TUPE or not TUPE?
TUPE OR NOT TUPE?
The potentially very expensive question
In A Nutshell
TUPE, The Transfer of Undertakings, Protection of Employment Regulations 2006 are in place to protect the employees when a business is transferred under a relevant transfer.
Most transfers are protected but there are some exceptions and it is very important to get it right.
A simple sale of shares is unlikely to trigger a TUPE transfer, so lets make up a situation to use as an example.*
Roger owns Sunshine Cleaning Co, he is the sole owner and director, if he sells all his shares to Sheila and Sheila continues to run Sunshine Cleaning Co in exactly the same way, there has been no TUPE transfer.
HOWEVER….. (Dun Dun Duuuuuunnnnnn)
If Roger sells his shares to Sheila, (inadvertent tongue twister) but Sheila already runs Midnight Domestics Co, which has a large infrastructure and Sheila decides it will be easier to run Sunshine Cleaning Co using the staff and resources already available to her at Midnight Domestics Co then this probably should have been dealt with as a TUPE transfer.
The Details
So what are the pros and cons to a TUPE transfer?
For the Employees
| Pros | Cons |
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For the Employers
| Pros | Cons |
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Case Study
In our hypothetical case study, Roger has sold all his shares in Sunshine Cleaning Co to Sheila and he has gone off to the Bahamas (well why not, he probably got a fair bit of money for Sunshine Cleaning Co!)
Sheila already has Midnight Domestics Co, she has bought other small cleaning companies in the past and this is not her first rodeo. In addition Sheila has got some investors on board and they are very keen to expand.
Sheila feels that Midnight Domestics Co has a brilliant business model and she's not really keen on the way Sunshine Cleaning Co work, she is sure she can do better.
Now Sheila’s problem is that if she takes on Sunshine Cleaning Co as a TUPE transfer she will be limited in the changes she can make, the staff from Sunshine have rights to the same terms and conditions unless she can show that there is a genuine Economic, Technical or Organisational (ETO) reason and that could be difficult to prove.
Sheila and Roger discuss this and agree between themselves that as Roger is “simply selling 100% of his shares to Sheila” that TUPE need not apply and so neither Roger as the transferor or Sheila as the transferee inform any of the staff about this as they believe they do not have an obligation to inform and consult the staff.
So far so good, this IS a 100% share sale and Brookes v Borough Care Services 1998 IRLR 636 made it quite clear that 100% share sales were not affected by the TUPE regs.
However, in our hypothetical scenario, Roger is busy rubbing after sun onto his sore bits and Sheila is busy changing the way Sunshine Cleaning Co is run, making it as much like Midnight Domestics as possible.
Sheila starts with the finances, she doesn’t really need a finance department at Sunshine Cleaning Co because all she has to do is add the Sunshine staff to the Midnight payroll and Sharon at Midnight Domestics can manage that perfectly well. Sharon can also send out all the invoices for Sunshine just as easily as she does for Midnight.
Sheila decides to change the telephone system so all inbound calls that are not answered by Sunshine will ring through to Midnight so no calls are missed. In fact Sheila realises that there is probably no need for a receptionist at Sunshine anymore.
Sunshine has an HR and recruitment manager but Midnight has Derek who does theirs and it is just as easy for Derek to manage any HR issues, he is used to providing remote HR guidance to the managers of the branches of Midnight and he can advertise job vacancies for Sunshine.
Sheila thinks that Sunshine is not as profitable as Roger claimed and her investors will not be happy so she looks at other ways to cut costs, for example she could sell assets and reduce the workforce, if she changes staff job descriptions and adds tasks to some staff, she won’t need to employ everyone and there could be some redundancies.
Sheila is very pleased with herself that this is simply a 100% share sale and not a TUPE transfer.
Unfortunately for Sheila, there was an employment tribunal claim that ended up in the Court of Appeal on this very subject.
In Millam v The Print Factory (London) 1991 LTD [2007] EWCA Civ 322 the Court of Appeal held that because of the amount of control and integration the incoming company had with the company being taken over it had in fact been a TUPE transfer after all.
This is interesting because the court looked at what actually happened rather than what the paperwork (share sale agreement) said on the face of it.
In the Millam case, Mr Millam was employed by Fencourt Printers Ltd (FP), FP was bought by McCorquodale (McC) as a share sale agreement and Mr Millam was told there had been no TUPE transfer.
Sadly both FP and McC went into administration and Mr Millam claimed that there had been a TUPE transfer. The original Employment Tribunal agreed with Mr Millam and held that there had in fact been a TUPE transfer despite what FP and McC said at the time.
The Employment Appeal Tribunal overruled this decision and said it was not a TUPE transfer.
The case then went to the Court of Appeal, and the decision was made that it WAS a TUPE transfer.
The Court of Appeal acknowledged that both FP and McC were on a documentary level two separate businesses run by two separate companies, both were registered separately for VAT etc BUT they noted that there was a good deal of control being exercised by McC over FP.
McC had taken over the payroll and made key decisions in relation to the workload.
Although the share sale agreement gave the superficial impression that no TUPE transfer had occurred, in actual fact a transfer of business had occurred and therefore TUPE did apply. FP’s activities were clearly controlled by McC. McC’s management of FP were well in excess of the actions of a normal shareholder.
So what does this mean for Roger, Sheila and the staff at Sunshine? Well firstly assuming that the level of control Midnight Domestics now has over Sunshine Cleaning demonstrates a TUPE transfer occurred, both Roger and Sheila should have consulted with the staff before the transfer happened and the consultation should have been MEANINGFUL.
All affected staff from Sunshine could make an Employment Tribunal claim that both Roger and Sheila failed to notify and consult about the transfer and if successful they could be entitled to an award of up to thirteen weeks gross salary each.
Sheila could also find herself in hot water because some of the changes she has made may be deemed unfair and unlawful, any members of staff that have been dismissed as a result of these changes may have been automatically unfairly dismissed.
Affected staff have three months less one day to make an application to the Employment Tribunal, so for example if the “Relevant Transfer” occurred on 17th May, the claim must be lodged by 16th August.
Staff wishing to go to an Employment Tribunal need to have an Early Conciliation Certificate from ACAS first but if a number of staff are involved in the same case, there need only be one ACAS EC Certificate. (See link below)
https://www.acas.org.uk/notify/start
So how expensive could this be for Roger and Sheila?
Well that will depend on how many staff decide to make a complaint about the failure to consult, in our example, Sunshine has an (imaginary) work force of 100 people working full time on National Minimum Wage.
£11.44 (NMW) X 40 (hours) = £457.60 per week
If one person makes a complaint to the Employment Tribunal they could be awarded up to £5,948.80
but if one hundred people do it they could be awarded up to £594,880.00.
| EMPLOYERS
If you are an employer thinking about buying or selling a business,
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EMPLOYEES
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*Apologies if there is a real Roger at Sunshine Cleaning Co and a real Sheila at Midnight Domestics. I am happy to confirm that my example is a work of fiction. Unless otherwise indicated, all the names, characters, businesses, places, events and incidents in this article are either the product of the author's imagination or used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.
As always, for GOOD advice contact me alison@alisonsweeney.co.uk
©Alison Sweeney Consultancy Services Ltd 2024