TUPE when buying a business: what transfers and what to check

Every buyer of a business with staff meets TUPE, the Transfer of Undertakings (Protection of Employment) Regulations 2006. It decides who comes with the business, on what terms, and which of the seller's employment problems become yours.

It is not optional and it cannot be contracted out of. What you can control is how much you know before completion and who pays if something goes wrong afterwards.

When TUPE applies, and when it does not

TUPE applies to a "relevant transfer". For a business purchase that means the transfer of a business, or part of one, situated in the UK, where an economic entity moves to a new owner and keeps its identity. In plain terms: the same operation carries on under somebody else.

That depends on how the deal is structured.

| Structure | What changes | Does TUPE apply? | | --- | --- | --- | | Asset purchase (the trade and assets) | The employer changes from the seller to the buyer | Yes, where the business continues as the same operation | | Share purchase | Only the owners of the employing company change | Usually not, because the employer is the same company | | Purchase of equipment only | No business moves | Not likely |

Acas puts the share sale point directly: TUPE is not likely to apply if it is a transfer of shares or equipment only.

That does not make a share purchase the employment-light option. In a share sale nothing moves at all. The employees stay employed by the company, on the same contracts, and every employment liability stays inside the company you now own. The difference is mechanical rather than practical: in both cases you end up responsible for the workforce and its history. Our guide to buying a business covers the wider choice between the two structures.

TUPE also covers service provision changes, where a client brings a service in house or moves it between contractors. That matters to a buyer of a contracting business, because winning or losing a contract can move staff in or out under the same rules.

What transfers to the buyer

On a relevant transfer, the contracts of the employees assigned to the business move to the buyer automatically, as if they had always been made with the buyer. Regulation 4 transfers all the seller's rights, powers, duties and liabilities under or in connection with those contracts.

In practice that means:

• Terms and conditions. Pay, hours, holiday entitlement, notice periods, contractual bonuses and benefits, all unchanged.
• Continuity of service. An employee's start date stays the same. Ten years with the seller is ten years with you for redundancy pay, notice and unfair dismissal rights.
• Collective agreements. Any agreement with a trade union that applied to the transferring staff.
• Liabilities. Claims that arose before completion, such as unpaid wages, holiday pay and discrimination claims, generally transfer to the buyer.

Two things do not transfer. Criminal liability stays with the seller. And most occupational pension rights are carved out, which is covered below.

The duty to inform and consult

Before the transfer, both the seller and the buyer have duties to the employees affected by it.

The employer must tell the appropriate representatives of affected employees, long enough before the transfer to allow consultation:

• that the transfer is happening, when, and why;
• the legal, economic and social implications for the affected employees;
• the measures it envisages taking in relation to them;
• if it is the seller, the measures the buyer envisages taking, or that there are none.

That last point puts an obligation on the buyer. Regulation 13(4) requires the buyer to give the seller information about its intended measures in time for the seller to pass it on. If you plan to change shift patterns, relocate the team or restructure after completion, the seller has to be able to tell the staff before completion, and that depends on you.

Where measures are envisaged, the employer must consult the representatives with a view to seeking their agreement.

The representatives are a recognised trade union where there is one, or otherwise elected employee representatives. Smaller businesses have an alternative. For transfers on or after 1 July 2024, an employer may inform and consult the affected employees directly where it employs fewer than 50 people, or fewer than 10 employees are transferring, provided there are no existing representatives and it has not invited elections.

What failure costs. A tribunal can award up to thirteen weeks' pay per affected employee for a failure to inform or consult. The buyer is jointly and severally liable with the seller for that award, so a seller's failure is also your problem.

Employee liability information

The seller must give the buyer written information about every employee who will transfer. The regulations call it employee liability information, and it must arrive at least 28 days before the transfer, or as soon as reasonably practicable after that if special circumstances make it impossible.

It must include, for each employee:

• identity and age;
• the particulars of employment the employer is required to give in writing;
• any disciplinary action or grievance in the last two years;
• any claim or legal action brought in the last two years, and any the seller reasonably believes may be brought;
• any collective agreement that will affect the employee after the transfer.

If the seller fails to provide it, or provides it wrong, the buyer can bring a tribunal claim. The award is compensation for the buyer's loss, with a minimum of £500 per employee affected unless the tribunal considers that unjust. The claim must be brought within three months of the transfer.

Treat the statutory package as a floor, not the full picture. You will want far more detail than the regulations require, and you will want it much earlier than 28 days before completion. The due diligence checklist sets out the employment enquiries in full.

