Selling your business: How to treat your employees fairly when you sell
When you’re selling your business, it can be tough to keep track of everything you need to get sorted. From finding a suitable buyer to marketing your business to make sure you get the best price, the to-do list can seem endless.
Then you have your employees to consider – this could be a big upheaval for them too, so you need to treat them fairly throughout the selling process and consider their employment rights. Here’s all you need to know.
Whether you’re moving on to bigger things or just don’t want the stress of running your SME anymore, selling can have a huge impact on your staff as well as you.
Because of this, it’s important to do your research into how to keep your employees’ rights safe when selling up. There are certain rules and regulations you must follow to avoid getting into trouble.
Why do you need to inform employees when the business is sold?
As a business owner, you have a legal obligation to inform your employees if you are selling your business to another buyer. This is to safeguard their interests as well as your own.
You should ideally inform all staff of the sale in good time via their trade union or an employee representative.
If there is no trade union or a representative already in place, then you should try to appoint a new employee representative. However, if you have ten employees or fewer, you can inform them of the sale directly if you choose.
It can be tricky getting your head around everything you need to tell your staff when arranging a sale. The main thing you must let them know is whether the business is closing or if they will be transferred to the new owner alongside the company.
You must provide any employees transferring under The Transfer of Undertakings Protection of Employment (also known as TUPE, we will discuss these regulations later) with certain information in writing, via the trade union or employee representatives.
You’ll need to tell them:
- The facts surrounding the transfer – when the sale is happening and the reasons why — for example, is the sale because you are moving on or because of financial issues?)
- Any legal, economic, technical and social implications for employees — For those employees who are being transferred, you have to inform them of how it will affect their work.
- Any new measures — Whether this is enforced by you or the new employer and if they will affect your staff.
It’s not just employees being transferred to the new owner who are affected by the sale though. You need to inform any staff not being transferred about your business intentions too.
What information do I need to tell them?
The first thing you need to tell your employees is if they are being transferred to the new buyer and when the sale date is.
You should set a time for consultations with your employees before the transfer takes place. Make sure you have enough time to answer any questions they may have.
You’ll also need to ensure trade union or employee representatives can talk with every single member of staff affected by the sale.
You’ll also need to inform your staff of the following:
1. The facts surrounding the transfer
You’ll need to let them know why the business is being sold. Is it in financial trouble or have you just decided it's time to move on? You’ll need to let them know exactly when the new buyer will be taking over and whether this affects them in any way. They will want to know if their jobs are safe.
You’ll also need to let them know how the transfer will change their day-to-day roles and whether there’s likely to be a reshuffle of the business after the new owner takes over.
2. The impact for employees that are being transferred
The next thing you’ll need to be clear on is the impact the change will have on your employees.
If they are being transferred, it's important to let them know their employee contracts will be automatically transferred to a buyer under their existing terms (excluding pension rights).
When the new buyer takes over, all the seller’s rights, powers, duties and liabilities are passed to the buyer along with the employee contracts. Any omissions are also taken over. For example, this may include any ongoing equal pay claims or debts owed to the employee in question.
If the transferring employees have profit shares or share schemes, it's important to let your staff know that these may not be transferable.
It all depends, if the schemes have been in place over a prolonged period and are the main part of an employee's contract, then they might be transferable. Each business is different, but your staff will need to check this with their new employer.
It’s important to reassure your staff that the buyer will not be able to make any changes to their terms of employment unless:
- The reason for the changes is an economic, technical or organisational (ETO) reason.
- The terms of the employment contract allow the buyer to make the change
3. The measures that will be put in place by yourself and the new buyer
You’ll need to advise your staff if your new buyer plans to put any new measures in place. This includes if you know of any company restructuring that may happen when they take over. It also includes things like new processes or any new ways of working.
What are my employee's rights during the transfer?
The Transfer of Undertakings Protection of Employment (TUPE), is a protection of employee rights when a business is sold to a new buyer.
TUPE applies to employees of any sized business in the UK. Your business could even have a head office in another country, but if the part that is being sold is in the UK, then TUPE can apply. TUPE stops employees from being dismissed unfairly because of the transfer.
