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Rescue of distressed retail business in the new environment: employment issues

In many recent rescues of retail businesses the buyer has acquired from administrators the brand and website but excluded from the sale some or all of the physical shops- see for instance Debenhams, the various Arcadia business sales, Oasis, Warehouse, and TM Lewin.

Clearly, at least part of the rationale for this deal structure is for the buyer to avoid taking over the cost of employing shop staff.

However, the legal position is not as straightforward as the deal press announcements may suggest.

  • The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) means that where a business or part of a business is transferred, and what transfers amounts to an economic entity which retains its identity post transfer, the acquirer will automatically take over contracts of employment of staff employed in the undertaking being transferred.
  • What if the buyer wants to acquire part but not all of a business in administration? The question then is whether what they are buying is an independent and severable “economic entity” of which the excluded assets do not form part. While the analysis is difficult that may be justified if all physical shops are excluded or even if some but not all physical shop locations are excluded. However, this may not be free from challenge- particularly in a large employer with recognised unions to sponsor challenges.
  • What if the buyer wants to reduce staff in a part of the business being acquired? Any dismissal will be deemed automatically unfair if the sole or principal reason for the dismissal is the transfer, unless certain exceptions apply. However, if redundancies are genuinely required then it may be possible to fairly dismiss employees by reason of redundancy, provided that a legally recognised fair process is carried out in the normal way. Thought should be given to structuring the deal to optimise the chances of any dismissals being by way of a genuine need to make redundancies and this always needs careful planning and may run against the buyer’s commercial plans.
  • A deficit in an occupational pension scheme may raise further concerns. While there are specific exceptions from TUPE relating to occupational pension schemes there can be legal or commercial issues raised which need careful thought.
  • Since the beginning of the coronavirus pandemic additional issues have arisen. The interaction of TUPE with the government’s furlough scheme and the reluctance of employees to promptly use their full allowance of holiday absence over a year when they could not travel will require further careful analysis.

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