27 September 2010

Court provides guidance on employment regulations


Chris Priestley
Partner | UK

The Transfer of Undertakings (Protection of Employment) Regulations (‘TUPE’) require employers of organisations or businesses which are in the process of merger or transfer to new ownership, to provide specified information about the transfer to their employees and to consult with the employees about any ‘measures’ proposed by the transferee that will affect the employees. Transferors and transferees often ask what is meant by a ‘measure’. There is surprisingly little guidance from the courts on the issue, but the recent decision of the Employment Appeal Tribunal (‘EAT’) in Todd v Strain and ors has suggested that the meaning of ‘measure’ may be wider than might be expected.

The case concerned the transfer of a care home and whilst the home was run as a profit making business, the principles in the case would be equally applicable to a not-for-profit or charitable organisation. There were several issues for the EAT to consider. Had the employees been properly informed about the transfer? Had there been any measures proposed which gave rise to a duty to consult as well as inform? Was the tribunal right to make a maximum award against the employer for failure to inform and consult (13 weeks’ pay per affected employee)?

On the first question, the EAT agreed with the employment tribunal that the employer had failed to comply with the duty to inform in a number of respects. Firstly, there had been no attempt to arrange an election of employee representatives – offering this option is mandatory for an employer who neither recognises a union nor has any elected representatives already in place. Secondly, such information as the employer did give staff (at a staff meeting in the home), was incomplete and inadequate and not all the employees were present at the time. TUPE sets out clear rules on what an employer needs to do in a TUPE situation and the employer in this case had plainly not followed them. The EAT rejected the argument that the duty to inform staff formally only arises when there is also a duty to consult over ‘measures’ proposed by the transferee.

On the question of whether the transferee had proposed any ‘measures’, there were in fact only minor changes proposed by the transferee, which concerned pay administration. For example a payment was made to the employees in January, which was then reclaimed in February, because of an arrangement between the employer and the transferee about apportioning pay liabilities. The EAT said that whilst any disadvantage to the employees of these ‘measures’ was minor or trivial, nevertheless they were outside the normal course of events and therefore constituted ‘measures’ on which the transferor should have consulted – the impact on the employees was not the test. This is a wide interpretation of what is meant by a measure, but the distinction the EAT sought to draw was between a change that was an inevitable consequence of the transfer, such as the new employer’s name appearing on a payslip and a change that had a discernible practical impact on the employees.

Finally the EAT considered the level of the award the tribunal had made. TUPE provides that when there has been a failure to inform or consult according to the rules set out in TUPE, a tribunal may make a ‘protective award’ of up to 13 weeks pay for each affected employee. Previous cases have made it clear that as the nature of the payment is a penalty for the employer rather than compensation for the employee, the tribunal should first consider whether a maximum award is appropriate and then make reductions according to the seriousness of the employer’s default.

The EAT disagreed with the employment tribunal that the employer was so seriously at fault in this case that a maximum award was justified – it had made some attempt to communicate with the employees at staff meetings, albeit an inadequate one. It therefore reduced the award to 7 weeks’ pay per affected employee. Nevertheless, the award, which is based on actual pay (not pay capped at a certain level as in the case of, for example, redundancy pay), will have amounted to a significant penalty as there were 32 employees affected by the transfer.

Comment

Transferors and transferees who do not comply with the regimes for information and consultation in TUPE put themselves at considerable risk. Taking this case as an example, an award of seven weeks’ pay to a group of 32 employees working 35 hours per week at national minimum wage levels would cost an employer around £45,000 – much higher awards are not uncommon. TUPE provides that transferors and transferees are jointly and severally liable for protective awards – so that employees can enforce awards against them jointly or separately. This means that it is advisable for transferees to seek an indemnity for failures by a transferor to give the required information to its employees at the appropriate time.

The transferee might also have separate liability if it has failed to tell the transferor about ‘measures’ that it is envisaging.

Chris Priestley Partner | London

Category: Article