TUPE Contract Checklist When Buying A Business

Are the employees coming across when you buy the business, and what should the sale contract say about it? In many UK business purchases, the answer is yes - TUPE can automatically transfer employees to you on their existing terms.

That can feel like a lot to take on, especially when you're trying to check stock, customers, leases, supplier contracts and the purchase price at the same time. The good news is that TUPE risk can usually be managed with careful due diligence, clear employee information and properly drafted sale documents.

Here are the key contract points to check before completion, whether you're buying or selling a small business in England and Wales.

Does TUPE Apply When You Buy A Business?

Yes, TUPE often applies when you buy a business as a going concern, but it depends on what you're buying and how the deal is structured.

TUPE is short for the Transfer of Undertakings (Protection of Employment) Regulations 2006. In a business sale, it usually means employees assigned to the business automatically transfer from the seller to the buyer on completion. Their employment doesn't end and restart. It continues with the buyer stepping into the seller's shoes.

TUPE is most likely to apply where you're buying:

• A trading business with staff, customers, assets and goodwill
• A distinct part of a business, such as one branch, division or contract team
• A business where the same activity will continue after completion

TUPE may be less clear if you're only buying selected assets, stock or intellectual property, or if the business has stopped trading. Still, labels don't decide the answer. Calling the deal an asset purchase won't avoid TUPE if, in practice, a business is transferring.

For example, Mike buys a small cleaning business in Manchester. He takes over the customer contracts, equipment, phone number, trading name and five cleaners who work on those contracts. Even if the sale agreement says it's an asset purchase, TUPE is very likely to apply because the business activity is continuing.

If you're unsure, get advice before you exchange contracts. TUPE can affect the purchase price, the completion timetable and who pays for employee liabilities.

What Employee Information Should You Check Before Completion?

You should check enough employee information to understand exactly who may transfer, what they're entitled to and what liabilities you may inherit.

Under TUPE, the seller must give you employee liability information at least 28 days before the transfer, unless there are special circumstances. This is often called ELI. For many small business deals, 28 days is tight, so it's sensible to ask for the information much earlier during buyer due diligence.

Employee liability information should include:

• The identity and age of transferring employees
• Their written employment particulars, including pay, hours, job title, holiday and notice
• Information about disciplinary action taken in the last two years
• Information about grievances raised in the last two years
• Any court or tribunal cases, claims or actions brought by employees in the last two years.
• Any claims the seller reasonably believes an employee may bring
• Any collective agreements that apply

Your due diligence should go further than the minimum ELI where possible. Ask for:

• Signed employment contracts and offer letters
• Staff handbook, policies and bonus or commission plans
• Holiday records, sickness absence and parental leave records
• Payroll summaries and National Minimum Wage checks
• Details of pension arrangements and auto enrolment contributions
• Right to work check records
• Details of contractors, consultants and casual workers
• Any promised pay rises, promotions or informal arrangements

Employee data should be handled carefully under the UK GDPR and Data Protection Act 2018. Early in the deal, you may only need anonymised information. Names and detailed personal data can usually come later when there's a clearer lawful basis and the deal is more certain.

What Should A TUPE Contract Checklist Include?

A TUPE contract checklist should connect the employment risks you find in due diligence with the clauses in the business sale agreement.

This is where many deals get messy. You may receive employee information, but the sale document doesn't say clearly who pays if something is wrong, incomplete or not disclosed. A template business sale agreement may not deal properly with TUPE, especially if there are unusual staff arrangements or pre-completion changes.

Here is a practical outline to use when preparing or reviewing the employee parts of your sale documents and completion checklist. A lawyer should tailor it before you rely on it, because TUPE wording can shift the financial risk between buyer and seller in a big way.

1. Transferring Employees: List the employees who are expected to transfer, ideally in a schedule that matches the employee liability information.
2. Employee Liability Information: State when the seller must provide ELI, how it must be updated and what happens if it's late or inaccurate.
3. Warranties: Ask the seller to confirm key employment facts, such as contracts, pay, disputes, holiday, sickness, pension contributions and compliance with employment law.
4. Pre-Completion Conduct: Restrict the seller from changing pay, benefits, roles, hours, dismissals or hiring without your consent before completion.
5. Consultation Obligations: Set out who will inform and consult employees, what information will be shared and how buyer measures will be handled.
6. Indemnities: Allocate responsibility for employee liabilities before and after completion, including claims linked to missing information or pre-transfer conduct.
7. Completion Deliverables: Require payroll records, contracts, personnel files, holiday balances, right to work records and pension information to be handed over.
8. Post-Completion Cooperation: Require both sides to help each other if an employment claim, HMRC payroll query or pension issue arises later.

For buyers, the aim is to avoid paying for hidden problems you didn't price into the deal. For sellers, the aim is to give accurate disclosures and avoid open-ended liability after completion.

How Do Indemnities And Warranties Protect You?

Warranties and indemnities protect you by turning employment risks into clear contractual rights if something goes wrong.

A warranty is a promise that a statement is true. For example, the seller might warrant that all transferring employees are listed, all employment contracts have been disclosed and there are no unpaid bonuses except those set out in the disclosure letter. If that turns out to be wrong, you may have a claim for breach of warranty.

An indemnity is usually more direct. It says one party will cover the other for a specified liability. For example, the seller may agree to indemnify you for employment claims relating to acts or omissions before completion.

