TUPE - Changing terms and conditions

The recent decision of the Employment Appeal Tribunal (EAT) in Todd v. Strain serves as yet another reminder that when it comes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), you really cannot be too careful. Getting it wrong can have serious financial consequences for and both the seller and the buyer of a business.

TUPE provides that where a business is sold, the employees employed in the business automatically transfer from the seller to the buyer. It also obliges the seller to inform and consult the workforce beforehand about the transfer and the measure which he envisages he or the buyer will take in relation to the affected employees.

In Todd, T was the owner of a care home which she sold to CC in January 2008. Prior to the sale, T called a meeting without notice (only attended by about a third of staff) at which she informed staff about the proposed sale and reassured them that everyone's job was safe. No detailed information was given at the meeting. Apart from some minor communications with one employee, there was no further consultation prior to the transfer. As part of the mechanics of the transfer, transitional arrangements were put in place in relation to the payment of wages, including the date of payment and a tax rebate. 32 employees brought Employment Tribunal claims against T and CC, alleging that they had failed to comply with their duties to inform and consult under TUPE.

The Employment Tribunal upheld the claims against T and made a maximum award of 13 weeks’ pay per employee. It dismissed the claims against CC. T appealed to the EAT.

The EAT allowed T’s appeal in part. It confirmed that there had been a failure to inform and consult, rejecting the argument that the changes to the pay arrangements had been an inevitable consequence of the transfer. Although the sums involved were small, many of the employees were low paid. The purpose of the duty to inform and consult is to provide reassurance for employees. However, the EAT reduced the award made in favour of each employee from 13 to 7 weeks’ pay. In its view, the making of maximum awards had not been warranted. Some, albeit inadequate, information had been given to the employees. This was not a case – as has happened in the past – where the employees had turned up for work one day only to find that they had a new employer. Finally, the EAT ruled that the Tribunal had been wrong to dismiss the claims against CC. TUPE states that the buyer and seller are to be jointly and severally liable in respect of failures to inform and consult. The fact that CC had not been at fault was irrelevant.

The third point should particularly set alarm bells ringing. A tribunal may apportion liability as between the seller and the buyer. Alternatively, under the sale agreement one party may be entitled to an indemnity from the other. However, if one party subsequently goes bust the other may find that it is left holding the baby and that it has to satisfy the claims in full.

If you would like to know more about the implications of this case, please contact Gareth Pobjoy or Nick Crook.

Filed: 30/09/2010 08:56:47