The Transfer of Undertakings (Protection of Employment) (TUPE) Regulations preserve employees’ terms and conditions (except for certain occupational pensions) when a business or undertaking, or part of one, is transferred to a new employer or there is a change of service provider. In effect, this signifies that employees automatically become employees of the new employer under the same terms and conditions, as if their contracts of employment had originally been issued by the new employer. The new employer cannot pick and choose which terms to continue and must also take on board any collective agreements which have been agreed.
Supporting this transfer of employees to another business or service provider in a proper way, can often be a little tricky, especially if the current service provider is aggrieved about the loss of business or if the loss of a contract and/or employees is expected to have a large impact on the business or staff body which remains.
Representatives of employees affected have a right to be informed about the transfer and must also be consulted about any measures which the new employer envisages taking concerning affected employees.
As the new employer takes over all contracts, rights and obligations (except criminal liabilities and certain occupational pension obligations) arising from these contracts, it is therefore also an important part of the handover or due diligence process that information on these is sought and provided from the transferor prior to the transfer taking place and that liabilities can be worked out. The legislation which governs this is Regulation 11 of TUPE and failure to comply with its requirement to provide employee liability information can lead to an Employment Tribunal (ET) case being brought with potential compensation of a minimum of £500 for each employee in respect of whom the information was not provided.
However, how important is it that the employee liability information is comprehensive and accurate? It is obviously in the interests of the organisation which is receiving the new employees (the transferee) that it is but can the transferor be in breach if it passes on the required information and further information which is requested by the transferee but which is not strictly required by law and this turns out to be inaccurate? A recent Employment Appeals Tribunal (EAT) sheds light on this matter and the result may be surprising.
In Born London Ltd v Spire Production Services Ltd, Born took over a contract from Spire which was a service provision change and as such, Spire’s employees transferred to Born under TUPE. Spire provided employee liability information including information about a Christmas bonus which it said was non-contractual. However, it later transpired that this information was incorrect and the bonus was, in fact, contractual. Born brought an employment tribunal claim and sought £100,000 in compensation. Both the ET and EAT rejected the claim as Spire had provided the limited information which it had been required to do by law. The law did not require them to go further and to state whether something was contractual or non-contractual. The fact that they had provided this additional information and it turned out to be inaccurate was unfortunate but it was not unlawful.
Where a large deal is taking place and terms are being agreed between parties then there is more likelihood that accompanying documentary evidence will be able to be seen, which will allow the transferee to make its own assessments in relation to any additional liabilities for contractual elements it may have, without having to rely on the word of the transferor. Additionally, larger deals will have more scope to agree warranties in respect of the accuracy of the information and indemnities which will compensate the other party in the event the information is inadequate or inaccurate. However, in other circumstances, only basic employee information can be expected or indeed be relied upon.
If you have any questions on any of the issues raised in the above article, please contact Wendy Meiklejohn.