TUPE: unexpected transfers

The facts

ICAP Management Services Limited (“IMSL”) was a service company providing services to other companies within the ICAP Global Broking Business (“IGBB”). IGBB decided to sell the IMSL to Tullett Prebon PLC. The sale involved selling the shares of a holding company of IMSL to Tullett Prebon.

On 11 November 2015, ICAP PLC and Tullet Prebon PLC entered into a share sale agreement.  In July 2016, Mr Berry gave 12-months written notice to terminate his employment. On 17 October 2016 Mr Berry said that he believed that there was going to be a TUPE transfer, to which he objected. Mr Berry wanted to join a competitor as Executive Managing Director and to avoid the restrictions against this in his contract.  The sale of the shares took place on 30 December 2016.

On 7 April 2017, Mr Berry notified IMSL that he believed a TUPE transfer had taken place and that his employment had terminated on 30 December 2016 following his objection to that transfer on 17 October 2016.  He said that he planned to start employment with his new employer (which would have been in breach of his contractual restrictions if not cancelled by the transfer). On 24 April 2017, IMSL applied for an injunction to prevent Mr Berry joining his new employer.

The judgment

The Judge looking at the case identified several issues consider in deciding whether there was not only a sale of the shares but also a TUPE transfer of IMSL to Tullett Prebon:

1. Who was Mr Berry’s employer?
2. Was there a need for a change in the employer?
3. What is the significance of the transfer of share ownership?
4. What are the signs that there has been a transfer?
5. Is the test for a transfer met?

Who was Mr Berry’s employer?

The Judge noted that it was not strictly necessary for an employee to be employed by the transferring employer for there to be a transfer. The employee could be seconded, perhaps on a permanent basis to another employer who they would regard as the “non-contractual employer”. The Judge held that this was not the case for Mr Berry.

Was there a need for a change in the employer?

The Judge also highlighted that for a transfer to take place there must be a change of employer. Here, there was no such change.

Were there any signs that there had been a transfer?

The Judge made it clear that a change in the legal control of an employer does not in itself transfer the business. The key question is whether the business in which someone is employed does in fact transfer from one company to another.

The Judge noted that it is often difficult to tell whether a transfer of a business has, in fact, happened because there may be little difference between a transfer of control on acquisition by a new parent company and the transfer of the business to a new parent company. The key elements of the test are whether the new party has become responsible for carrying on the business, has incurred the obligations of employer and has taken over the day-to-day running of the business. To put it another way, the question is, has the new party stepped into the shoes of the employer?

The Judge found that there was no change in employer and Mr Berry worked in the same role, from the same premises, doing the same job, with the same clients and was responsible for the same staff and answered to the same management before and after the sale.

There was some consolidation of central services, such as legal and human resources, which were provided in a single corporate structure, and the setting of strategic targets and consolidation of systems and procedures were introduced to ensure consistency across the new group. The Judge decided that although there were changes taking place above the level of day-to-day management, the day-to-day management of IMSL continued in the same way as before the share sale. The Judge did not find evidence of integration between the two companies, and he found that the relevant areas remained intact and continued to function as they did before the sale. He also found that they remained two distinct and competing brands. It followed from this that there was no transfer.

Our Comments

It is clear from this that control of the day-to-day running of a business and its integration with another business are key indicators as to whether there has been a transfer.

Groups that acquire businesses by way of a share acquisition or by way of a change in directors or members will need to consider whether there will also be a TUPE transfer carefully. Often, this might not take place immediately upon acquisition but, as the group integrates the new business, another part of the group might become responsible for the day-to-day running of that business and be seen to have stepped into the shoes of the old employer.

Given the penalties for failure to inform and consult with employee representatives (13 weeks gross pay per employee), getting this wrong could be a costly mistake. You should, therefore, undertake careful planning around the integration and the transfer of the day-to-day running of a business.

For further advice or information on TUPE transfers, please get in touch with your usual contact or speak to Doug Mullen. You can also find out more about how we can help with corporate and TUPE issues here if you are a housing provider or here if you operate in the social care sector.

• Share this