What is the impact of TUPE?
When TUPE applies:
- The employees’ jobs automatically transfer over to the new company (unless they are made redundant for ETO reasons
- Employee terms and conditions will transfer as well
- Employment is maintained when the new buyer takes over
- The buyer will take on the employees' rights, liabilities and obligations
- Employees are protected from being dismissed unfairly
- You must inform your employees of changes before the transfer date
What happens when TUPE doesn’t apply?
If TUPE isn’t applied to a sale, then employees will not automatically transfer. However, the new owner may agree to take them on if the employee wants to transfer. In this case, the staff member’s current employment will continue.
What if the buyer doesn’t want to take on all the employees?
Selling your business can get a little tricky if the new employer doesn’t want to take on all of your former employees.
The buyer must be careful - if they dismiss an employee directly because of the transfer, then they could break employment law. Dismissals that occur like this are automatically deemed unfair.
Keep in mind, as the original owner, you may face employment tribunals and compensation claims if it turns out any staff were wrongfully dismissed. So it’s important the passing over of your business goes as smoothly as possible in the first place.
To protect employment rights, there must be a fair procedure followed for any dismissals and the new buyer must demonstrate they didn’t let go of any staff simply because of the transfer.
ETO (Economic, Technical, Organisation) reasons
ETO stands for economic, technical and organisational and are fair reasons why a staff member may be dismissed.
If a staff member is dismissed because of an ETO reason, then a fair procedure is usually deemed to have taken place.
These are a few ETO reasons for the new buyer not taking a member of staff on:
- Economic - If the business has become unstable or there has been a drop in demand, this could be an ETO reason for dismissal. This could include factors like the pandemic and its effects on sales.
- Technical - If the new buyer is bringing modern technology to aid the business and they don’t deem existing staff members skilled enough to use it. This may be another viable reason for dismissal.
- Organisational - If the new employer is moving the business to a different location, there may be organisational reasons for dismissing a staff member. For example, if it was unrealistic to expect the employee to commute to the new premises.
What information do I need to tell the buyer about the employees?
You must provide the new buyer with information about any employees who are transferring to them. This is called employee liability information, and it allows the new employer to get a grip on their responsibilities over their new staff.
Employee liability information is usually provided by the seller, in writing, but you can choose to do it electronically or by phone. Remember the new owner must receive the information at least 14 days before the transfer date.
They will need to know:
- The names and ages of staff who are transferring
- Any staff grievances
- Records of legal action taken place during the last two years
- Details of any relevant staff agreements in place
- Information about any disciplinary procedures against any members of staff
If employee liability information is not given to the new owner at least two weeks before the transfer, you might have to pay a fee to the buyer. They have legal grounds to take you to an industrial tribunal if needed, as they need this information to fairly take over your staff.
What do I do if an employee refuses to be transferred?
If an employee has been offered a transfer but chooses not to move on with the business, they are treated as though they have resigned. Keep in mind they are then not entitled to any redundancy pay.
If an employee is dismissed because of the transfer and they have been employed for at least a year, they will be regarded as unfairly dismissed.
As we mentioned earlier, employees can be dismissed fairly but only under specific economic, technical or organisational circumstances (ETO reasons).
What happens after the transfer of the business?
After the transfer, the new buyer will take over every aspect of the business. You should make your employees aware that they may receive a P45. This doesn’t mean they are out of a job; it just means that their tax details may need to be updated.
You as the seller should ideally produce a handover guide for the new buyer. This just ensures a seamless sale process and minimal disruption for your staff.
You must also detail when you will be withdrawing from the business. Some sellers prefer to exit straight away while others may stay to tidy up any loose ends. It’s all about what works for your business and your employees.
New venture? Bionic can help
Getting your business in tip-top condition can be difficult, so whether you want advice about getting your current business in shape to sell or you’re setting up a new SME and want to find the best new energy tariff, Bionic is here for you.
Although we can’t help with the actual selling process, our tech-enabled team can help you secure the best energy deal if you are setting up a brand-new venture.