August 27, 2014

A share transfer may lead to a TUPE transfer

As a brief reminder: TUPE provides various protections to employees, both when a business is sold and in certain outsourcing arrangements. Employees automatically transfer under TUPE to the buyer or new service provider and both the old and new employers are under a duty to “inform and consult” with employees before a TUPE transfer.

The general position is that TUPE doesn’t apply where one company acquires another by purchasing its share capital (“share transfers”). However, it is possible for a share transfer to lead to a TUPE transfer where the holding company takes control of the subsidiary following completion.

In Jackson Lloyd, the Employment Appeal Tribunal (“EAT”) decided that there had been a TUPE transfer to the parent company where it seized immediate control of the subsidiary after completion of a share transfer. The parent company imposed major changes on the subsidiary, including moving the employees across to the parent company’s systems and telling employees that they would be integrated into the parent company. The EAT’s decision that this amounted to a TUPE transfer meant that the companies had failed in their obligations to inform and consult under TUPE.

Buyers will often exercise a fair degree of control over the companies they acquire, particularly if it is a company in distress. Whether a TUPE transfer occurs will depend on the extent of the control the buyer exercises. Issues that need to be considered in advance are the timing of the change of control, whether the subsidiary still appears to be in control and what is said to employees.

If you are considering a share transfer, it is important to take steps to reduce the risk of a TUPE transfer taking place. If a TUPE transfer does occur, you should ensure you comply with your obligations under TUPE. Failure to comply with TUPE can lead to expensive claims for automatic unfair dismissal and/or failure to inform and consult.

For more information and advice share transfers and TUPE or any other employment laws or HR issue, please call us on 0800 051 8054 or email [email protected].

Our Employment & HR team specialises in working closely with business owners and HR professionals on all aspects of employment law, including policies and procedures, remuneration and benefit issues, avoiding discrimination issues, as well as disciplinary/dismissal procedures and employment tribunals.

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