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Crossing the Atlantic

09 April 2019 McGill & Co Blog

Whether you are selling your business to a US company or buying a UK business, our guest blogger, Dawn Robertson, an employment law specialist with international corporate law firm, Rooney Nimmo, tells us what is involved from a people perspective.

In spite of the massive uncertainty around the UK leaving the European Union, some great British companies continue to punch above their weight, particularly when it comes to the world of technology and innovation. As a result, I am often involved in the sale of UK companies to companies based in other parts of the world, primarily in the US. As an employment lawyer, my involvement relates to the people side of things, however, given that most businesses are set up as limited companies, I am involved in these deals because, even if the only people working for the company are its owners, there are employment law implications.

When do I get involved?

I get involved at the point of parties agreeing the terms of the legal documents surrounding the sale or acquisition. In some situations, the purchaser will buy shares in the company whereas in other situations, the assets of the business will be bought. Either way, a detailed legal contract has to be agreed between the seller and the purchaser and I can be involved in either side of the transaction, depending on who I am instructed by.

When I am looking at the legal contract, I will review any indemnities and warranties that are expected from our client as well as assisting our client in collating or reviewing information relating to the workforce which needs to be communicated to the other party involved in the transaction.

What types of issues arise?

As you might expect, lawyers will usually take a ‘belt and braces’ approach to any warranties or indemnities they seek on behalf of their client. This can be unhelpful because often there are issues included which are not genuine risks for either party and are simply there either because they are included in the contract template or because the lawyers are afraid to leave them out because they just might be relevant at some point.  Generally, it is relatively easy to get a good understanding of the potential and real risks involved in the transaction. For example, most legal contracts will place liability for unpaid (or, more usually, underpaid) holiday pay firmly with the vendor up to the date of completion (of the sale). That is understandable given that the vendor has been responsible for paying the staff up to the point of sale. However, taking on such a liability can be risky and in really serious cases can put the entire sale in doubt. As the vendor’s lawyer, however, a reasonable amount of diligence can provide a huge amount of comfort in terms of whether there is likely to be actual liability for such claims.

TUPE or not TUPE?

The other issue which crops up frequently is the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended) (‘TUPE’) in any business asset acquisition or sale. In summary, if the business sale is a sale of assets, to the extent that staff can be said to be attached to the business, they will transfer to the employment of the purchaser automatically on completion by operation of law. There are, however, certain obligations on the part of both the vendor and purchaser under TUPE, primarily to inform but also, in some cases, to consult with transferring staff. It is important to comply with one’s obligations under TUPE as a failure to do so will be heavily punished in any employment tribunal claim. In addition, vital information relating to the transferring workforce must be communicated by the transferor to the transferee ahead of the transfer.

Existing terms and conditions

Under TUPE, employees transfer on their existing terms and conditions and so any incoming employer has to be extremely careful not to breach employment contracts either through ignorance of the terms on which its (new) workforce are employed or perhaps through a desire to make what it considers to be necessary changes, often with a view to making the business more profitable or effective. That is not to say that it is not possible to make necessary changes to the business or its workforce, even if that includes dismissal of staff, however, it is important that full consideration is given of the legal protection provided by TUPE (and the law generally) before taking such steps.

Where TUPE does not apply

Where TUPE does not apply – in the case of the acquisition of a shareholding rather than business assets – the legal identity of the employer does not change but the buyer still needs to understand the terms and conditions on which their ‘new’ employees are employed.  This includes their job title and duties, hours of work and rate of pay but also whether their terms include death in service benefit and the extent of any pension contributions.  Ultimately, whether or not it is a TUPE transfer, the incoming employer will need to understand their contractual – and statutory – obligations towards their new employees.

High growth companies and founder employees

High growth companies can be attractive acquisitions for established businesses, particularly in the technology arena. However the high growth company has come about, it is common for them to be sold to a larger, established business at some point, often to allow the business growth to reach another level with appropriate investment. Such acquisitions are often reliant upon the founder creators having an ongoing involvement in the business, continuing their work to develop the product or service.  I am often involved in negotiating new contracts for these ‘founder employees’, so that the necessary protections and benefits package are properly in place.

Employment law advice is essential

Whenever employees are involved or the sale or acquisition of a business, it is essential to get employment law advice. Where the transaction involves different legal jurisdictions, it is advisable to get advice in the jurisdiction where the employees are based.

Dawn can be contacted by email (This email address is being protected from spambots. You need JavaScript enabled to view it.) or phone (0131 220 9579).

 

THESE MATERIALS ARE FOR INFORMATION PURPOSES ONLY. NOTHING CONTAINED HEREIN IS INTENDED OR SHOULD BE REGARDED AS LEGAL ADVICE. THE DISTRIBUTION OF THIS BLOG TO ANY PERSON DOES NOT ESTABLISH A SOLICITOR-CLIENT RELATIONSHIP WITH ROONEY NIMMO.

 

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