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Taking over a company? Be careful to ensure the seller is disclosing all the important bits

Born London Ltd v Spire Production Services Ltd UKEAT/0255/16

A recent Employment Appeals Tribunal decision has caused a stir as the Tribunal was asked the question did the seller of the business have to disclose to the buyer, whether a bonus was contractual or non- contractual, under TUPE?

TUPE Regulations protect employees’ terms and conditions of employment when a business is transferred to a new employer.

The Regulations also protect the new employer during the transfer and clearly indicate what must be disclosed by the seller to the buyer.

Before the transfer takes place the seller is required to provide employee liability information. If the employee liability information has not been provided, the buyer can bring a claim in the Employment Tribunal if they suffer a loss as a consequence. Whilst TUPE deals clearly with information which is withheld there is no express regulation which deals with inaccurate information.

The decision in this case has resulted in the buyer of the business having to pay thousands of pounds in bonuses despite the seller having disclosed these as a “discretionary bonus”. The Tribunal’s decision has meant that whilst, there is regulation on what must be disclosed the regulation does not instruct on the accuracy of this information. The seller’s were held to not be in breach of their TUPE duties despite having provided inaccurate information to their buyers. This means if you are taking over a company you may receive information, but it may not be accurate. The Tribunal’s decision has meant that thousands of pound of bonuses must be paid as this was a contractual obligation through custom, despite buyer’s being informed that they had a choice in paying the bonus. This has prejudiced Born London Ltd without any fault of their own, simply because they were not informed accurately.

Disclosure of contractual and non- contractual particulars is required but the buyer should also carry out their own extensive due diligence to reach their own view on the accuracy of labels given to obligations outlined by the seller.

Top tip: Ensure you are carrying out your own full due diligence when taking over a company to avoid nasty surprises after you have become the new employee, you do not want your new employees knocking at your door for obligations you were not aware of.

For advice on TUPE transfers and other employment matters please contact Alan Massenhove director of our Employment department.