unchanged.
How much notice must employees receive before a TUPE transfer?
There is no fixed statutory notice period for every TUPE transfer. Employers must provide the required information sufficiently in advance and allow enough time for any necessary consultation.
Do employees keep their holiday entitlement after TUPE?
Yes. Transferring employees generally retain their contractual holiday entitlement and accrued holiday rights. The new employer normally becomes responsible for those obligations.
Can an employee refuse to work for the new business owner?
Yes. An employee can object to transferring. Their employment will generally end on the transfer date without the objection itself being treated as a dismissal, although exceptions may apply.
Does TUPE apply to small businesses?
Yes. TUPE can apply regardless of business size where the legal conditions are met. Certain smaller employers and transfers may qualify for simplified information and consultation arrangements.
Who is responsible for employee liabilities after TUPE?
The new employer generally inherits employment-related rights, duties and liabilities associated with transferring employees. Buyers and sellers may agree contractual arrangements allocating financial responsibility, but these do not automatically remove employees’ statutory protections.
Preparing to sell a business with employees
Selling a business with employees requires careful consideration of employment rights and legal responsibilities.
Understanding whether TUPE applies, identifying affected employees and preparing the necessary information can help business owners approach a sale with greater confidence.
Both buyers and sellers should establish their obligations early and seek appropriate employment law advice where needed.
If you’re considering selling, CoGoGo can help you understand your business’s potential market value and connect with prospective buyers.
Explore CoGoGo’s sell your business page to learn more about preparing your business for sale and taking the next step.
