When businesses change hands, it is not only contracts and assets that transfer; employees are part of the transaction. Mishandling this can lead to immediate legal, financial, and reputational consequences. This is where TUPE comes in.
Misunderstanding TUPE not only invites claims but also it undermines deal value, destabilises operations, and damages the goodwill essential to post-deal integration.
What is TUPE?
TUPE stands for the Transfer of Undertakings (Protection of Employment) Regulations 2006. Put simply, it protects employees when the business they work for changes hands. That protection covers their pay, rights, benefits, and continuity of service, ensuring they’re not left worse off just because of a sale or transfer.
TUPE prevents buyers from selectively retaining staff or altering employment terms without a proper process. For sellers, it means you have a legal duty to inform and consult before the transfer takes place. Either way, TUPE is not optional. It directly shapes deal execution and legal exposure.
Why is TUPE Important in Acquisitions and Transfers?
Every transaction involves personnel, and those individuals come with statutory protections. If TUPE applies to a transaction, employees automatically transfer to the buyer, along with all their existing terms and conditions. This matters because:
- Uninformed buyers can inherit costly liabilities, from back pay claims to grievance disputes.
- Mishandled transfers lead to unfair dismissal claims and escalate the risk of employment tribunals.
- Staff morale deteriorates quickly if communication and legal processes are mishandled, affecting productivity and retention from day one.
In short: TUPE is not an administrative formality. It is a core commercial consideration.
How Employee Transfer Works in Merger or Acquisition
TUPE is a legal process with defined rules, not a negotiation. Here’s what that process looks like in practice:
Before the Transfer of Employees
The outgoing employer must inform and, where necessary, consult with affected employees or their representatives. This is a legal requirement. It covers why the transfer is happening, what it means for employees, and whether any changes are planned. Miss this step, and you’re facing potential claims from day one.
Transfer of Employment Contracts
All employment contracts transfer to the new employer as they are. That includes salary, holiday entitlement, notice periods, and any existing disputes or claims. The incoming employer cannot select or amend terms unilaterally without triggering legal risk.
For buyers, this is where thorough due diligence is critical: understand precisely what liabilities and obligations you’re acquiring before the handover.
Employee Approval for Transfer
A common misconception is that employees must ‘agree’ to transfer under TUPE. It happens automatically. If an employee objects, their employment usually ends on the transfer date. Improper handling of objections may result in claims of constructive dismissal or procedural unfairness. This stage requires precise legal handling, not assumptions.
ETO – Economic, Technical, or Organisational Reasons
TUPE doesn’t prohibit post-transfer restructuring, but it imposes clear legal conditions. Dismissals or contractual changes are only legally safe if there’s a genuine Economic, Technical or Organisational (ETO) reason connected to the transfer.
Even with a valid ETO reason, procedural compliance is critical. Consult properly and document everything. If you don’t, you’ll be inviting expensive tribunal claims.
Post-Transfer
Once the deal completes, the buyer becomes the legal employer. This includes full responsibility for all staff liabilities, from outstanding grievances to pension contributions.
This is typically the stage where poor transfer management becomes evident. Poor communication erodes trust, reduces productivity, and increases the likelihood of post-transfer disputes.
Pension Rights
It should be noted that while most employee rights transfer under TUPE, occupational pension rights do not. That said, minimum pension provisions are usually required under separate regulations.Failure to address pension obligations can lead to non-compliance, financial penalties, and a breakdown in employee trust.
Monitoring Post-Transfer
TUPE compliance doesn’t end once contracts are signed. Post-transfer monitoring is vital. Are employment terms being honoured? Have integration steps been effectively executed and documented? Are any grievances emerging that weren’t flagged during due diligence?
Poor post-deal management can undo the value of an otherwise good acquisition. Monitor, adapt, and address issues promptly.
TUPE Due Diligence in M&A
This is where many transactions encounter avoidable risk. TUPE due diligence isn’t just about getting a staff list; it’s about understanding the risks you’re acquiring. That includes:
- Contractual obligations and liabilities
- Ongoing disputes and disciplinary actions
- Unfunded redundancy or holiday pay liabilities
- Bonus schemes, benefits, and incentive plans
- Pension contributions and auto-enrolment status
Overlooking key elements at this stage often results in assuming hidden or unquantified liabilities.
A commercially sharp legal team will flag these early, advise on indemnities, and structure the transaction to allocate or ringfence those liabilities appropriately where possible. If your legal team is not raising these issues early, it may be time to reconsider your advisory support.
Final Word
In M&A, people can be assets or liabilities. TUPE is not a peripheral concern in a deal; it’s a legal framework that safeguards those people and protects your business from costly mistakes. When properly managed, it facilitates a stable integration. When neglected, it creates risk across employment, compliance, and commercial continuity.
In acquisitions, overlooking TUPE is not a technical misstep. It is a strategic oversight that can carry significant legal and commercial consequences. Businesses that navigate deals successfully understand that distinction early.