This article was published in the November/December 2025 edition of London Business Matters.
When buying a business or taking over a service, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) is a key consideration. TUPE applies to all relevant transfers regardless of workforce size and importantly, cannot be contracted out of. TUPE protects employees from losing their jobs by automatically transferring their employment to the buyer on existing terms and liabilities.
Which employees transfer?
All employees ‘assigned’ to the business/service will automatically transfer. The assessment is rarely straightforward, particularly where roles are divided across clients or activities. While the percentage of time spent on the relevant work is a starting point, the law also considers contractual arrangements, job description, cost allocation and economics value.
ETO reasons and dismissals
Dismissals connected with the transfer are automatically unfair unless the employer can show an ‘economic, technical or organisational’ (ETO) reason ‘entailing changes in the workforce.’ Tribunals interpret ETO reasons narrowly however, genuine redundancies arising from a reduction in demand, technological change or efficiency-driven restructuring may fall within scope, provided they are also procedurally fair.
Restrictions on ‘harmonising’ terms
A buyer is unable to ‘harmonise’ terms and conditions of transferring staff with its existing workforce if the sole or principle reason is the transfer. This prohibition is not time-limited so that attempts, even years later, can be unlawful exposing the buyer to breach of contract or constructive dismissal claims. Even with a genuine ETO justification, the buyer must still obtain employees’ agreement.
Duty to inform and consult
Employees must be informed of the transfer and also any ‘measures.’ ‘Measures’ is construed widely and can include redundancies, relocations, changes to working practices or payroll. Where ‘measures’ are proposed, consultation is also required. Any procedural failures in this regard can result in protective awards of up to 13 weeks’ gross pay per affected employee.
Employee liability information (ELI)
The seller must provide specified ELI on transferring employees. Prudent buyers should carefully analyse this information as early as possible to understand the risks of assuming equal pay liabilities, enhanced redundancy rights or long-term sickness absences.
Conclusion
TUPE considerations require early legal advice and forensic due diligence. If considered late in the process, it can result in a lost opportunity to negotiate important indemnities leaving the buyer with liabilities which may outweigh the value of the deal itself.