A Worked Example

Say you're buying a cafe in Bristol for 250,000 pounds. The seller tells you there are six employees and gives you their contracts. The staff schedule says one manager earns 30,000 pounds, four cafe assistants earn hourly rates and one weekend worker is casual.

After completion, you discover the manager had been promised a 3,000 pound bonus for staying until the sale, and two cafe assistants have 80 hours of accrued holiday between them that wasn't disclosed. You also receive a grievance from before completion about unpaid overtime.

If your sale agreement has strong warranties and indemnities, you may be able to recover those pre-completion costs from the seller. If it doesn't, you may be left paying them, even though they relate to the period before you owned the business.

For sellers, the disclosure letter matters. If there's a known issue, disclose it clearly rather than hoping it won't come up. Clear disclosure can reduce the risk of a warranty claim later.

Do You Need To Consult Employees Before The Sale?

Yes, TUPE requires information and, where measures are proposed, consultation with affected employees or their representatives before the transfer.

This isn't just an HR courtesy. The seller and buyer need to plan the process because failure to inform and consult can lead to financial claims. The employment tribunal can award up to 13 weeks' gross pay per affected employee for a failure to inform and consult under TUPE.

You need to give affected employees information about:

• The fact that the transfer is happening
• When it's expected to happen
• Why it's happening
• The legal, economic and social implications for affected employees
• Any measures the seller or buyer expects to take in relation to employees

Measures are practical changes connected with the transfer. They might include a new payroll date, different reporting lines, a workplace move, changes to benefits administration or a proposed restructure.

Since 1 July 2024, more small employers can consult directly with employees if there are no existing employee representatives. This can apply where you have fewer than 50 employees, or where the transfer involves fewer than 10 employees. If representatives already exist, you usually need to consult through them.

There's no fixed minimum consultation period under TUPE, but consultation must happen long enough before the transfer to be meaningful. In a small business sale, that means building consultation into the completion timetable rather than leaving it until the day before completion.

Can You Change Employee Contracts After Completion?

Usually, no - you can't simply change transferring employees' contracts because you've bought the business.

Under TUPE, employees transfer on their existing terms and their continuity of employment is preserved. That means salary, hours, holiday, notice, benefits and other contractual terms generally come across with them.

Contract changes are risky if the sole or main reason is the transfer. In many cases, those changes can be void even if the employee appears to agree. Dismissals connected with the transfer can also create unfair dismissal risk, unless there's an economic, technical or organisational reason involving changes in the workforce, often called an ETO reason.

An ETO reason might include a genuine redundancy situation where, after the transfer, you no longer need the same number of employees doing the same work. It won't usually cover a general desire to cut costs or harmonise everyone onto your standard contracts.

That doesn't mean you can never make changes. It means you need to separate what is legally possible from what feels commercially convenient. For example:

• You may be able to make administrative changes, such as a new payroll provider, if pay and rights stay the same.
• You may be able to restructure roles later if there's a genuine business reason and you follow a fair process.
• You should be very cautious about reducing pay, removing benefits or changing hours because of the transfer.

ACAS guidance is also worth keeping in mind for fair consultation and handling workplace changes. If post-completion changes are part of your business plan, factor that in before signing the sale agreement, not after completion.

What Should Buyers And Sellers Do Before Signing?

You should match the TUPE due diligence, consultation plan and sale agreement before anyone signs the deal.

If you're buying, your main job is to avoid inheriting surprises you can't manage or haven't priced in. If you're selling, your main job is to give accurate information and keep the business stable between exchange and completion.

Buyer Checklist

• Confirm whether TUPE applies to the business or part of the business you're buying.
• Ask for employee liability information early, not just 28 days before completion.
• Check employment contracts, payroll, holiday, sick leave, grievances, disputes and pension information.
• Ask the seller to identify anyone on leave, long-term sickness, secondment or informal arrangements.
• Decide what measures, if any, you expect to take after completion and tell the seller in time for consultation.
• Make sure the sale agreement has tailored warranties, indemnities and pre-completion restrictions.
• Plan the handover of payroll, HR files, right to work checks and staff communications.

Seller Checklist

• Prepare accurate employee liability information for vendor due diligence and keep it updated until completion.
• Check contracts and records before sharing them, so you can correct gaps or disclose issues clearly.
• Don't change pay, hours, roles, bonuses or headcount without checking the sale agreement.
• Agree with the buyer how employee information and consultation will be handled.
• Keep records of consultation meetings, questions, responses and employee communications.
• Use the disclosure letter carefully for known employment issues.

One final point: if the deal is structured under a share purchase agreement rather than as an asset sale, TUPE usually won't be triggered because the employer doesn't change. The company continues to employ the staff. But employment due diligence still matters, because the buyer takes control of the company with its existing liabilities.

Key Takeaways

• TUPE can automatically transfer employees to the buyer when a UK business is sold as a going concern.
• Employee liability information must usually be provided at least 28 days before the transfer, but buyers should ask for it much earlier.
• Your sale agreement should deal clearly with transferring employees, warranties, indemnities, consultation and pre-completion conduct.
• Failing to inform and consult can lead to awards of up to 13 weeks' gross pay per affected employee.
• Post-completion contract changes are risky if they're made because of the transfer, so plan any changes carefully.
• Good TUPE due diligence helps both sides price the deal properly and avoid disputes after completion.

If you'd like help with your business sale agreement, TUPE due diligence, employee consultation planning or employment warranties and indemnities, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.