The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) does not generally apply to share acquisitions, since there is no change in the identity of the employer. However, the Court of Appeal has previously held that there may be a transfer of an undertaking (or part of the undertaking) to a holding company following a share sale in certain circumstances (Millam v The Print Factory).
In this case, the company in question (JL) was in financial difficulty. Shares in the company were purchased by another company, M Ltd, which was a subsidiary of M Group. The board of directors was replaced by nominees of M Group. The employees were told that M Group had acquired the company and would be embarking on a programme of integration, as a result of which they would move over to M Group.
No consultation took place, neither with the JL employee representative committee (ERC) nor with any other elected representatives. A number of employees brought claims against both JL and M Group for failure to consult as required by TUPE.
The employment tribunal held that whilst the share acquisition itself was not a TUPE transfer, it resulted in a business transfer to M Group. The process of integration was imposed and overseen by M Group, without reference to JL’s internal mechanisms for effecting change or to JL personnel responsible for such processes.
The tribunal further held that individual employees were entitled to pursue claims for a failure to consult under TUPE, since the ERC members’ term of office had expired and they no longer had any mandate to represent individual employees.
The EAT has recently dismissed the appeal by JL and M Group. It was satisfied, taking all the factors into account, that a TUPE transfer had occurred and that the employees of JL had transferred to M Group. The share sale had triggered a co-extensive but separate TUPE transfer to M Group, which had taken over day-to-day control of JL’s business activities. There had been no TUPE consultation.
Whilst TUPE will not apply to the majority of share acquisitions, this case is a useful reminder that in circumstances such as this, where a parent company assumes control over the day-to-day activities of a subsidiary, a TUPE transfer may occur. If the requirement to consult affected employees on the transfer is overlooked, it could result in a costly award of compensation against the transferor and/or transferee company.
A copy of the EAT decision is available here.
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*The information provided in this article is designed to provide useful information on the subject, not to provide specific legal advice.