Continuous employment: transfer of business
If an employer takes over a business and Regulation 14(a) of the SMP (General) Regulations 1986 applies, the employees’ contracts of service will not be broken.
The regulations apply when an undertaking is transferred from one person to another as a going concern.
Definition of terms
An undertaking is a trade or business. It can also be a part of a trade or business, which need not be self-contained.
The transferor is the legal entity, for example the person, partnership or company that currently owns the trade or business and is transferring it to the transferee.
The transferee is the legal entity, for example the person, partnership or company that wants the trade or business.
What constitutes a going concern
If there is a dispute about continuous employment and a Transfer of Undertaking is involved, it is vital that a copy of the Deed of Transfer is obtained, if one exists. This should clearly define exactly what is being transferred and the intentions of the two parties.
Factors that indicate a transfer of undertaking as a going concern has taken place include:
the transferee has taken over
- the contract(s) of employment of some or all of those employed in the undertaking immediately before the transfer
- all rights and obligations arising from those contracts such as annual leave entitlement or salary based on length of service - but not occupational pension rights
- the transferee carries on the business in the same manner as before:
there is an express assignment of:
- stock-in-trade, and/or
- outstanding contracts
- the undertaking is protected from future competition by the transferor.