If your franchise territory has employees, TUPE will be the most consequential piece of legislation in your transaction. If it does not — because you operate as a sole trader or with only self-employed subcontractors — TUPE still needs to be understood, because employment status uncertainty can turn a clean sale into a messy dispute.
This guide provides the depth that a sale agreement guide cannot. It covers whether TUPE applies to your territory, what automatically happens to employees when it does, the obligations the law places on both parties, and the practical steps every seller with employees should take before going to market.
Does TUPE Apply to Your Franchise Territory Sale?
The Transfer of Undertakings (Protection of Employment) Regulations 2006 apply where there is a transfer of an economic entity that retains its identity. A franchise territory sale almost always satisfies this test. The question, in practice, is whether there are any employees to whom TUPE’s protections attach.
Territories with employees. If the business employs people directly — staff in branch, administrators, or negotiators on employment contracts — TUPE engages in full. Those employees transfer automatically to the buyer, on their existing terms and conditions, with continuity of employment preserved.
Territories with no employees. Many franchise territories, particularly owner-managed estate and letting agency territories, operate without any direct employees. The owner-operator runs the business themselves, perhaps using self-employed associates or subcontractors. Where there are genuinely no employees, TUPE is technically engaged by the transfer but has no practical effect — there is no workforce to transfer.
Self-employed subcontractors. TUPE does not cover genuinely self-employed individuals. A self-employed associate who runs their own business, invoices through a limited company, and bears their own commercial risk falls outside TUPE’s scope. However — and this is a significant caveat — employment status is determined by the actual working relationship, not the label given to it. If a subcontractor works exclusively for the territory, is subject to direction and control, has no substitution rights, and has worked this way for several years, a tribunal may find them to be a worker or employee, regardless of what the contract says. If that determination is made post-completion, the buyer will likely seek to recover from the seller under the indemnity provisions in the sale agreement.
The practical risk is asymmetric: the seller knows the working arrangements intimately; the buyer relies on the seller’s disclosure. Sellers who have not stress-tested the employment status of their subcontractors before going to market are carrying a liability they may not know they have.
Automatic Transfer: What Happens on Completion
Where TUPE applies and there are employees, the transfer is automatic. No employee consent is required. No action needs to be taken to effect the transfer — it happens by operation of law at the moment the business changes hands.
Terms and conditions are protected. The buyer inherits the employees on their existing contractual terms. Pay, holiday entitlement, notice periods, and other contractual rights all transfer intact. The buyer cannot, immediately post-completion, cut salaries, increase hours, or alter working arrangements on the basis that they now own the business. Changes to terms for reasons connected to the transfer are void under TUPE.
Continuous employment is unbroken. The employee’s length of service carries across. An employee with eight years’ service at the point of transfer has eight years’ service with the buyer from day one. This matters for redundancy pay calculations, unfair dismissal qualifying periods, and enhanced contractual rights that accrue with length of service.
Pre-completion liabilities transfer with the employees. All employment liabilities relating to acts or omissions before the transfer date follow the employees across to the buyer. An unfair dismissal claim brought after completion, but relating to conduct occurring before it, is the seller’s liability. This is why the indemnity provisions in the sale agreement matter so much: the commercial allocation of liability in the SPA does not override the statutory position, but it does determine which party bears the financial consequence.
Employee Liability Information: The 28-Day Obligation
The most frequently missed TUPE obligation in small business sales is the employee liability information requirement under Regulation 11.
What must be provided. For each employee who will transfer, the seller must give the buyer the following information in writing:
- The employee’s identity and age
- The particulars of employment required to be given under section 1 of the Employment Rights Act 1996 (the written statement of employment particulars)
- Information about any disciplinary action taken against the employee in the previous two years
- Information about any grievances raised by the employee in the previous two years
- Information about any court or tribunal proceedings, claims, or actions the seller reasonably believes the employee may bring against the buyer after the transfer
- Information about any collective agreements that will have effect after the transfer
The deadline. This information must be provided not less than 28 days before the transfer date. This is a statutory obligation, not a contractual one — it cannot be waived by agreement between the parties, and a clause in the SPA purporting to shorten or remove this obligation has no effect.
The consequence of late provision. If the seller provides the information late, or provides it incompletely, the buyer is entitled to bring a claim in the Employment Tribunal. The tribunal may award such compensation as it considers just and equitable, with a minimum of £500 per employee. In a territory with ten employees, a late or incomplete data pack could cost the seller £5,000 in tribunal awards before any legal fees.
The timeline implication. The 28-day obligation must be built into the transaction timetable from the outset. Where exchange and completion are simultaneous — which is common in franchise territory sales to avoid a period of uncertainty for clients — the seller must have the employee data pack ready to provide no later than the date contracts are exchanged. Sellers who have not audited their HR records before the transaction starts will find themselves scrambling to compile accurate section 1 statements, and gaps in disciplinary or grievance records can require careful legal review before disclosure.
Information and Consultation Obligations
Separately from the employee liability information obligation, TUPE requires both parties to inform and, where appropriate, consult with affected employees about the transfer.
