Corporate Insight: Top four workforce issues to look out for when buying a business
When looking to acquire a business, the issues at the top of the agenda tend to be financial and practical ones: profitability, a viable business plan and synergy with your existing business interests. But workforce risks should also be evaluated carefully: even those which have a modest financial cost can consume huge amounts of management time and damage the business' reputation. Here are four to look out for.
Depending on how the transaction is structured, the TUPE Regulations may apply, resulting in the buyer taking over employee-related liabilities on completion. The TUPE Regulations also impose obligations on both buyer and seller to exchange information and consult with affected employees. Specialist advice at an early stage is essential to understand the impact of the Regulations and to ensure that the acquisition agreement apportions risk and liability appropriately for the transaction. If redundancies are to be made, you should consider at an early stage whether these will be pre or post-completion (pre-completion redundancies often being more risky in legal terms) and who will bear the costs and the risks of any claims.
Employment terms of key staff
At the outset of discussions, you should identify key staff (e.g. senior management team, senior business development staff, etc.) and review their current employment terms. Do their contracts contain adequate protections against them taking the business' clients and ideas elsewhere? If they don't have robust confidentiality, intellectual property and post-termination restriction clauses, you may want them to sign up to new contracts as a condition of completion.
Employment status issues
The UK courts and tribunals (as well as HMRC) are increasingly willing to challenge a business' designation of individuals providing services as self-employed contractors rather than employed staff. The label given in the contract is only part of this assessment: how the working arrangements operate in practice is generally more important. It's worth assessing whether any current incorrect designation by the business could expose it to tax risks or employee status-based claims in the future, and ensure these risks are priced into the acquisition.
Right to work
Immigration is becoming an increasingly hot topic for employers, with ever more stringent penalties for getting it wrong. As well as checking that all current staff have the right to work in the UK and that the checks have been completed and documented correctly, you should check whether the business has previously been subject to any civil penalties (or even prosecution) for failing to comply with the prevention of illegal working regime. If so, this may enable the Home Office to take more intrusive steps, such as temporarily closing the business, if it is suspected of employing workers not entitled to work in the UK. Even if the Home Office were to find no evidence of illegal working, temporary closure could have a devastating impact on the business' reputation and customer relationships.