Buying a Firm
First, there are three reasons why someone might buy a firm: for the intellectual property (IP) in its products, for access to its markets or for its people and their knowledge and skills. There are firms who make it their business to buy others and strip the assets. A good example is where a firm is bought for its customers and the purchaser uses the newly acquired brand and distribution chain to market its products and increase its turnover.
It doesn’t need the staff to do this. Another example is where a firm owns significant IP tied up in patents and designs. A buyer can exploit these without the staff. If firms are left to pursue their own narrow self-interest, there will be many cases where they will pick up the desirable assets and dump the staff.
The Labour Market
Secondly, the population of employees and employers behave as a market, offering skills and knowledge in return for payment and benefit. For the labour market to function well it’s important that both parties enter contracts as free agents and commit to one another for a time. The labour market is governed by the laws of supply and demand and is left, as far as is possible, free of government meddling. Anything else would a distortion and would be unwelcome. In extreme cases markets can fail. Instances where firms buy other firms and prematurely dump the staff in favour of other assets is such a failure. Governments regulate to prevent failure. The TUPE regulations are the result.
The idea behind TUPE, the Transfer of Undertakings (Protection of Employment) Regulations, is to protect an employee’s employment in circumstances where an employer decides to sell their firm or otherwise ‘transfer the undertaking’ to another thereby materially affecting the employment of the staff. The simple way to tell if TUPE applies is to think ‘is this an instance where, being fair and reasonable, the employee’s employment should be protected?’ In other words, where it would not be judged fair that an employee loses their job just because the employer decides to sell up or transfer his or her interests.
What the heck is TUPE?
If TUPE applies then there are regulations that must be complied with and these act to sustain the employee’s employment during and after the transfer. Managing under TUPE requires buyer and seller to test if the regulations apply to their transfer situation. They then need to consider the implications of the regulations. TUPE also applies to certain instances when supply contracts transfer.
The key issue is to call us early if considering transferring undertakings or supply contracts. For those on TimelessSUPPORT, there’s more in the Members’ area of this site. Use your normal username and password to access.