Round #431

We are buying the trade and assets of a competitor but not the company itself. Does TUPE apply and what employees transfer with the business?

### Does TUPE Apply? Yes, TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006, as amended) is likely to apply in this scenario, provided certain conditions are met. TUPE protects employees when a business (or part of it) is transferred from one owner to another. Importantly, it applies even if you're only acquiring the trade and assets (e.g., stock, equipment, contracts, goodwill) and not the company entity itself—provided the transfer constitutes a "relevant transfer" under the regulations. #### Key Conditions for TUPE to Apply TUPE covers two main types of transfers: 1. **Business Transfer**: This is the most relevant here. It occurs when: - There is a transfer of an **economic entity** that retains its identity after the transfer. - The entity must have an ongoing activity (e.g., providing services, manufacturing, or trading) that is not merely a one-off sale of assets. - Examples include buying a shop's lease, inventory, and customer contracts, or acquiring a service operation's client list and staff. In your case, buying the "trade and assets" of a competitor typically qualifies as a business transfer if it involves an identifiable part of the business with continuity (e.g., ongoing operations). The European Court of Justice (ECJ) case *Spijkers v Gebroeders Benedik Abattoir CV* (1986) established that the focus is on whether the business retains its identity, not just the formal structure. 2. **Service Provision Change**: Less likely here, but if the acquisition involves outsourcing or insourcing services (e.g., taking over a competitor's contract to provide services to third parties), this could also trigger TUPE. TUPE does **not** apply to: - Transfers of assets without an ongoing economic activity (e.g., a simple sale of surplus equipment). - Share sales (but you're not buying the company, so this isn't relevant). - Bankruptcies or certain insolvency scenarios (with modified protections). To confirm applicability, you'd need to assess if the acquired trade/assets form a stable economic entity. Case law like *Betts v Brintel Helicopters* (1997) emphasizes looking at factors such as type of business, assets transferred, employees involved, and continuity of activities. I recommend consulting a UK employment lawyer or the UK Government's Acas service for a case-specific review, as facts matter (e.g., what exactly is being transferred?). ### Which Employees Transfer with the Business? If TUPE applies, **all employees assigned to the transferring economic entity** automatically transfer to you (the new owner) on their existing terms and conditions of employment. You cannot cherry-pick; it's an automatic process to protect workers from dismissal or worse terms due to the transfer. #### Key Details on Transferring Employees - **Who Transfers?** - Employees **organically assigned** to the business unit being sold (e.g., sales staff, warehouse workers, or managers directly involved in the trade/assets). - This includes full-time, part-time, and fixed-term employees working in the UK (TUPE is UK-specific; different rules apply in other jurisdictions). - Directors or very senior executives might not transfer if they're not "employees" under UK law (e.g., if self-employed or office-holders). - Not included: Employees not assigned to the transferring part (e.g., HQ admin staff if you're only buying a regional operation). - **What Happens to Them?** - **Automatic Transfer**: Contracts transfer intact—no changes to pay, hours, pension rights (except certain occupational schemes), or other terms. Continuity of service is preserved for redundancy and unfair dismissal rights. - **Dismissals**: You cannot dismiss transferring employees simply because of the transfer (this is automatically unfair). Pre- or post-transfer dismissals for economic reasons (e.g., redundancies) are possible but must follow fair processes and may require consultation. - **Pensions**: State and stakeholder pensions transfer; defined benefit schemes have limited obligations. - **Collective Agreements**: Any union or workplace agreements transfer too. - **Your Obligations as the New Employer** - **Employee Liability Information (ELI)**: The seller must provide you with details of transferring employees (e.g., identities, terms, claims) at least 28 days before the transfer. - **Consultation**: You (and the seller) must inform and consult with affected employees or their representatives about the transfer. Failure can lead to tribunal claims for up to 13 weeks' pay per employee. - **Post-Transfer**: For one year, you can't change terms to the employees' detriment if linked to the transfer (e.g., *Martin v South Bank University* (2003)). #### Practical Steps 1. Request ELI from the seller immediately. 2. Identify the transferring entity with legal advice to scope employees. 3. Notify employees early to avoid surprises. 4. Plan for integration—TUPE doesn't prevent harmonizing terms after a year, but changes must be for non-transfer reasons. If the deal is cross-border or involves fewer than 10 employees, some consultation rules are simplified. For official guidance, see the UK Government's TUPE page or Acas helpline. This isn't legal advice—seek professional counsel to avoid liabilities (e.g., protective awards up to 13 weeks' pay). If you provide more details about the business (e.g., industry, size), I can refine this further.

