TUPE in M&As: What Do Buyers and Sellers Need To Do To Comply?

When buying or selling a UK business through an asset sale, both parties must consider the employment law implications—chief among them, compliance with the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly known as TUPE.

TUPE is a cornerstone of UK employment protection law. It preserves employees’ rights when a business—or part of it—is transferred to a new owner. For both buyers and sellers, understanding TUPE is critical to avoiding liability, minimising disruption, and managing integration smoothly. For example, when a lettings agency provides property management services and the contracts are transferred to a new lettings agency, TUPE may apply to ensure that the employees’ rights are protected during this business transfer.

This guide is designed for parties involved in UK M&A transactions structured as asset sales, and assumes that completion will occur on or after 1 July 2024—the date from which new consultation exemptions take effect for smaller businesses and transfers.

Introduction to TUPE Regulations

The Transfer of Undertakings (Protection of Employment) Regulations, commonly referred to as TUPE, is a set of rules designed to protect employees’ rights when a business transfer or service provision change occurs. TUPE regulations apply to all types of businesses, including small and large enterprises, and aim to ensure that employees’ employment contracts, terms, and conditions are preserved during the transfer process. In the event of a business transfer, the new employer takes on the responsibility of employing the transferring employees on the same terms and conditions as their previous employment contract. This includes their pay, benefits, and working hours, providing continuity and stability for the affected employees.

What Is TUPE?

TUPE is designed for protecting employees when the business or undertaking they work for changes hands. It operates on the principle that employees shouldn’t lose their jobs or suffer worse terms and conditions just because their employer changes due to a transfer.

It’s important to clarify: TUPE usually does not apply to share sales. In a share purchase, the legal employer remains the same—only the shareholders change—so the employment relationship continues unaltered.

When Does TUPE Apply?

In the context of M&As, TUPE applies to business transfers when there’s a “relevant transfer”, which generally includes the sale of all or part of a business or undertaking.

Part of key test is whether the entity being transferred retains its economic identity after the transfer. In practice, this often includes transfers of business units, divisions, or functions that remain recognisable and operational under the new owner.

Legal advice should always be sought to determine whether TUPE applies.

Employees’ Rights and Protections

TUPE regulations provide comprehensive protection for employees’ rights, including their employment contracts, terms, and conditions. When a business transfer occurs, employees automatically transfer to the new employer, and their existing employment rights are preserved. This means that the new employer must honour the employees’ contracts, including their pay, benefits, and working hours. Employees are also protected against unfair dismissal, and any changes to their employment contracts must be agreed upon by the employee or be for an economic, technical, or organizational (ETO) reason. Additionally, employees have the right to object to the transfer, but this may result in the termination of their employment contract. The protection of employment regulations ensures that employees are treated fairly and their rights are respected during the transfer process.

Implications of TUPE Applying

When TUPE applies, it is essential to understand:

• Employees transfer automatically to the buyer (the transferee).

• Their employment contracts transfer as-is, preserving existing terms and conditions.

• Continuity of employment is maintained—as if their employment had always been with the buyer.

• Any dismissals connected with the transfer are automatically unfair, unless there’s an economic, technical or organisational (ETO) reason involving changes to the workforce.

• There are strict information and consultation duties on both parties.

Ignoring TUPE can expose businesses to significant liability, including unfair dismissal claims.

Business Transfer Process and Procedures in TUPE

The transfer process under TUPE involves several key steps, including the identification of the transferring employees, the provision of employee liability information to the new employer, and the consultation with affected employees or their representatives. The outgoing employer must provide written details of the transferring employees’ employment contracts, including their terms and conditions, to the incoming employer. This information is crucial in ensuring a smooth transition and preserving the employees’ rights. The consultation process is also essential, as it allows employees or their representatives to be informed about the transfer and any proposed measures that may affect them. The new employer must also take steps to ensure that the transferring employees are aware of their rights and obligations under the new employment contract.

What Does the Seller Need To Do?

The seller (transferor) has a legal duty to inform and, where applicable, consult with employee representatives (or directly with employees, in certain cases). If an independent trade union is recognised by the employer, its representatives should be involved in the information and consultation processes regarding the transfer. The key obligations are:

1. Identify “Affected Employees”

These may include:

• Transferring employees.

• Employees not transferring but affected by the transaction (e.g., those remaining with the seller after a partial sale).

• Staff impacted by changes triggered by the transfer.

2. Inform Representatives or Employees Directly

Sellers must provide long enough before the transfer the following information to the appropriate representatives:

• The fact of the transfer and proposed date.

• The reasons for the transfer, including commercial drivers.

• Details of the buyer (the transferee).

