The recent takeover of Cadbury’s by Kraft this January has resulted in the national newspapers being littered with comments and quotes from Cadbury’s employees who will be effected by the buyout.

One employee has been quoted in the national press as saying: “Nobody really knows what is going on or what this might mean in terms of job losses. But inside that factory there are a lot of people who are very, very worried about the future. The future of the company and their own future. Their jobs and their families.”

Although such takeovers clearly raise questions from employees, likewise whether you are in the process of implementing a takeover or considering a takeover of another business, questions will arise as to the existing employees and how to deal with them correctly. This article aims to clarify the issues which arise when Small to Medium Sized Enterprises are faced with a similar situation.

Regulations

The first point to note is that there are regulations that govern what happens to employees when someone new takes over a business.  The regulations are called the Transfer of Undertakings (Protection of Employment) Regulations 2006, more commonly referred to as TUPE.

These affect all employees when a business is transferred as a going concern and the main effect is that employees automatically start working for the new owner under the same terms and conditions of employment as the previous owner.  In other words, in almost all the cases the new employer cannot immediately change the transferred employees’ terms and conditions to match those of its existing employees.

When does TUPE come into effect

Workers are protected under the TUPE, when all or part of a business is bought or sold.

There are two types of transfers that are protected under TUPE:

• business transfers
• service provision changes

In business transfers - a business, undertaking, or part of a business or undertaking is transferred from one employer to another.

To be protected by TUPE during a business transfer, your employer must change but the businesses economic identity after the transfer must essentially be the same as it was before the transfer.

Employees are protected under TUPE, regardless of the size of business they work for.  It protects employees employed by employers ranging from large businesses with thousands of employees to small businesses, such as an independent shop or a pub.

If you are involved in a transfer that qualifies for TUPE protection your workers should be guaranteed that:

• their job transfers over to the new company
• their employment terms and conditions transfer
• their continuity of employment is maintained

Procedure

So having considered the information above, how can employers protect themselves and ensure that they are complying with the TUPE regulations?

There is a duty on the old employer to supply information about the transferring employees to the new transferee employer.  This is information such as the terms and conditions of the employee’s employment.  As the new employer you will have to continue with the employee’s terms and conditions, and therefore it is vital to familiarize yourself with such information in order to gain the full picture in terms of what you are considering taking on.

Inform and consult employees

Representatives of the employees (either Trade Union Representative or Employee Representatives following a ballot complying with legal provisions) or the employees themselves must be informed about the prospective transfer. They must also be consulted about any measures which may be taken which concern them.

Inform and consult employees

As their new employer, you do not have to take over rights and obligations relating to employees’ occupational pension schemes put in place by the previous employer. However, if you don’t provide comparable pensions arrangements, you risk a claim for constructive unfair dismissal.

Reducing employee numbers or reorganising staff

When you buy an existing business, you might decide you need to employ fewer staff.  But be careful about making any changes, as an employee might take a case to an Employment Tribunal for unfair dismissal or unfair selection for redundancy.  If you do want to discuss reducing employee numbers or reorganising staff, it’s a good idea to do this once you’ve completed the takeover negotiations, but start consultation with staff and/or their representatives before you take over the business.

Due to the technical and complex nature of the TUPE regulations it is advisable to consult a legal advisor before making any such changes as a dismissal which is found to be as a result of a transfer and which can’t be justified to be as a result of an Economic, Technological or Organisational reason will be automatically unfair.

Conclusion

When considering taking over an existing business, it is vital not only to consider the commercial issues, but also to consider the existing employees of that business.

Gain all the information you can about those employees, how long they have worked for the company, what their role is and what terms and conditions they are on.
 
Consider whether this set up will work for you and crucially consult with a legal advisor such as NorthgateArinso Employer Services well before the transfer of the business takes effect.