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Corporation A owns many smaller business units. Corporation A agrees to sell Business Unit X to Corporation B.

Business Unit X has a number of employees who are effectively redundant because their jobs have ceased to be relevant, but they continue in 'zombie' roles and have not gone through a redundancy procedure because their contracts and long service give them exceptionally generous redundancy terms that Corporation A does not want to pay.

Once Corporation B takes ownership, Corporation B realises that Business Unit X has a small but significant number of employees who were dead wood even before the acquisition, and those employees are swiftly made redundant. Under UK TUPE regulations, Corporation B must honour these employees' contracts, including their generous redundancy terms.

  1. Does Corporation B pay the redundancy costs?
  2. In M&A contracts, is there typically a clause which obliges Corporation A only to transfer genuinely productive employees?
  3. If the answers to Q1 and Q2 are both 'yes', how would Corporation B likely enforce this clause and / or reclaim costs?
  4. If the answer to Q2 is 'no', what is to stop Corporation A transferring other surplus employees from Business Unit Y into Business Unit X at some earlier moment?

To be clear: this is different to the common situation whereby otherwise productive employees are made redundant after a merger or acquisition because their roles do not fit the new corporate structure. I am interested in the (rare?) situation where one corporation knowingly transfers effectively-redundant employees to another corporation via a divestiture with the deliberate intention of avoiding redundancy costs.

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  • You've answered Q1 yourself (in the previous sentence). I think what you mean to ask is, can the buyer make the seller pay?
    – Lag
    Jan 18 at 10:02
  • Uh... can you transfer an unwilling employee?
    – Trish
    Jan 18 at 10:04
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    @Trish The seller can (but doesn't have to) offer the employee an alternative job. If the employee doesn't accept the transfer or the alternative job then (the effect is) they are resigning and they lose rights to redundancy pay or an unfair dismissal claim.
    – Lag
    Jan 18 at 10:09
  • Not sure how one would reasonably expect A to know who will or won't be redundant in B's organizational structure. Perhaps some employees were not needed while X was part of A because other units of A had provided that service, but as part of B they suddenly have important roles again. Jan 18 at 21:41

1 Answer 1

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Does Corporation B pay the redundancy costs?

Yes, that's what TUPE does, and all the usual stipulations and conditions would apply. Hypothetically there could be a separate agreement between A and B for A to reimburse B for any redundancy costs for former A employees I suppose but that wouldn't change that legally it is still B who is responsible for paying it to the employee.

In M&A contracts, is there typically a clause which obliges Corporation A only to transfer genuinely productive employees?

I suppose such a clause would be feasible but in my (admittedly limited) experience with such agreements I've never seen one.

If the answers to Q1 and Q2 are both 'yes', how would Corporation B likely enforce this clause and / or reclaim costs?

If there were such a clause I expect remedies would be specified, failing that they would have to litigate.

If the answer to Q2 is 'no', what is to stop Corporation A transferring other surplus employees from Business Unit Y into Business Unit X at some earlier moment?

In theory nothing stops them attempting to do so, assuming the employees go along with the initial transfer - but in practice I can't see it working, this is why the due diligence process exists. Shipping all your dead weight to a different business unit and then selling it off is going to create a paper trail a mile wide for the prospective buyer to see.

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