• Confirmation that employment terms will remain unchanged.

• The legal, economic and social implications of the transfer.

• Any measures the seller or buyer proposes to take.

• Use of agency workers, including number, roles, and location.

If the seller:

• Has fewer than 50 employees, or

• Is transferring fewer than 10 employees, and

• No existing representatives are in place,

then it may consult directly with employees (provided the transfer completes on or after 1 July 2024)​.

3. Provide Employee Liability Information

At least 28 days before completion, the seller must provide the buyer with key employee information, including details of the employee’s contract, such as:

• Terms and conditions.

• Disciplinary and grievance records.

• Any claims or liabilities.

Failure to comply can lead to compensation claims by the buyer.

What Does the Buyer Need To Do?

In short, the below:

1. Receive and Review Employee Liability Information

The buyer should thoroughly review this to understand the workforce it’s inheriting, especially when they transfer employees—key for risk and integration planning. This should form part of the due diligence process.

2. Notify the Seller of Any Proposed Measures

If the buyer intends to make any changes affecting the transferring employees—such as reorganisations, redundancies, or relocations—it must inform the seller in sufficient time for the seller to pass that information to the affected employees before completion.

3. Comply with TUPE Post-Transfer

From the transfer date, the buyer inherits all the rights, obligations and liabilities of the transferring employees, including ongoing disputes or claims.

Failure to comply with TUPE regulations can lead to claims in an employment tribunal, particularly in cases of unfair dismissal or inadequate information and consultation regarding business transfers.

Who Is Responsible for What and When: Dismissals Pre- and Post-Transfer

Pre-Transfer Dismissals

If the seller dismisses employees because of the transfer, those dismissals may be automatically unfair under TUPE unless there is an economic, technical, or organisational reason for the workforce changes.

Importantly, the buyer may be liable for these pre-transfer dismissals, especially where the decision to dismiss was made in connection with the transfer or by agreement between the parties.

Post-Transfer Dismissals

Post-transfer dismissals by the buyer may also be automatically unfair unless they are due to an ETO reason and a fair process is followed. Specifically, dismissals must be justified by an economic, technical, or organisational reason entailing changes in the workforce.

The safest approach is for buyers to carefully assess any proposed changes and seek legal advice before acting.

Insolvency Situations and TUPE

In insolvency situations, TUPE regulations provide special provisions to protect employees’ rights. When a business is insolvent, the incoming employer may not be required to take on all the liabilities associated with the transferring employees, such as redundancy pay or notice pay. However, the employees’ employment contracts and terms and conditions are still preserved, and the new employer must honour these agreements. The insolvent business’s administrator or liquidator must also provide information about the transferring employees to the incoming employer, including their employment contracts and any collective agreements that apply. The protection of employees’ rights in insolvency situations ensures that they are treated fairly and their employment contracts are respected, even in difficult circumstances.

What Changes Can Be Made to Employees’ Contracts?

Changing terms and conditions post-transfer is heavily restricted under TUPE. Any variation will be void if the sole or principal reason is the transfer itself—even if the employee agrees—unless one of the following exceptions applies:

• The change is due to a valid ETO reason involving a workforce change (e.g., redundancy or reorganisation).

• The contract permits the change (e.g., a mobility clause).

• The change is part of a collective agreement and takes effect more than one year after the transfer and is no less favourable overall.

• The change is unrelated to the transfer (e.g., due to market or operational reasons independent of the deal).

It is crucial to note that employee rights under TUPE ensure that employees’ existing rights, including the right to transfer without losing benefits and the ability to address grievances such as unfair dismissal, are protected during a business transfer.

Harmonisation of Terms

Buyers often want to align transferring employees’ terms with existing staff. But harmonisation based on the transfer is not permitted. TUPE explicitly prohibits such changes, and they would automatically be deemed void and unfair, exposing the business to risk.

A new company taking over operations may face significant challenges in harmonising terms under TUPE, as any attempt to change terms and conditions of employment could be deemed void and unfair.

Final Thoughts: Prioritise Compliance and Communication

TUPE compliance isn’t just a legal box-ticking exercise—it’s fundamental to delivering a smooth, legally sound business transfer. For both buyers and sellers, early planning, clear communication, and informed decision-making are key.

Need Legal Support with TUPE?

If you’re buying or selling a UK business through an asset sale, specialist legal advice is essential. A specialist can help you:

• Assess whether TUPE applies.

• Draft clear, compliant provisions in the sale agreement.

• Manage employee communications.

• Minimise employment risks post-completion.

It is crucial to seek advice from a law firm to navigate the complexities of TUPE-related matters.

Contact us today for tailored advice on your transaction.