How To Transfer Employees Between Companies in the UK: Legal Steps

If you’re restructuring your group, selling part of your business, buying a competitor, or simply planning an employee transfer from one company to another, it’s worth pausing before you “just move the team over”.

In reality, transfers can be legally sensitive. A small misstep can quickly turn into costly disruption - especially if TUPE applies, or if you accidentally trigger redundancy risks, contract breaches, or claims.

Below, we walk you through the key legal steps UK businesses should consider, what documentation you’ll likely need, and common pitfalls to avoid so you’re protected from day one.

What Does “Transferring Employees From One Company to Another” Actually Mean?

In a business context, transferring employees from one company to another usually means you want:

• the individual’s employment to end with Company A (the “old employer” or transferor), and
• the individual to become employed by Company B (the “new employer” or transferee),
• without breaking continuity of employment (where possible), and without creating avoidable legal risk.

This commonly comes up when:

• you’re selling your business (asset sale) and the buyer is taking on staff;
• you’re buying a business and need to understand what happens to employees (employee transfer rules often sit at the heart of the deal);
• you’re moving employees between group companies for tax, investment, or risk reasons (this article covers employment law steps only - it isn’t tax advice);
• you’re outsourcing (or insourcing) a function, like IT support or facilities management;
• you’ve set up a new company and want the trading operations (and staff) to sit there instead.

The key legal question is usually this: is this a TUPE transfer, or is it a “normal” termination and rehire/contractual move?

Your approach (and risk level) changes significantly depending on the answer.

Does TUPE Apply When You Transfer Employees?

TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. It’s designed to protect employees when a business (or part of it) transfers to a new employer.

If TUPE applies, the general rule is that affected employees automatically transfer to the new employer on their existing terms, with their continuity of employment preserved.

From a small business perspective, this is where you need to slow down and get clear advice early, because TUPE can apply even when you don’t expect it to.

Common Scenarios Where TUPE Might Apply

TUPE can apply in two broad situations:

• Business transfers: where an economic entity (like a business, or part of it) moves to a new owner and retains its identity.
• Service provision changes: where a service is outsourced, brought back in-house, or moved between contractors, and there’s an organised group of employees whose principal purpose is carrying out that service.

If you suspect TUPE might apply, you’ll want a structured approach and a clear paper trail. A practical TUPE transfer checklist can help you sense-check the process, but it’s still worth getting tailored advice for your exact scenario.

Why TUPE Matters For Your Business

If TUPE applies, it affects:

• who employs the employees (it transfers by operation of law);
• terms and conditions (they usually move across largely unchanged);
• information and consultation obligations (you may need to inform and, where required, consult affected employees/representatives);
• dismissal risk (dismissals connected to the transfer can be automatically unfair unless there’s an ETO reason and a fair process);
• liability allocation (the new employer can inherit employment liabilities, so due diligence is crucial).

In short: TUPE can be business-friendly when handled properly (it gives a clear mechanism for moving staff), but it can become a headache if it’s ignored or treated as an informal admin task.

Step-By-Step: Legal Steps For Businesses Transferring Employees

Here’s a practical step-by-step process many small businesses follow when transferring employees from one company to another. The exact steps will depend on whether TUPE applies and the structure of your deal, but this will give you a solid roadmap.

1) Confirm The Transfer Structure (Asset Sale, Share Sale, Group Reorg, Outsourcing)

Start by clarifying what’s actually happening commercially. For example:

• In a share sale, the employer may technically stay the same (the company is sold, but employees remain employed by that company).
• In an asset sale or outsourcing arrangement, employees may move to a different employer (often triggering TUPE).
• In a group restructure, you might be moving staff between group companies (TUPE might apply, or you might use a contractual approach).

This first classification matters because it impacts whether you need transfer documentation, employee consultation, and how liabilities move between parties.

2) Identify Which Employees Are “In Scope”

Next, identify the employees assigned to the part of the business or service that’s transferring. This sounds simple, but it can get tricky if:

• employees split their time across teams/projects;
• employees are on long-term leave;
• you have workers/contractors mixed in with employees;
• your organisational structure is informal (common in small businesses).

Getting “who transfers” wrong can lead to disputes, operational gaps, and claims that you’ve dismissed someone unfairly (or failed to transfer them when you should have).

3) Run Employment Due Diligence (Even If It’s “Just” An Internal Move)

Whether you’re buying a business, selling one, or reorganising internally, you should review:

• each employee’s contract, role, pay, benefits, and notice provisions;
• length of service (which impacts rights);
• ongoing grievances, disputes, or disciplinary matters;
• commission/bonus arrangements and whether they’re contractual;
• any restrictive covenants/confidentiality obligations.

If contracts are missing or outdated, this is the moment to fix it. Having a clear Employment Contract (and consistent policies) can make transfers significantly smoother, because both old and new employers understand what is and isn’t agreed.

4) Decide The Transfer Mechanism: TUPE Transfer vs Contractual Move

Broadly, there are two legal pathways:

• TUPE transfer: employees move automatically by law, with terms broadly preserved.
• Contractual transfer (non-TUPE): you may need the employee’s agreement to end employment with Company A and start with Company B, often documented carefully.