What the seller must do. The seller (as outgoing employer) must inform employees of:
- The fact that the transfer is taking place, and the proposed date
- The reasons for the transfer
- The legal, economic, and social implications of the transfer for affected employees
- The measures, if any, the seller envisages taking in connection with the transfer (for most territory sales, the seller’s answer will be none)
- The measures, if any, the buyer envisages taking in connection with the transfer after completion
The buyer’s role in consultation. The buyer must notify the seller of any post-completion measures they intend to take in relation to the transferring employees. The seller then consults with employees about those measures. If the buyer envisages no changes, the consultation obligation is limited to notification. If the buyer plans to restructure, relocate, or change terms following the transfer, there will be a genuine consultation requirement.
Elected representatives. Where there is no recognised trade union, the consultation must be conducted with employee representatives who are elected for the purpose. In small franchise territories with two or three employees, the practical approach is usually to consult directly with each individual. However, sellers should not assume this approach is automatically compliant — the statutory position requires elected representatives, and a failure to follow the correct process is a separate breach from a failure to consult.
Timing. Consultation should take place before the transfer, typically during the period between exchange of contracts and completion. Where exchange and completion are simultaneous, the consultation must be planned and if possible initiated before the transaction is signed. A seller who discloses the sale to employees only on completion day, having given no prior notice, will have a very difficult argument that adequate information and consultation took place.
Collective consultation. Where the transfer affects 20 or more employees, additional collective consultation requirements apply under the Trade Union and Labour Relations (Consolidation) Act 1992. Most franchise territory sales will not reach this threshold, but sellers in larger territories should take specific advice.
Employee Rights: Objection and Constructive Dismissal
The right to object. An employee has the right to refuse to transfer. If an employee objects to the transfer, their employment terminates on the transfer date. Crucially, this is not a dismissal — it is a termination by the employee. The employee has no right to statutory redundancy pay arising from a straightforward objection, and they cannot bring an unfair dismissal claim simply on the basis of their objection.
Material detriment. The position changes if the transfer involves a substantial change to the employee’s working conditions to their material detriment. Where an employee can demonstrate that the transfer — or the buyer’s proposed post-transfer measures — will materially worsen their working conditions, they may treat themselves as dismissed and claim unfair dismissal and potentially redundancy pay. The seller’s liability for a pre-completion triggered material detriment claim, and the buyer’s liability for post-completion measures, should each be clearly addressed in the SPA indemnities.
Post-transfer terms changes. Any change to an employee’s terms that is connected to the transfer is void under TUPE. A buyer who provides transferring employees with new contracts reducing their holiday entitlement, and who cannot demonstrate that the change is driven by an economic, technical, or organisational reason entailing changes in the workforce, will find those contract changes unenforceable. Buyers who try to harmonise terms post-completion by reference to their existing workforce’s contracts need specific legal advice — the mere existence of a commercial rationale is not enough.
SPA Indemnity Provisions
The sale agreement should contain mutual TUPE indemnities that clearly allocate liability.
Seller’s indemnity to buyer covers all claims, losses, and costs arising from the seller’s acts or omissions in respect of the transferring employees before the transfer date, including claims arising from any failure to comply with the employee liability information obligation and any failure to properly conduct information and consultation.
Buyer’s indemnity to seller covers all claims arising from the buyer’s acts or omissions after the transfer date, including any dismissal or variation of terms the buyer implements after completion.
Shared compliance obligations. Where a TUPE compliance failure is attributable to both parties — for example, the seller failed to conduct consultation because the buyer was late in notifying them of post-completion measures — the indemnities need to address this allocation explicitly. A well-drafted TUPE indemnity does not simply assign pre/post liability; it addresses the shared obligation scenario.
Practical Steps for Sellers with Employees
If your territory has employees, take these steps before going to market:
1. Audit your employment records. Compile section 1 statements for every employee. Check that they are current — contractual terms change over time, and an outdated section 1 statement is a compliance failure.
2. Document disciplinary and grievance history. Pull together the last two years of formal disciplinary and grievance records. If records are incomplete, take legal advice before disclosure.
3. Review contractor arrangements. If you use self-employed associates or subcontractors, assess their employment status honestly. If there is any realistic prospect that a tribunal would find employed status, disclose this risk in the sale agreement.
4. Build the 28-day deadline into your timetable. Agree with your broker and solicitor that the target completion date is set at least 28 days after the employee data pack is ready to provide.
5. Plan the consultation process early. Decide who will consult with employees, when, and what they will be told. For territories with a small number of employees, direct consultation is manageable — but it must be documented.
For a broader overview of the sale process, read our guide on how to sell a franchise business in the UK. If you are approaching the transaction from the buyer’s side, our guide on franchise buyer due diligence: what to expect covers the employment diligence process in detail.
Acquisitions Group acts as business transfer agent for estate agencies, letting agencies, and dental practices across the UK. We do not provide legal advice. All sellers and buyers should instruct a qualified solicitor and, where appropriate, an employment law specialist before completing a business transfer.