Alison King, managing director at Bespoke HR, explains how to maintain staff morale and avoid costly legal disputes when buying a nursery

Buying a nursery is an exciting opportunity, but there are legal complexities when it comes to taking on existing employees. Whether a business employs one person or hundreds, understanding Transfer of Undertakings (Protection of Employment) regulations (TUPE) is crucial.

What is TUPE?

TUPE applies where there is a business transfer or a service provider change. In the context of buying a nursery, this means all qualifying employees working for the business at the time of sale moving to the new ownership under their existing terms and conditions.

Challenges to consider

Ultimately, TUPE is designed to protect staff and ensure they are not unfairly dismissed due to the transfer of a business or service. However, this can pose challenges for new owners if there are existing staff issues that need to be addressed.

Some of the HR challenges we’ve dealt with following an acquisition include:

• The effect on staff morale due to the uncertainty and change of ownership, leading to increased sickness and absence rates.

• Whether there’s enough work for staff and how the transfer may affect existing employees. This is unlikely to be the case for practitioners, as staff from the acquired nursery will probably continue to look after the children from that setting (although some parents may not support the change in ownership and give notice). However, this could apply if there are duplicate admin, marketing or management employees.

• Managing staff who may have different terms and conditions. Incoming employees may have a more generous holiday allowance or a higher rate of pay than the existing employees. You should consider where possible aligning the two contracts, although the changes should always be more favourable. If this is not possible, then be transparent about why you can’t increase the holiday entitlement when asked, for example, cost or operational reasons.

• Existing HR issues such as conflict between team members or dealing with poor performance.

Key facts about TUPE

• The size of the organisation doesn’t matter. It could be a large business with many employees or a small business with one just one employee, TUPE still applies.

• Where there’s a transfer, TUPE applies to both the old employer (making the transfer) and the new employer (taking on the transfer).

• Employees automatically transfer with their existing contracts. This includes their existing salary, holiday entitlement and any other benefits.

• Employees preserve their rights including continuous service history and any other statutory protections (such as redundancy rights).

• TUPE regulations do not protect agency workers or self-employed individuals.

• The old employer cannot make employees redundant before the transfer if the reason relates to the transfer. This would constitute unfair dismissal.

• Likewise, the new employer cannot make employees redundant before the transfer as they don’t yet own the incoming business. If the new employer needs to make employees redundant the employer should wait until the transfer is complete and ensure there’s a strong economic, technical or organisational reason for making the redundancies.

• If 20 or more employees are at risk, a redundancy consultation can start before the transfer. However, both the old and new employer must agree to this.

• The old and new employers are obliged by law to inform and consult with affected employees (and their representatives) before a TUPE transfer.

Navigating the process smoothly

It’s essential to prepare not only to assess the risk, but to identify any potential employment costs and plan how to handle the transition with care. Here’s what to consider:

Conduct due diligence.

Before finalising a purchase, investigate the existing workforce structure including contracts and any outstanding employment issues. A clear picture of the workforce will help you address challenges and plan accordingly. This should include:

• Contract reviews – looking at pay structures, working hours and staff benefits such as bonuses. • Details of any enhanced or contractual leave or pay, such as parental leave or redundancy.

• Pension arrangements and any employer obligations.

• Details of any claims (historical or recent) such as unresolved disputes or tribunal cases.

• Employment checks to ensure that all employees have the necessary qualifications, for example the right to work in the UK or DBS checks.

By law, the old employer is obliged to provide the new employer with details of employees’ names, ages, and written statement of employment particulars, otherwise known as the employment contract (this should include: job title, start date, pay details, hours of work, holiday entitlement, sick pay entitlement, pension arrangements and notice periods for termination). The old employer should also supply details of any disciplinary and grievance records from the past two years and collective agreements with a trade union.

Communicate clearly with employees

The old and new employer should have a transfer plan that is shared with all employees. This will help to reduce concerns staff may have and help define and shape the process to follow.

• Identify a lead individual to manage the transfer and be the main point of contact for employees. • Engage early with employees, introducing the main point of contact and team.

• Address concerns and be prepared to answer questions about changes to job roles or the workplace culture.

• Engage and communicate with staff throughout the transition to address issues as soon as they arise. • Use an induction process to introduce standards, policies and rules.

• Ensure that all employees understand the terms that transferred across with them.

Be aware of cultural changes

When acquiring a business and its employees; it’s not just contracts that transfer – company culture does too. Employees may be used to certain processes, leadership styles and specific ways of communicating.

If new owners have fresh ideas and want to make improvements, they need to be mindful of not only whether these would affect the employment contract and therefore would not be allowed under TUPE, but also ensuring the morale of the transferred employees is considered with the aim of having an engaged workforce. The challenge lies in implementing changes, while protecting employee rights.

Start by understanding the existing workplace culture. How do employees communicate? What are their expectations around management, flexibility and decision-making? If the previous owners had a hands-off approach, but your leadership style is more hands-on, employees may feel micromanaged. Likewise, if they had a close-knit, family-style environment and you introduce a corporate structure, morale may take a hit.

Where necessary consider investing in training to ensure that staff are familiar with, and align with, your business’s standards.

Involve staff in the decision-making process to create a positive workplace culture. Acknowledge the changes, listen to employee concerns and involve team members in shaping the future culture.

Managing staff who don’t want to transfer

Employees can refuse if they don’t want to transfer across to the new employer. However, if they refuse to transfer, they can’t usually claim redundancy pay or unfair dismissal. Instead, they must tell the current employer in writing of their plans.

In this case, the employer needs to put in writing what happens if they don’t transfer and ensure that they have had all the facts before making a final decision. The old employer must then communicate with the new employer, informing them that the employee will not transfer. This should be treated as a resignation, and you should agree a notice period, leaving date and pay any outstanding wages and holiday. If the transfer occurs before the employee’s notice period ends, they don’t have to work beyond this date and the employer doesn’t have to pay for the rest of the notice period.

It’s important to be aware that employees could claim constructive dismissal if they believe their working conditions would be substantially worse and it would be to their “mental detriment” to make the transfer. While it can sound like a minefield, with the right approach a TUPE transfer can result in a well-supported team ready to help the business flourish.