Protection against dismissal

A dismissal is automatically unfair where the sole or principal reason is the transfer. That applies whether the seller dismisses before completion or the buyer dismisses afterwards, and it removes one tempting route: the seller cannot "clean up" the workforce at the buyer's request simply because a sale is coming.

The exception is an economic, technical or organisational reason entailing changes in the workforce, usually shortened to an ETO reason. Genuine redundancy is the common example, such as closing a function the buyer already has or relocating the operation, which the regulations expressly count as a change in the workforce. An ETO reason takes the dismissal out of the automatic unfairness rule. It still has to be fair in the ordinary way, with a proper process, and redundancy payments are still due based on the employee's full service.

Two related rules catch buyers out:

• Changes to terms. A variation to a transferred contract is void if the sole or principal reason is the transfer. Harmonising the new team onto your existing terms is the classic example of a change that fails this test.
• Material detriment. If the transfer involves a substantial change in working conditions to an employee's material detriment, the employee can resign and treat it as a dismissal.

The pensions exception

Occupational pension schemes are the main thing TUPE does not move across. Regulation 10 excludes the parts of a contract relating to an occupational pension scheme, so far as they concern benefits for old age, invalidity or survivors.

That does not leave transferring staff with nothing. GOV.UK states that pension rights earned up to the transfer are protected, although the buyer does not have to continue an identical scheme. Separately, where the seller operated an occupational scheme the employee belonged to, or was eligible for, section 258 of the Pensions Act 2004 requires the buyer to provide a minimum level of pension provision.

The buyer can meet that through an occupational scheme or a stakeholder pension. For money purchase provision, the buyer's contributions must at least match the employee's, up to 6% of the employee's basic pay. The employer and the employee can agree something different in writing after the transfer.

Two points for due diligence:

• Find out what the seller actually provides. A defined benefit scheme, or promises made outside any scheme, are materially different risks from a standard workplace pension.
• Read the carve out narrowly. The exclusion covers benefits for old age, invalidity or survivors. Other benefits provided through a scheme may still transfer, so if the seller has a defined benefit scheme, take specialist pensions advice before signing anything.

What a buyer should do in due diligence

Most TUPE risk is visible before completion if you ask the right questions early.

1. Get an anonymised employee schedule

   Role, start date, pay, hours, holiday, notice, benefits, pension and any non-standard term, for every person who works in the business. Confirm who is actually assigned to the part being sold where only part is transferring.

2. Read the contracts, not the summary

   Check what the contracts permit. Mobility and flexibility clauses decide what you can change later without a TUPE argument.

3. Map the history

   Grievances, disciplinaries, tribunal claims, settlement agreements, long-term sickness and anybody on family leave, over at least two years.

4. Check compliance items

   Holiday pay calculations, minimum wage compliance, right to work records and whether staff described as self-employed are really employees. Each of these can become a transferred liability.

5. Plan your measures and tell the seller

   Decide what you intend to change after completion, and give the seller the information in writing in time for them to consult.

Warranties and indemnities

Due diligence tells you what the risks are. The purchase agreement decides who carries them.

Warranties are the seller's contractual statements about the workforce: that the employee schedule is complete and accurate, that there are no undisclosed claims, that pay and holiday have been handled lawfully, and that no changes have been promised. A breach gives you a claim for damages, qualified by whatever the seller has disclosed against it.

Indemnities are pound-for-pound promises to cover specific losses, which makes them more useful for known risks. Standard TUPE indemnities in an asset purchase include:

• liabilities arising from employment before completion;
• the seller's failure to inform and consult, given the buyer's joint liability for that award;
• any employee who was not on the schedule but claims to have transferred;
• dismissals by the seller connected with the transfer.

Sellers will ask for reciprocal indemnities, typically covering the buyer's own post-completion actions and any failure to supply measures information in time. That is reasonable.

An indemnity is only as good as the seller's ability to pay. If the seller is winding up after the sale, a retention from the price or a deferred payment is worth more than the wording. The heads of terms stage is where to agree that in principle, before the lawyers draft anything.

Where TUPE fits in the deal

TUPE is rarely what stops a sale. It is what turns an undisclosed employment problem into the buyer's problem.

Treat the team as part of what you are buying, because it is. Price the long-service redundancy exposure, the pension position and any live claims into the offer, protect the rest in the agreement, and plan the first conversation with staff before completion rather than after. If you are still looking, the businesses for sale can be filtered by sector and size, and a smaller workforce makes each of these checks faster.