The other day I was talking to a business purchaser who told me he was just about to draft his Heads of Agreement for a purchase of a non-core business division, when his partner, who was having a chat to one of the target’s employees, unearthed a very nasty employment dispute between the owner and one of his sales managers.
At first they weren’t too concerned, after all the business was changing hands – it wasn’t their problem.
Fortunately, the buyers ran it past their lawyer, who in no uncertain terms told them that it sure was going to be their problem, and that the owner should have disclosed the details on the dispute. The potential downside wasn’t going to be too severe, in the low five figures, if the employee won in arbitration. However the fact that the vendor owner held this back put the buyers right off, not unsurprisingly concerned there may be other skeletons in the closet.
The legal side of this is all laid out in no uncertain terms under the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as TUPE.
Anyone buying a business needs to understand that they are not only inheriting employees, but also responsibility to honour all existing employment contracts and conditions of employment. This extends to disputes, tribunal claims and collective employment agreements.
The TUPE regulations apply whenever there is deemed to be a ‘relevant transfer’ of an undertaking and applies to mergers, sale of a business by way of assets sale, going concern, or a change in franchisee among others. It does not apply to business transfers by way of share take-over.
For a more in-depth look, please read our full article on TUPE Regulations, published in the March 2008 issue of the Business Sale Report.