8 November 2023

Acqui-hiring, as the term suggests, denotes the process of acquiring a company not for its products and assets, as is usually the case, but rather for its employees. Hiring by directly acquiring a business is a powerful recruitment strategy with advantages over more traditional models and has become increasingly popular in recent years, particularly in the UK tech sector.

Bypassing limitations of traditional recruitment models

Traditional talent acquisition is often a slow and costly process. The difficulties of retaining staff since the Covid-19 pandemic and the perceived diminution in the attractiveness of traditional corporate roles mean that recruitment is likely to be costlier than ever, and it may be especially difficult to attract and retain candidates with entrepreneurial flair. In the UK, restrictive covenants can also make it difficult to hire individuals or teams from competitor businesses without incurring considerable legal jeopardy and costs.

Acqui-hiring avoids these issues, allowing the talent residing in a start-up, for example, to be acquired in one transaction. It can therefore be an effective way of preserving the integrity and value of a team. Targeting a whole team is subject to much more uncertainty in traditional recruitment and is generally fraught with legal and reputational risk, the stress and complexity of which may, ironically, seriously affect the target personnel. Acqui-hiring is sometimes a very elegant solution to these problems.

Legal considerations when acqui-hiring: TUPE Regulations 2006

The main legal issues to consider when contemplating acqui-hiring are those arising from the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), which govern the employment issues arising from business acquisitions, including obligations to inform and consult with employee representatives and, generally, to allow employees to transfer to the acquiring business on their existing terms.

If you are acquiring the shares of a target business, TUPE is unlikely to apply on completion, meaning there will not be any obligation to inform and consult staff about the acquisition in advance. However, it will still be crucial to have a well-defined communication plan and retention strategy so that the point of the acquisition is not vitiated by resignations.

On completion, it is not uncommon for the acquiring business to dissolve the target company and absorb its employees, products and services. In these instances, careful consideration needs to be given to whether and when staff will transfer under TUPE. A point of particular importance is that TUPE gives employees the right to opt out of the transfer, which, if exercised, has the effect of bringing their employment to an end on the date of transfer. If a transaction is governed by TUPE, therefore, it will be important to ensure the duty to inform and consult is carried out cogently with the overall goal of retaining a team. Any post-completion TUPE transfer needs careful planning and communication work to ensure that the acqui-hired team doesn’t opt out, negating the benefit of the acqui-hire.

For more information about any aspect of acqui-hiring, please contact the team at Synchrony Law.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.