Mergers, acquisitions and outsourcing of smaller employers set to become easier

Posted 15/07/2014

Mergers, acquisitions and outsourcing of smaller employers set to become easier

From the end of the month of July the process of informing and consulting affected employees who are subject to the TUPE* regulations is set to become slightly less frustrating for employers.

Duty to Inform and Consult: Micro employers no longer need to hold an election

Currently, where there is no recognised trade union, employers must arrange an election from the affected employees to elect representatives to inform/consult about the transfer. Frequently, this is a cumbersome bureaucratic distraction which can lead to increased suspicion amongst employees. From 31 July 2014, micro businesses (those with fewer than 10 employees overall) are required to elect representatives to inform and consult. However, they must still inform and consult directly with each individual employee regarding the transfer.   

Protective Award: TUPE still has teeth

Employers are reminded that a failure to inform and consult still has consequences and can result in a protected award of 13 weeks’ pay per employee (uncapped). This can soon hit the value of a small business sale or acquisition. By way of illustration, 8 employees working a 35 hour week at National Minimum Wage (currently £6.50 per hour) would be entitled to a maximum protective award of £23,660 for a failure to follow these provisions.

*Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). There are two situations when the TUPE regulations may apply (1) business transfers and (2) service provision transfers. The TUPE regulations apply if a business or part of a business moves to a new owner or merges with another business to make a new employer.

The TUPE regulations also apply to the following:

• a contractor takes over activities from a client (known as outsourcing)
• a new contractor takes over activities from another contractor (known as re-tendering)
• a client takes activities back “in house” from a contractor (known as in sourcing)