By law the buyer and seller cannot agree between themselves what is to happen to the employees when the business is transferred.
By law all the employees of the business will become employees of the buyer from the date the business is transferred. The only exception is for the rare employee who informs the buyer or the seller that he objects to his employment being transferred.
An employee who is transferred to the buyer retains the same terms and conditions as he had with the seller. He will be treated as having started work for the buyer on the date he first started working for the business.
All sellers have to provide prospective buyers of their business with details of the employment liabilities the buyer will inherit with the business. The information that has to be provided is:
The seller should give this information to the buyer at least 14 days before the date of the transfer of the business.
As the Buyer will have to honour the existing terms of employment he will normally want to know what they are well before he commits himself to the purchase. Care is needed with informally promised bonuses and long running grievances which might lead to discrimination claims.
If the seller doesn’t supply accurate information the buyer can ask the employment tribunal for compensation. The compensation will be such sums as the tribunal thinks just and equitable with no maximum.
The seller has a duty to consult and inform the representatives of his affected employees about the proposed transfer. The affected employees will always include the employees who are being transferred but may include other employees as well.
The buyer should also inform and consult with representatives of any of his existing employees who will be affected by the transfer.
If the seller doesn’t comply with the duty to inform and consult affected employees then the employment tribunal can award compensation to the employees of up to a maximum of £3,770 per employee. Buyers should note that the tribunal can order either the buyer or the seller to pay this compensation.
The law says the consultation has to be with representatives of the employees. If there are only a few employees it is likely to be enough to discuss the proposal directly with the employees but strictly the seller should help arrange the election of representatives.
Any variation of the terms of employment by the buyer will usually be void. The employee is not permitted to agree to changes in his terms of employment even if he wants to. This means the buyer cannot harmonise the terms of the new employees with those of his existing employees.
Normally an employee who is dismissed for a reason connected with the transfer of the business will be unfairly dismissed. As a result he will have a claim against the buyer for compensation. This is the case even if the dismissal was by the seller prior to the transfer of the business. It will be difficult to show that any dismissal around the time of the transfer is for a reason unconnected with the transfer.
The only exception is if the dismissal is for “economic, technical or organisational reasons entailing changes in the workforce”. The meaning of this phrase is obscure but such dismissals are permitted provided the normal rules on fair procedures and reasonableness are followed.