Insolvency specialists criticise jobs legislation

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Hundreds of struggling UK businesses are forced to wind down instead of being sold because potential buyers are put off by onerous employment laws which forces new owners to take on liabilities such as paying compensation for redundancies enforced by the previous management.

That was the warning of one of the UK's largest insolvency specialists, Begbies Traynor, which yesterday called on the Government to reduce the financial burden of the buyers of businesses in distress. Nick Hood, a partner at Begbies Traynor, said: "I was trying to rescue a business in the East End of London which had been around since 1929. It was a perfectly good business but I was completely unable to sell it because of the rights which had accrued to its staff over the years. This is happening month in and month out to me and my colleagues."

The source of the problem, according to the firm, is the Transfer of Undertakings Protection of Employment (TUPE). The regulation, which was brought into force in 1981, has been widened by cases upheld in Europe.

TUPE makes the new owner of a business potentially liable for redundancy costs for staff laid off before they have taken over. The new owner could also be liable for unfair dismissal claims if staff levels need to be cut in order to contain losses.

"The risk to the buyer under these circumstances is too great. What is the purpose of a piece of legislation which is meant to protect the workforce when in fact it does exactly the opposite?" Mr Hood said.

The Government has already said it would review TUPE to make it more flexible but the TUC stressed there was no need to water down TUPE's stipulations significantly.

A TUC spokesman said: "There is a revised EU directive in the pipeline which would allow certain changes to be made to terms and conditions meaning both the workers' jobs and the business could be saved."