Acquiring a care business: the importance of workforce due diligence
When acquiring a business in the health and social care sector, there are some key issues which can hold up exchange and completion if not dealt with proactively from the outset. Effective due diligence on workforce matters is vital in identifying potential risk areas early on to mitigate the risk of delays and to avoid inheriting costly liabilities.
The increased use of overseas staff in the sector has intensified the focus on sponsorship of overseas workers and immigration compliance. Operators should be aware that sponsor licences do not transfer on completion. If you do not have a sponsor licence already then you will need to apply for one within 20 working days. If you already have a sponsor licence, then depending on the circumstances you may be able to use your existing licence. You will need to report the purchase on your SMS and you may need to transfer the sponsored employees to your licence.
Carrying out a proper right to work check gives the employer a “statutory excuse” (i.e. a defence) against a civil penalty for unknowingly employing someone who doesn’t have the right to work in the UK. It is important to obtain evidence of satisfactory right to work checks for all workers prior to completion. If the seller carried out the check properly then you will benefit from their statutory excuse. If the seller didn’t carry out a proper right to work check and staff are transferring to you under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) you have a 60-day grace period after completion. This allows you to re-do all right to work checks and obtain a fresh statutory excuse.
It is common to find that care providers are not calculating holiday pay correctly, in particular for staff who have variable hours or pay. Holiday pay for those staff should be based on average pay over a 52-week period (including overtime and other payments or allowances), not on contractual hours. Non-compliance can give rise to claims for unlawful deductions of wages stretching back for the last 2 years for each worker. It is worth asking the seller to calculate the liability early on so that you can make an informed decision about how to deal with it. Depending on the circumstances, your options include indemnity cover in the purchase agreement and/or asking the seller to repay what is owed pre-completion.
Recent changes to the law on holiday pay and entitlement for casual and zero hours workers, following the Supreme Court decision in the case of Harpur Trust v Brazel, mean that these areas also need to be investigated during the due diligence process.
During the pandemic many care providers used the Infection Control Fund grant payments to offer full-pay during self-isolation and COVID-19 related sickness absence. It is important to check how this was communicated to workers and whether the seller has inadvertently created a contractual right to enhanced sick pay going forwards. If it has, you will need to consider how to manage this post-completion, given that there is no longer funding to cover the cost.
National Minimum Wage compliance
There are several practices that are common in the sector which run the risk of breaching National Minimum Wage laws if they have not been managed correctly by the seller. These include deductions from wages (e.g. for uniform or mandatory training) and the provision of staff accommodation at a rate above the Accommodation Offset Allowance. In the homecare sector, other risk areas include payments for travel time and any time spent waiting between service user appointments.
It is prudent to check compliance with the Coronavirus Job Retention Scheme rules as HMRC can investigate and take enforcement action for 7 years after claims have been made by the seller for furlough payments.
Where non-compliance has been identified during due diligence, careful consideration should be given to how best to deal with it. If the issue can be resolved prior to completion, that’s worth doing. Alternatively, indemnity cover may be required.
To avoid protracted negotiations over warranty and indemnity cover, which can cause delays and increase costs, it’s important to take expert and practical advice on which points are worth fighting for and which can be dealt with in a different way whilst ensuring you are protected.
We can help
If you need legal support buying or selling a care business our specialist Health and Social Care Team would be happy to help. Please contact Hazel Phillips at email@example.com.
For any employment and HR support, please do not hesitate to contact our employment specialists in the Health and Social Team. Please contact James Sage at firstname.lastname@example.org.