Employees' Rights on a Transfer of their Employer's Business

Employees are often protected by law if the business of their employer is transferred to another person or company. Such a transfer would ordinarily operate to terminate the employees’ contracts of employment. However, if the transfer of business comes within the relevant Regulations, the Transfer of Undertakings (Protection of Employees) Regulations 2006, the employees will automatically become employees of the new owner of the business. There will be no dismissal of the employees transferred and no loss in continuity of their employment.

The Regulations apply to any transfer from one person or company to another of an economic entity, or part or an economic entity, which is situated in the UK, whether that transfer is effected by sale, some other disposition or by operation of law. They do not apply where a transfer is simply due to a share purchase of a company and there is merely a change in ownership. The key factor is that there must be a change in person responsible for the undertaking. The Regulations also now apply to a change in service providers which occurs when a person or company engages a contractor to do work and then re-assigns the contract or brings the work in-house.

If the Regulations apply, the first step for a business is to provide all affected employees with information about the transfer. The Regulations impose obligations upon both the current business and the business taking on the employees. Affected employees must be told when and why the transfer is to take place, the legal, social and economic implications and whether any measures are to be taken in relation to any of the employees. If any measures are to be taken, the affected employees must also be consulted.

An employee is entitled to object to their employment contracts being transferred to the new business. If he does so his employment will be terminated. However, generally he will not be viewed as having been dismissed by the new employer.

If the employer does dismiss an employee before the transfer it will be automatically unfair if the reason for the dismissal is connected to the transfer. There is however an exception to this if the employer can show that there was an economic, technical or organisational reason entailing a necessary change in the workforce. Once the transfer has taken place the new employer will be liable for any unfair dismissal of employees on the same basis.

After the transfer employees will continue working on the same terms and conditions and will be entitled to the same rights and benefits as they originally had. The transferee business must give details of the identity of the employees along with certain of their rights and liabilities to the business taking the employees on. The terms and conditions may then only be varied by the new business with the employee’s consent.

This bulletin is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.


For further information on this or any related topic please contact Lesley Smith or Carina Sparkes.



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