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Selling Your Business: What happens to the employees?

If you sell all, or part of your business then the rights of the staff will pass with the sale to the new owner.  In other words, an employee’s continuity of employment and related accrued rights will not be affected.  For example, if an employee began his employment with you 5 years ago then the buyer – the new employer – will take over the employment contract as if the buyer employed that person from the start of their employment 5 years ago.

As an employer, you will recognise the importance of this as employees with enough continuous employment maintain their right to claim employment protection rights such as the right to claim unfair dismissal after two year’s continuous employment. 

The buyer will therefore want reassurances and contractual pledges that there are no circumstances known to the seller which could rise to a claim.  In addition, the buyer will want detailed information as to employees’ terms of engagement as part of the pre- sale due diligence as well as details of any employees who have given notice; employee benefits not ascertainable from the employment contracts; potential claims from past employees; grievances raised by employees; disciplinary proceedings etc.

The regulations which govern the automatic transfer of employment rights to the new employer (Transfer of Undertakings (Protections of Employment) Regulations – referred to as TUPE) also require that employees are informed and consulted in respect of the proposed transfer of their rights i.e. the sale of your business.  Employees should not be disadvantaged by the transfer of their employment rights to the new employee for example, by having less favourable terms. 

It might be possible for a new employer to vary employees right for what is know as an economic, technical or organisational (ETO) reason.  However, ETO reasons are in practice limited and would usually amount to a genuine redundancy.

If an employee refuses to transfer with a business, they have not been dismissed but have effectively resigned. This means that they lose the right to claim certain employment rights.

Call now to speak to a commercial solicitor and receive free initial, no obligation advice on selling or buying a business. 


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