### Does TUPE Apply to This Scenario? Yes, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is likely to apply in this situation, provided certain conditions are met. TUPE protects employees when there is a "relevant transfer" of an economic entity that retains its identity. In your case, buying the **trade and assets** of a competitor (but not the company itself) typically qualifies as a **business transfer** under TUPE Regulation 3(1)(b). This is distinct from a share sale (where the company entity transfers intact), but it still triggers TUPE if the transfer involves: - An **economic entity**: A stable, self-contained part of the business with activities that contribute to the pursuit of a specific economic goal (e.g., a department, product line, or operational unit). Simply buying isolated assets (like equipment without ongoing operations) might not qualify, but acquiring the "trade" (which implies customers, goodwill, contracts, and operations) usually does. - **Retention of identity**: Post-transfer, the transferred activities should continue in a similar form under your ownership. UK case law (e.g., *Spijkers v Gebroeders Benedik Abattoir CV* [1986] ECR 487) emphasizes a functional approach: it's about whether the business's core activities and structure are handed over, not just the legal form of the deal. The European Court of Justice and UK tribunals have confirmed that asset purchases like this often fall under TUPE, especially in sectors like retail, manufacturing, or services where trade and assets form the business's essence. However, TUPE **does not apply** if: - The transfer is purely of assets without an associated economic entity (e.g., just buying machinery without staff or operations). - It's a "service provision change" (a specific TUPE subset for outsourcing), but your description sounds more like a standard business transfer. - The seller is insolvent and the transfer is under administration (though protections still apply in many cases). To confirm applicability, you'd need to assess the deal's specifics—e.g., via due diligence on the business's structure, employee roles, and transfer documents. Consulting a UK employment lawyer or ACAS (Advisory, Conciliation and Arbitration Service) is essential, as misapplying TUPE can lead to claims for unfair dismissal or failure to inform/consult. ### Which Employees Transfer with the Business? Under TUPE Regulation 4, **all employees** assigned to the transferring economic entity automatically transfer to you (the buyer) on their existing terms and conditions of employment. This is mandatory—you cannot cherry-pick or exclude staff. Key points: - **Who qualifies as "assigned"?** - Employees whose primary role is tied to the transferred business activities. This includes full-time, part-time, and fixed-term staff directly involved (e.g., sales team for the trade, operators for the assets' use). - It excludes employees only loosely connected (e.g., head office admin supporting multiple sites if only one is transferring). - Case law (e.g., *Holman v South Lancashire Transport Co Ltd* [2006]) looks at factors like job location, reporting lines, and time spent on the transferring entity. Shared employees may transfer proportionally or fully, depending on the facts. - **What transfers?** - Contracts of employment (pay, hours, holidays, pensions—except certain occupational schemes). - Continuity of service (no breaks in employment). - Collective agreements, if applicable. - Any ongoing liabilities (e.g., disciplinaries, grievances, or unfair dismissal claims). - **Exceptions and nuances:** - **ETO reason for dismissal**: If you need to dismiss or change terms post-transfer for an "economic, technical, or organizational" (ETO) reason entailing changes in the workforce (Regulation 7), this can be fair. But you must show it's genuine (e.g., restructuring due to the asset purchase), not just cost-cutting. Pre-transfer dismissals by the seller to "clean up" the workforce may still transfer as liabilities if timed suspiciously. - Volunteers or self-selecting redundancies don't always transfer if genuinely agreed pre-transfer. - Directors or self-employed aren't covered, but employees are. ### Practical Steps for Compliance 1. **Pre-transfer consultation (Regulation 13)**: The seller must inform and consult affected employees (or their reps) about the transfer. As buyer, you must provide employee liability information (e.g., service length, pay) to the seller at least 28 days before completion. 2. **Post-transfer**: Honor existing terms for at least a year (no detrimental changes without ETO justification). Integrate staff sensitively to avoid claims. 3. **Process overview**: - Conduct due diligence: Identify assigned employees and review contracts. - Notify: Use written statements to employees. - Transfer: Contracts novate automatically on completion date. - Integrate: Update payroll, HR systems, and provide induction. Failure to comply can result in tribunal claims (up to 13 weeks' pay per employee, plus compensation for lack of consultation). For tailored advice, refer to the UK Government's TUPE guidance or seek legal counsel— this isn't formal advice. If your deal involves international elements, EU-derived TUPE rules may interact with local laws.