One particular decision-making inconsistency has recently been resolved by an employment appeal tribunal, although the result was a particularly harsh one for the company acquiring a business. The decision concerned a business transfer and the moving of rights, powers, duties and liabilities linked with workers employment contracts. The position of employees in such circumstances is protected by the Transfer of Undertaking (Protection of Employment) Regulations, better known as TUPE. In addition to honouring contractual rights, employers should also inform and consult employees through a representative a process to be carried out by the original owner, or transferor. Failing to do this may result in compensation for the employees, assessed by the employment tribunal at up to a maximum of 13 weeks pay depending on how serious that failure is.
The issue on which the tribunals differed was whether liability arising from a failure to inform and consult moves from the transferor to the company taking on the new business, that is, the transferee. If it does, the transferee becomes responsible for any compensation awarded, even if it wasnt responsible for the original failure.
In an initial case, in 2000 which involved a company that had bought a family-owned sausage company from receivers, and which itself had subsequently got into financial difficulties the employment appeal tribunal decided that this type of liability did transfer to the transferee. A year on, a Scottish employment appeal tribunal, dealing with a different case, decided it did not. The latter case had been brought by a trade union representing workers of a company whose contract for milk delivery had been moved to two other organisations. The trade union claimed that the
transferor had failed to comply with the obligation to inform and consult and sought compensation for those affected. Who was therefore liable to pay any resulting compensation? The appeal tribunal decided that it was the responsibility of the transferor.
A third tribunal decision tipped the balance against transferees. Farm machinery repairer Twose of Tiverton went into administration in June 2000, and during works council meetings during July, management passed on information about the general situation. They consulted over a proposed management buy-out that later did not materialise. But when in September 2000, the European arm of Alamo Group agreed to buy the company, during a two-week period during that month, Twose failed to inform and consult. The new owners did all they should for their new employees in relation to consultation, and once more the question was whether this liability should be the responsibility of the transferee in this case Alamo.
The tribunal decided that Alamo should be responsible. The reason lay in the wording of the regulations themselves, which referred to the transfer of rights, powers, duties and liabilities under or in connection with any relevant employment contract. The appeal tribunal looked at other cases that had considered what this wording might cover. It did not cover, for example, entitlements under a share-option scheme contained in a contract separate from one
of employment. But it did transfer liability for compensation where there had been a failure to inform and consult.
The primary purpose of the regulations is to protect staff. The transferee can protect itself and provide an incentive for the transferor to comply with TUPE by agreeing warranties and indemnities in the transfer contract. Unfortunately for Alamo, there were no such
warranties and it found itself liable to pay compensation. The fact that the compensation was low one weeks gross wage was little consolation.
The moral here is that anyone buying a business should pay close attention to the extent employees affected by the transfer have been informed and consulted about it. As Alamo found, this is one situation where virtue is not always rewarded.
janet.gaymer@haynet.com
Janet Gaymer is head of employment law at Simmons & Simmons
