Asset Sale - TUPE

[RubySmithers]

Hi All,

I've been doing some research on asset purchase agreements, and I came across TUPE. I don't understand how TUPE is triggered in an asset sale.

If someone could provide me with a practical example of how TUPE would apply in an asset sale, I would be really grateful!

Edit @ 15:49:

Say, for example, I want to buy a premises which is owned by a chain of pubs (e.g. Weatherspoons). If I then decide that I will not be using that premises as a pub, instead I will be constructing an IT call centre in its place, what would be the implications for me in terms of TUPE? Essentially, I would have to make the existing pub employees redundant and take on new employees who have the requisite skills for my new business. How would TUPE fit into all of this?

Sorry if I am getting a little technical, I'm trying to understand it from a practical sense.

Ruby

 

[Naomi U]

Hi @RubySmithers,

From my experience, you won't be expected to go into specific detail concerning the TUPE regulation. However I have summarised some of the points I think are key below.

The TUPE 2006 stands for the Transfer of Undertakings (Protection of Employees) Regulation.

What is its aim?

The aim of the TUPE 2006 is to protect employees employed by a business who changes hands.

Its effect will be to move the employees and any liabilities associated with them from their old employer (Business A) to the new employer (Business B).

This will occur automatically by operation of the law.

When does the TUPE apply?

As you stated, the TUPE 2006 regulation is only triggered when there is an asset purchase. As such it will have no impact if a company is purchased by another company by way of a share purchase.

What is the impact of the TUPE regulation from a case study perspective? ( the most relevant bit)

Under the TUPE regulation, employees have the legal right to transfer to their new employer under the existing terms and conditions of their previous employment.

Employees can refuse to transfer (or object), but depending on the circumstances of the case, they can lose valuable legal rights if they do.

As such, this is a key due diligence issue for potential buyers as it will be vital for them to know about the employees and liabilities they might inherit from the acquisition. The outgoing employer has a duty to provide the incoming employer with written details of the transferring employees.

Early foresight will enable the buyer to alter the terms of the SPA in a way that protects them from any foreseeable liabilities. This may be through the inclusion of warranties or conditions e.g. a condition precedent that all pending employment litigation must be settled before the acquisition.

If the sole or principal reason for a dismissal is a TUPE transfer, the dismissal will be automatically regarded as unfair by the employment tribunal.

However following amendments in 2014, this may be permitted if the reason is deemed to be an economic, technical, or organisational (ETO) reason entailing changes in the workforce. It is important to note that the scope for ETO reasons is relatively narrow.

 

[Naomi U]

I should have stated in my response above that although the TUPE only applies to asset sales, its application is restricted further to such deemed to be a "relevant transfer" of assets.

This has been clarified to mean a "transfer of an economic entity which retains its identity". When determining if this has occurred the court will take in factors such as:

1. the type of undertaking being transferred;
2. whether any tangible assets (buildings, moveable property etc) are transferred;
3. whether any intangible assets are transferred and the extent of their value;
4. whether the majority of the employees are taken on by the new employer;
5. whether any customers are transferred;
6. the degree of similarity between the activities carried on before and after the transfer;
7. the period for which the activities were suspended, if any.

In your example, I think it would be fair to contest the application of TUPE as there is a significant difference between a chain of pubs and a chain of IT companies.
From my experience, I highly doubt you would get a similar example as any focus will be on your wider understanding.

I hope this helps and best of luck!