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Staff issues when buying a business

5.07.2016

The main problems new business owners focus their attention on tends to be related to financial issues, such as the business’ profitability, or operational ones, such as having a viable business plan. Staff risks should also be evaluated carefully, as they can often take significant amounts of management time to resolve or they may cause damage to the business’ reputation.

The following areas tend to crop up the most in relation to staff issues:

TUPE

TUPE Regulations may apply, depending on how the deal has been structured and if the buyer is taking over employee-related liabilities on completion. The TUPE Regulations also impose certain obligations on both the buyer and seller to exchange information and consult with affected employees. It is important to understand the impact of the Regulations and to ensure that the agreement apportions risk and liability appropriately for the transaction. If redundancies are to be made, you should consider if these will be pre or post-completion.

Employment terms

At the beginning of discussions, you should identify who all the key staff within the business are and review their current employment contract terms. One of the most important points is to consider if their contract contains adequate protection against them taking the business’ clients or intellectual property if they were to leave. If they don’t have robust confidentiality, intellectual property and post-termination restriction clauses, you may want them to sign up to new contracts as a condition of completion.

Self employed?

The UK courts and tribunals have been increasingly challenging a business’ own designation of individuals who are providing services as self-employed contractors, rather than employed staff. The label given in the contract is only part of this as it is important to look at how the working arrangements operate in practice. It is also worth assessing whether there is any current incorrect designation by the business that could expose it to tax risks or employee status-based claims in the future, to ensure these risks are taken into account in the deal.

The right to work

Immigration has ever more stringent penalties for those businesses that get it wrong. In addition to checking that all current staff have the right to work in the UK and that the checks have been completed and documented correctly, you should also check whether the business has previously been subject to any civil penalties or prosecution. If it has, this may enable the Home Office to take more intrusive steps, such as temporarily closing the business, which could have a devastating impact on the business’ reputation and customer relationships.

These are some of the main issues that are likely to come up with any business sale. It is always best to be prepared to take specialist advice as soon as possible. 

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