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Getting Started

What are your obligations to staff?

When it’s time to sell your business you need to make sure you fulfil your responsibilities to the people who work for you

What are your obligations to staff?

1 TUPE and your legal obligations

If you are selling your business, your employees will be working for a new employer and are usually entitled to certain rights under the UK's business transfer legislation. Every entrepreneur, who is considering selling up, should therefore have a thorough understanding of, or get good legal advice about, the Transfer of Undertakings (Protection of Employment) Regulations 2006 – known as TUPE for short.

Martin Brown, founder of business advisors Elephants Child, says: “If you’re selling a company, you are duty bound to give full disclosure and warrant against any legal issues around your staff. Because of this, and because employment law is also changeable, it’s always a good idea to use good advisors who can pre-empt any risk in this area that might damage the sale process.”

Under TUPE rules, you must tell your employees that the sale is happening, when it’s happening and why, plus how it will affect them and whether there’ll be any reorganisation. The new owner will have to maintain your employees’ terms and conditions of employment – but before the sale you also won’t normally be allowed to change those contract details. Y

our employees’ company pension rights earned up to the time of the sale are protected, but be aware that their new employer doesn’t have to continue an identical pension. You are also expected to provide the new owner of your company with certain information about your employees. This includes, but is not limited to, their name and age, main details of employment, disciplinary action taken against employees and grievances raised by employees.

2 Continue to be an authentic leader

Martin says: “The people who work for you are the people who’ve helped you build the business, so selling the business can be emotionally tricky. Loyalty pangs can gnaw away at owners and we always tell anyone considering a sale to be sure they’ve thought about that. If you're committed to sale, I feel there is a moral, ethical and commercial obligation to be an authentic leader and take your people with you on the journey as best you can."

3 What staff should be told

Although you have a legal requirement to inform employees, you are not obliged to tell them absolutely every detail of the acquisition process. Martin says: “There’s a judgement call about who you tell certain information. The more junior the staff, the more difficult it is to share with them. Negative rumours can start to appear, which can, in the worst-case scenarios, kill the sale and destroy value in the business."

He adds: “Some information can be misunderstood, it can be overwhelming and it can be entirely disruptive to a sale process and the business. The one thing you don’t want is for the business to stop performing while you are in the sale process.”

4 The board and senior management

Of course, there are some members of the senior staff who will need to know as much as possible, without it being commercially sensitive. As Martin says: “That’s because you’re going to need those people to effect that deal and make it happen. Many of them are going to move across to the new set-up so will pick up the baton and run on with it. Many of that team will also be involved in the sale process – they will be named as key personnel, possibly be involved in pitching and showing potential buyers around.”

5 Incentivising your people to make the sale work

If you're expecting your board and senior management to help you complete the company sale, it's only reasonable that you should reward/motivate them through enterprise management incentive schemes and share options. Martin says: "You might even want to pay those people exceptional bonuses for helping to get the sale process over the finishing line and for helping to keep the business running at the same time."