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ACCA · Question 49 · Corporate and Business Law

SCENARIO 2: CodeStream Innovations, a tech startup, is acquired by a larger competitor, MegaTech PLC. The business is transferred as a going concern. MegaTech immediately tells CodeStream's developers that their salaries will be cut by 15% to match MegaTech's pay scales.

Under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), what is the legal effect of MegaTech's action?

Answer options:

A.

The salary cut is valid because MegaTech is the new legal employer.

B.

The salary cut is valid if MegaTech gives 30 days' notice.

C.

The salary cut is void; TUPE protects the employees' existing contractual terms upon transfer.

D.

The employees must resign and reapply for their jobs at the new salary.

How to approach this question

Apply TUPE regulations regarding the variation of employment contracts following a business transfer.

Full Answer

C.The salary cut is void; TUPE protects the employees' existing contractual terms upon transfer.✓ Correct
Under TUPE regulations, when a business is transferred as a going concern, the employees' contracts automatically transfer to the new employer (MegaTech) on their existing terms and conditions. Any variation to the contract is void if the sole or principal reason for the change is the transfer itself. 'Harmonizing' terms to match the new employer's existing staff is explicitly not a valid economic, technical, or organizational (ETO) reason.

Common mistakes

Believing that a new owner can automatically impose their own standard contracts on acquired staff.
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