Employees entitled to TUPE protection

WHEN a business is sold, one key issue often considered is the likely impact on employees. In some circumstances, Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will apply, meaning that the employees will transfer across to a new employer with some legal protections.

Effectively, if TUPE applies, then the new employer steps into the shoes of the old employer. From the employees’ perspective, this means that they keep their length of service, receive the same pay, and will continue to be employed on the same terms and conditions. Before a TUPE transfer takes place, employers must also inform and consult with representatives of the affected employees about the transfer.

Of course TUPE protection does not apply in every case. A simple rule of thumb is to ask the question: “Is it a share sale or an asset sale?” If it is a share sale, the presumption is that TUPE will not apply. This is because the employer remains the same and it is just the ownership of the company that has changed. Only in cases when the sale is an asset sale do people normally start thinking about whether TUPE will apply.

However, a recent Employment Appeal Tribunal (EAT) decision (Jackson Lloyd Ltd and Mears Group Plc v Smith and others), reminds us that the situation is not always that clear cut. Other factors can and often do come into play to trigger a TUPE transfer. The background to this case is as follows: In September 2010 Mears Ltd (a subsidiary of Mears Group Plc) purchased the entire share capital of a struggling building maintenance company with around 450 employees, Jackson Lloyd. The following month Mears Group Plc began running the Jackson Lloyd business. It did so by first replacing the Jackson Lloyd board with Mears Group nominees, and then by embarking on an integration programme which involved changing policies and practices and telling Jackson Lloyd’s employees that they would be moved over to the Mears Group. The EAT found that there was a business transfer under TUPE of all of the Jackson Lloyd employees to the ultimate parent company, Mears Group Plc. Although the share sale alone did not directly result in the TUPE transfer, the EAT concluded that it did trigger a “co-extensive” TUPE transfer when all of the relevant factors were taken into account. Those factors were:

• The existing Jackson Lloyd board members resigned and were replaced by Mears Group nominees.

• Employees were told that as Mears Group had purchased Jackson Lloyd there would be an integration programme which would result in them moving over to Mears Group.

• The integration exercise went ahead and was overseen by Mears Group employees and an integration consultant. The integration included changing policies, procedures, work methods and control to Mears Group, while retaining the Jackson Lloyd branding and uniform for staff.

• Changes were enforced by Mears Group employees rather than, for example, the Jackson Lloyd HR team, and they were not made in accordance with the existing Jackson Lloyd mechanisms for making such changes.

The actions of the Mears Group following the share sale were sufficient to trigger a business transfer under TUPE. Importantly, the employees did not transfer to Mears Limited, the company that bought the shares in their employer: they transferred to the ultimate parent company Mears Group because it took over control of Jackson Lloyd. In fact, the Jackson Lloyd employees seemed to be entirely unaware that the subsidiary, Mears Limited, even existed until the tribunal hearing started.

The case also serves as a reminder that if there is no TUPE consultation (which will undoubtedly be the case if it is not recognised that TUPE applies) then individual employees may be able to bring claims directly for failure to inform and consult with them about the TUPE transfer which can result in an award of 13 weeks’ pay per employee. For 450 employees this compensation alone could mount up to close to £3 million.

• Neil Maclean is partner and head of employment law at Shepherd and Wedderburn www.shepwedd.co.uk