The phrase ‘your employees are your greatest asset’ is often publicised by business owners. However when selling your business what happens to your staff? What are your obligations to them and what are your obligations to the person buying your business?
Type of Business Sale
The first consideration is what type of sale are you planning? There are 2 principle methods of selling your business, firstly a sale of the shares and secondly a sale of the assets. Both are handled very differently.
A Share Sale
In a share sale your company continues to operate as it always has done. The only difference is that the owner, i.e. the shareholder, is no longer you. The employees continue to be employed by the company and from an employment law perspective will see no difference. They will still work for and be paid by the same company.
As such although it remains best practice to inform the staff of what is happening a reasonable period in advance of the sale, there is no obligation to do so and often sellers will keep it to themselves until the very last minute.
As a part of the sale however you will owe various responsibilities to the buyer. As a part of their due diligence, they will want to know all about the staff they are taking on, everything from their salary levels, to their roles and responsibilities as well as any disciplinary or performance concerns. If your business recognises a trade union or operates a staff council they will also want to know about that. Within the share purchase agreement there will be significant numbers of indemnities and warranties about the staff and it is important therefore that you take care to ensure that you are suitably transparent whilst balancing the buyer’s need to know with the employee’s right to have their details kept confidential.
An Asset Sale
An asset sale is treated in much the same way in terms of the due diligence requirements but also imposes significant additional responsibilities under the Transfer of Undertakings (Protection of Employment) Regulations – otherwise known as TUPE. The effect of the TUPE Regulations is to transfer the terms and conditions of all employees assigned to the business which is being transferred. They retain their length of service, salary, holiday entitlement, job title and responsibilities etc. The aim of TUPE is to fully protect the employees and ensure continuity of their employment.
To assist with this under the TUPE Regulations as the seller you are required to provide ‘employee liability information’ to the buyer setting out all of the employees’ key terms and conditions. This is usually done by way of a large spreadsheet of data for ease of reference later on should there be any suggestion that the information is incorrect. Under TUPE a seller is liable to their buyer if the employee liability information turns out to be incorrect so this is a critical step which it can be very expensive to get wrong. The employee liability information must be provided at least 28 days in advance to allow the buyer time to review it all.
In addition however you must also inform and consult with all of the affected employees, normally via elected representatives. You must provide them with full details as to what is happening, who the sale is to, when the sale will take place and what effect, if any, it might have on the staff. Unfortunately there is no particular time frame for informing and consulting, it must simply be done far enough in advance to allow for meaningful consultation. Depending on the situation and whether elections are required to appoint employee representatives, this process may need to start between 4 and 6 weeks ahead of the transfer.
This can pose it’s own challenges in circumstances where you wish to keep your proposal to sell the business from becoming public knowledge but a failure to properly inform and consult can lead to significant financial penalties of up to 3 months pay per employee. It is vital therefore that you seek advice and get this element of the process right.
Summary
Selling your business is one of the biggest steps any business owner can take and ensuring that the staff are treated properly and fairly is a huge concern for most sellers. Nockolds specialist team of Employment Solicitors are able to work through the inevitable challenges that these sales create to ensure that not only do you comply fully with your legal obligations but that also your staff are looked after. If you are looking to sell your business please speak with our team for a free no obligation initial chat about your options and how we might be able to help.