This is the second issue of an occasional e-newsletter, under the Fox Williams hrlaw banner, highlighting developments in TUPE for senior executives, HR professionals and others who have to deal with TUPE in practice, whether that be on outsourcing, service provision changes or acquisitions.
The perils of dismissing employees pre-transfer are highlighted by the Spaceright v Baillavoine EAT decision.
Ultralon was put into administration on 23 May 2008. On the same day, the Chief Executive was dismissed by reason of redundancy. On 25 June 2008, the assets and business of Ultralon were sold to Spaceright. The sale amounted to a “relevant transfer” under TUPE. The Chief Executive claimed unfair dismissal.
The tribunal found that the dismissal was automatically unfair as it was connected with the transfer. The claimant had been dismissed to enable a purchaser to acquire the business and assets of Ultralon without the continued employment of the Chief Executive, although no purchaser had been identified at that stage. This was not an economic, technical or organisational (ETO) reason. Liability for the dismissal transferred to Spaceright.
On appeal, the EAT agreed that it was of no importance that the purchaser had not been identified at or before the moment of dismissal, and that the dismissal was not for an ETO reason - the dismissal did not relate to the conduct of the business as a going concern, as it was always going to need a Chief Executive, and it was contemplated that the claimant would be replaced.
The case removes any doubt over whether or not a purchaser must have been identified at the time of a dismissal for that dismissal to be connected to a subsequent TUPE transfer. An ETO reason is unlikely to be established where the role of the dismissed employee will be required following a TUPE transfer.
Sellers should tread very carefully indeed when effecting dismissals ahead of a TUPE transfer. Buyers need good indemnity protection against dismissal liabilities transferring across (although administrators are very unlikely to provide this, putting an even greater onus on thorough due diligence and price adjustment mechanisms).
Pre-packs and TUPE
Continuing the insolvency theme is the important EAT decision in OTG v Barke.
The question of whether the TUPE regulations apply to so-called pre-pack administrations has remained unanswered for a number of years. A pre-pack is where a buyer for a business has been identified before the business is put into administration. The business has until now been transferred free from obligations and liabilities under TUPE. This relies on an interpretation of regulation 8(7) that such administrations are “with a view to the liquidation of the assets of the transferor”.
The EAT has now laid this point to rest. A pre-pack administration does not fall within regulation 8(7) and buyers cannot escape the normal application of TUPE in such circumstances.
Affected employees - a timely reminder
The TUPE information and consultation regime requires a seller to inform and sometimes consult with elected employee representatives about a proposed transfer. The focus when considering this obligation is almost always on the seller’s employees who will transfer across to the buyer. What is often overlooked is that the regulations are much wider than that.
Regulation 13 defines affected employees as “employees of the transferor or the transferee (whether or not assigned to the organised grouping of resources or employees that is the subject of the relevant transfer) who may be affected by the transfer or… by measures taken in connection with it”. Plainly employees who remain with a seller and existing employees of a buyer could be affected by a transfer. But does that mean that on any TUPE transfer both seller and buyer must include all their employees in the information and consultation process?
Thankfully, according to the EAT in Unison v Somerset CC, the answer is no. The details of this long-winded (the consultation period lasted an amazing two years!) public sector outsourcing are complex. However, the EAT’s decision is clear – affected employees are those:
- who will or may be transferred;
- whose jobs are in jeopardy by reason of the transfer; or
- who have internal job applications into the relevant business area pending at the time of the transfer.
Specifically, employees whose future career opportunities might be diminished by the transfer are not affected employees.
Group employment structures caught by TUPE
A person “employed by the seller and assigned to the organised grouping of resources or employees that is subject to the relevant transfer” will transfer to a buyer by virtue of TUPE. Anyone who is employed by a group service or employment company and who works in a transferring business which is owned by another group company is plainly not “employed by the seller” of that business. Do such individuals transfer with the business in which they work? Yes, according to the ECJ in the Albron Catering case.
Heineken employs all its employees in a group employment company. A number worked in the catering section of another group company. The catering operation was outsourced to Albron. Dutch law contains similar provision in this respect to the TUPE regulations.
The ECJ decided that, notwithstanding the Heineken group structure, the catering section employees were protected by the Acquired Rights Directive (from which TUPE originates) as it was possible, adopting a purposive approach to the ARD, to interpret it in that way.
Quite where this leaves the TUPE regulations is another question entirely. They specifically state that employment by the seller is the trigger for TUPE to apply.
Buyers of businesses from group companies where the employment structure is similar to that in Albron should probably work on the assumption that all group employees working in the business will transfer under TUPE, whether or not technically they are employed by the seller.
Will the TUPE regulations have to be amended? Or will we see UK tribunals interpreting them purposively?
We suspect the latter, but watch this space!