Ashfords Solicitors - Sale of Companies: When TUPE applies

In the case of Millam v The Print Factory (London) 1991 Ltd Mr Millam was employed by Fencourt Printers Limited as a printer. In 1999, McCorquodale Confidential Print Ltd bought Fencourt by way of a share sale, so that Fencourt became part of the McCorquodale group.

At the time of the sale, the Fencourt employees were told that the identity of their employer was not changing, but that it was McCorquodale's intention to incorporate Fencourt's business into McCorquodale.

In August 2000, however, Mr Millam was told that that his employment had been continued "under the TUPE regulations".

Whilst McCorquodale did begin to integrate the Fencourt business, the process was not ever completed; for example, the two companies maintained their separate identities and VAT registrations, and prepared separate accounts.

But McCorquodale did take the following steps:

McCorquodale paid the Fencourt employees' wages, and administered the Fencourt pension scheme (as Fencourt did not have its own payroll department). There was no evidence as to whether any payment was made by Fencourt for those services;

Whilst the Fencourt Board continued to meet quarterly, there were various combined board meetings of the two companies as well; and

McCorquodale took over Fencourt's sales function, and Fencourt's salesperson was moved to McCorquodale, although all the rest of the Fencourt workforce continued to work at Fencourt's premises.

In addition, when Fencourt went into administration, half of its work was being carried on for McCorquodale, and there was evidence that McCorquodale had transferred work to Fencourt, apparently to make Fencourt a more attractive prospect for potential purchasers.

Fencourt and McCorquodale then went into administration at different time in 2005. The Print Factory (London) 1991 Limited bought McCorquodale's business; Mr Miller had been dismissed the day before that transfer took place.

Mr Miller issued claims against The Print Factory on the basis that he had really been employed by McCorquodale rather than Fencourt immediately before the transfer of McCorquodale's undertaking to The Print Factory, and that accordingly rights and obligations relating to his employment had transferred to The Print Factory under TUPE.

At a Pre-Hearing Review, the Employment Tribunal decided that Mr Miller had been employed by McCorquodale, because the business in which he worked was run by McCorquodale, not Fencourt.

The Print Factory appealed against that decision to the Employment Appeal Tribunal.

The EAT's view was that the Employment Tribunal had incorrectly lifted the corporate veil in reaching its decision. The EAT found that Fencourt and McCorquodale were separate legal entities, and the relationship of holding and subsidiary company was genuine.

The EAT also decided that Fencourt's lack of independence was typical of a subsidiary relationship, and that this alone did not mean that its business had transferred to McCorquodale.

The EAT then said that, whilst there could in principle be a TUPE transfer after the purchase of a company if the buyer transferred the business of that company to another group company, that had not (as a matter of fact) happened here.

For the EAT, in terms of the issue of whether or not there was a TUPE transfer, it was significant that no assets or employees had been transferred to McCorquodale. The EAT also said that the transfer of one sales employee was not enough to transfer the whole of Fencourt's business to McCorquodale, and the fact that McCorquodale was responsible for pay and pension matters for the Fencourt employees was not significant, as that often happened in group companies.

Mr Miller appealed that decision to the Court of Appeal.

The Court of Appeal allowed the appeal, and found that Mr Miller had been employed by McCorquodale immediately before the sale of McCorquodale's business to The Print Factory, for the following reasons:

The Employment Tribunal had not "pierced the corporate veil", as it had found that Fencourt's business was (as a matter of fact) being run by McCorquodale;

Whilst some of the factors that you would expect to see on a TUPE transfer were not present here between Fencourt and McCorquodale, none of those factors of itself determined whether or not a TUPE transfer had taken place;

The evidence available to the Tribunal allowed the Tribunal to conclude that a TUPE transfer between Fencourt and McCorquodale had taken place. This meant that the EAT had no grounds for overturning the Tribunal's decision; and

Whilst the legal structure of a group was an important factor, it was not conclusive in deciding whether control of a business had been transferred between group companies.

Conclusion

This case serves as a reminder to buyers of companies that, when the plan is to integrate the business of the company that has been purchased into another group company, that integration process could very well mean that the employment of the employees of that company might well transfer to the other group company.

This will have significant implications on any future sale of the company that was purchased, or of the other group company into which the business of the original company had been integrated, in terms of dealing with the affected employees.

A similar issue might arise where a corporate group decides to centralise its management functions, but each case will turn on its own facts in terms of the extent to which the control of the subsidiary company has transferred to the parent.

Ashfords Solicitors is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.

16th July 2007

Key Contacts

Sale of Companies: When TUPE applies

Introduction