TUPE 2006 - When Does an Economic Entity Transfer?

Mon, 26 Mar 2012

By Anthony Korn
Normally a TUPE transfer under Regulation 3(1)(a) of the 2006 Transfer of Undertakings (Protection of Employment) Regulations, will take place on completion of a commercial acquisition but in Commercial Motors (Wales) Ltd v Howley (EAT/0491/11), the EAT upholds the tribunal’s conclusion that the transfer took place when the new employer took over the running of the business.
 
Factual background
 
The Claimant, Mr Howley was found by the Employment Tribunal to have been employed by Commercial Motors South West Limited as a dealer principal. Unknown to him, in the Spring of 2008, Commercial Motors (Wales) commenced negotiations to purchase CMSW’s business. Those negotiations led to a “conditional” purchase agreement on 24 December 2008 (colloquially referred to as the ‘Christmas eve’ agreement). Commercial Motors (Wales) went into occupation on 2 February 2009 when the first of the conditions regarding financing the deal was satisfied and started running the business from that date, although completion did not take place until 6 March 2009. 
 
The staff were advised that the new owners would be taking over the business at a staff meeting on 2 February 2009. They were not invited to elect employee representatives for the purpose of the information and consultation pursuant to Regulation 13 of the 2006 TUPE Regulations and no reference was made to any proposed redundancies or other changes to the workforce at that meeting. 
 
The next day, as found by the Employment Tribunal, the Claimant was, without any prior warning or consultation, informed that his employment was to be given one weeks notice of termination of employment on grounds of redundancy. (The statutory disputes procedures were still applicable at this time and it was conceded by the Respondent that there was no step 1 letter, or step 2 meeting and no step 3 appeal).
 
Before the Tribunal, the Respondent sought justify its failure to comply with Regulation 13 of the 2006 TUPE Regulations on the basis that both the transferor and transferee had, prior to the commencement of detailed negotiations, entered into a confidentiality agreement and that this justified the failure to go through the requirements of Regulation 13 and 14 of the 2006 TUPE Regulations. The Respondent also sought to argue that as the Claimant’s dismissal pre-dated completion and as a consequence any liability for unfairness rested with the transferor CMSW (who had gone into liquidation shortly after Commercial Motors assumed control of the business), that the Claimant’s dismissal was for an ETO reason namely redundancy and that he would have been made redundant even if there had been proper consultation. In support of the non-transfer of liability argument, the Respondent relied on the EAT’s judgment in Wheeler v Patel [1987] ICR 631 where the EAT had held that a transfer takes place on completion.
 
Representing the Claimant, I argued that whilst in most commercial transfers, the transfer does indeed take place on completion, the factual circumstances of the present case differed significantly from those in Wheeler v Patel as the Respondent had started to run the business with effect from 2 February 2009 and that there was no evidence to support the assertion in the draft purchase agreement that they had done so as agents for the vendor. The Respondent had effected the Claimant’s dismissal and had assumed responsibility for paying the other staff from that date. They were in effect in day to day control of the business. Further, the Wheeler case had to be read in the context of two subsequent ECJ decisions: Berg and Busschers v Besselen [1989] IRLR 447 and Celtec v Astley [2005] IRLR 647, both of which stated that a TUPE transfer takes place when there is a change in the legal or natural person responsibility for carrying on the business regardless of whether or not ownership of the business is transferred. 
 
The Claimant sought the 13 weeks maximum for the failure to comply with the information and consultation requirements and a 30% uplift in the compensation awarded pursuant to Section 31(3) of the Employment Act 2002. The Claimant also argued that an ETO reason had not been established and that in any event it was not right for the ET to speculate on what the outcome would have been had there been proper consultation. 
 
ET Judgment
 
The ET ruled that the TUPE transfer did indeed take place when the Respondent assumed control of the business on 2 February 2009, that there was a fundamental failure to comply with the obligation to inform and consult employees, that in the absence of trade union or elected employee representatives, the Claimant was entitled to the maximum award of 13 week’s pay, that even though the Respondent had established an ETO, there was a 50% chance that the Claimant would have been dismissed had a fair procedure been followed and that the overall award of compensation should be increased by 30% to reflect the Respondent’s failure to comply with the statutory disputes procedure. 
 
EAT ruling
 
The Respondent appealed against all of these ruling and somewhat surprisingly was successfully in showing that there was an arguable case on each of these points. The EAT dismissed the appeal on liability on all of the contentions advanced by the Respondent. It ruled that the ET had been entitled to conclude, as a matter of law, on the facts that the transfer took place on 2 February when the Respondent assumed ‘control’ of the business, that having determined that there was no semblance of a fair procedure in the way the [Respondent] set out the termination of the Claimant’s contract of employment’ it was entitled to regard a 30% uplift as appropriate, that it was entitled to award the maximum 13 week’s pay for the Respondent’s ‘serious’ failure to comply with Regulations 13 and 14 and that it was entitled to conclude that there was a 50% chance that the Claimant would have been dismissed had a fair process been followed.
 
Apart from the TUPE transfer issue, the case raises an interesting point on the “50% Polkey” reduction issue. The Respondent had argued on appeal that the ET had not been entitled to conclude on the evidence that the Claimant stood a 50% chance of retaining his employment at the same salary and in particular the ETt had failed to specifically address the point made by the EAT in Red Bank Manufacturing Co Ltd v Meadows [1992] IRLR 209 namely that in considering the Polkey issue a tribunal should ask itself (i) if a proper procedure had been followed, would it have resulted in an offer of employment? And if so (ii) what would that employment have been and what wage would have been paid in respect of it? 
 
The EAT in Howley however considered that “those comments are not supported by some more recent statements which stress that a less rigid approach is required and added “that no case was referred to us in which it was held that a failure by an Employment Tribunal to follow the Red Bank approach constituted an error of law”. The EAT, adopting the judgment of Buxton LJ in Gover and others v Propertycare Ltd [2006] ICR 1073 stated stress that the application of the Polkey principle was a matter of “common sense, practical experience and sense of justice of the Employment Tribunal sitting as an industrial jury”. The ET’s reasoning in the present case could therefore not be faulted. 
 
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