When you buy a business, you may have to deal with the difficult task of reorganising staff or letting some go.
There are legal implications involved in this process and existing employees should be treated with sensitivity and transparency to ensure a smooth transfer.
Inform existing staff of new employment particulars
If you are keeping some of the existing staff and wish to change the terms and conditions of their employment, it is essential to gain their agreement first. If you don’t, an employee could sue for breach of contract or even resign and claim constructive dismissal.
Existing staff should be told about any changes to the written statement of their employment conditions no later than a month after they have been made.
The particulars in question can include entitlement to sick leave and pay, pension schemes, and disciplinary procedures.
Changing staff numbers
If you are hoping to reduce employee numbers, wait until you have completed the due diligence period, but make sure all changes are made before you take over the business.
As the new employer you should inform and consult all employees - including employee representatives - who may be affected.
Be aware that when any business is sold, the old staff are transferred to the new company and are protected under TUPE – the Transfer of Undertakings (Protection of Employment) Regulations 2006.
This means that an employee’s terms and conditions of employment are protected, unless there is a genuine economical, technical or organisational (ETO) reason why things should change.
Employees will also retain their period of continuous employment (i.e. the start date of employment will be the date they began their original employment with the old company).
There are many technical issues surrounding TUPE and any changes being considered to terms and conditions should be discussed with a solicitor before you take over the business.
You may have a legally sound reason to vary a contract, if it is an ETO, but you do not want to risk any staff claims to an employment tribunal.
If you have dismissed some staff under legitimate ETO criteria, they may still be entitled to redundancy payment. This entitlement will still exist, even if the employee has failed in a claim for unfair dismissal. Make sure you are aware of employees existing contracts.
Check the employment status of existing staff
If, as with many small businesses, there are existing staff on ‘zero hours contracts’, they will not have the same employment rights as employees with standard contracts.
A zero hours contract is an employment agreement in which the employer does not guarantee the individual any work, and the individual is not obliged to accept any work offered.
Staff rights will depend on whether they are classed as an employee, a worker or self-employed. The former has the most rights – including the right to declare unfair dismissal after 2 years of service - but the latter has very few.
Make sure you read the small print in all your new staff’s contracts so you know what changes you can make, and how straightforward that could be.
New contractual opportunities for SMEs
As of 1st Sept 2013, business owners have had another option in offering staff contracts.
The new ‘shareholder contract’ allows an employer to offer an employee shares in their business in exchange for giving up certain employment rights.
This new agreement is a breath of fresh air to small business owners who live in fear of disgruntled employees taking legal action.
The shareholder employee will give up the right to claim for unfair dismissal, statutory redundancy pay, the right to request work flexibility or time off for training or study.
They will however, have more of a vested interest in the business as their shares could increase in value, and any gains will be tax free.