If you’re not in a TUPE situation, you’ll usually want a written agreement that clearly sets out what happens to continuity, accrued benefits, and any changes to terms. Depending on the structure, that documentation might be a Deed of Novation, a settlement-style agreement, or a new employment contract with an express continuity arrangement.

Be cautious here: if you “force” a move without a valid legal basis (or consent where required), you can end up facing breach of contract allegations or constructive dismissal risk.

5) Plan Communications And Consultation Properly

Even when everyone is on good terms, employee transfers can create uncertainty. Your communication plan should be clear, consistent, and timed properly, including:

• what is transferring (and when);
• who the new employer will be;
• whether roles, reporting lines, or location will change;
• what stays the same (pay, benefits, length of service where applicable);
• who employees can ask questions to.

If TUPE applies, there are specific information and consultation obligations. Getting this wrong can lead to financial penalties (including protective awards, typically where there’s a failure to inform and consult in line with TUPE), even where no one intended to cause harm.

6) Document The Deal Properly (Including Liability Allocation)

If the transfer is part of a business sale or outsourcing agreement, you’ll often need to document:

• which employees are transferring and on what basis;
• how employment liabilities are split (pre-transfer vs post-transfer);
• what happens if someone brings a claim later;
• any indemnities between seller and buyer.

If you have multiple owners or a growing group structure, it’s also worth making sure internal governance is clear - for example, when decisions require shareholder sign-off under a Shareholders Agreement.

Can You Change Roles Or Reduce Costs After A Transfer?

This is a very common question from business owners, especially where the transfer is happening because you’re trying to streamline operations.

The key point is: changing terms and conditions around a transfer can be high-risk, particularly if TUPE applies.

If TUPE Applies

If an employee’s contract is changed because of the transfer, the change may be void (i.e. unenforceable). Even where there’s an ETO reason (an economic, technical or organisational reason entailing changes in the workforce), you’ll generally still need employee agreement (or another lawful contractual route) and a fair process.

Even where changes are possible, you’ll want to document them carefully and avoid informal “handshake” variations.

If TUPE Doesn’t Apply

If TUPE doesn’t apply, you still generally can’t unilaterally reduce pay or materially change duties without agreement, unless the contract gives you the right (and even then, you should be cautious and fair).

Where cost reduction is a driver, businesses often consider restructure options that may involve redundancy. If that’s on your radar, it’s worth understanding redundancy consultation periods and planning timelines early, so you don’t get boxed into rushed decisions.

Practical Pitfalls When Transferring Employees (And How To Avoid Them)

When we see transfers go wrong, it’s usually not because the business owner didn’t care - it’s because they moved quickly, relied on assumptions, or treated the transfer like a purely operational change.

Here are some common pitfalls to watch for.

Assuming “It’s A Group Company, So It’s Easy”

Even if both entities are owned by the same people, employees still have legal rights against their employer. Moving them between companies is not just “shuffling staff” - it’s changing who they work for and who carries legal liability.

Not Checking Whether Someone Is Actually An Employee

Contractors and workers may sit alongside employees in small teams. If you assume everyone transfers the same way, you may accidentally create employment status disputes or miss key obligations.

Poor Or Missing Paperwork

If contracts are outdated, inconsistent, or missing key clauses, the transfer can expose you to disputes about:

• notice periods;
• commission or bonus entitlement;
• probation terms;
• mobility/location changes;
• IP ownership and confidentiality.

Solid documentation doesn’t just “tick a legal box” - it reduces the risk of post-transfer misunderstandings that disrupt operations.

Overlooking Data Protection

Employee transfers often involve transferring HR files, payroll records, performance notes, and sensitive information. This engages UK GDPR and the Data Protection Act 2018, meaning you should be careful about:

• what data is shared and why;
• who has access;
• secure transfer methods;
• retention and deletion rules post-transfer.

In many situations, you’ll also want to ensure your internal policies match your real practices.

Trying To “Soft Redundancy” People During The Transfer

If you use a transfer as an opportunity to push people out without a fair process, you can significantly increase the risk of unfair dismissal claims (and if TUPE applies, potentially automatic unfair dismissal arguments).

If there are genuine performance concerns, deal with them properly and consistently (and ideally not in the middle of a transfer unless you’ve got clear advice). For example, a structured and lawful approach to Performance Improvement Plans can help you manage issues fairly rather than letting them spill into the transfer process.

Key Takeaways

• Transferring employees from one company to another can be legally straightforward or legally complex depending on whether TUPE applies - so confirm the transfer structure early.
• TUPE can apply to business sales, outsourcing/insourcing, and contractor changes, and it can require employee information/consultation and preserve terms and continuity.
• Run employment due diligence before you transfer staff, including checking contracts, length of service, disputes, and pay/benefits arrangements.
• Where TUPE doesn’t apply, you’ll usually need a clear written agreement (and the right consent) to move employees safely - a Deed of Novation is one option, but not the only mechanism.
• Be cautious about changing roles, reducing pay, or restructuring immediately after a transfer, as this can trigger unfair dismissal and breach of contract risks.
• Plan communications carefully and keep paperwork tight - informal arrangements are where disputes usually start.

If you’d like help transferring employees from one company to another (including TUPE advice, transfer documentation, and updating employment contracts), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.