The Identity of the Employer must change for TUPE to apply in corporate restructuring

At the heart of Regulation 3(1) of the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) is the principle that to qualify as a business transfer, the identity of the employer must change.

For instance, TUPE does not apply to transfers by way of a share purchase. When a company’s shares are sold to a new shareholder, there is no transfer of a business or undertaking: the same company continues to be the employer.

How this principle should be applied in practice for Registered Providers undertaking corporate restructuring in the Social Housing sector has been clarified by the Employment Appeal Tribunal (EAT) in Hyde Housing Association Ltd and ors v Layton UKEAT/0124.

Background

The Claimant was employed by Martlet Homes Limited as a multi-skilled decorator.  An internal operating entity (Martlet Build) carried out repair work on Martlet’s managed and owned properties. On 28 December 2007, the Claimant was advised that Martlet would join the Hyde Group, becoming a subsidiary of Hyde Housing Association Limited from 1 January 2008. His contract of employment would remain with Martlet.

Martlet continued to manage its own housing stock and also took over the management of some 4,500 Hyde homes located under the trading name Hyde Martlet, an internal business unit.  The employment relationship between the Claimant and Martlet remained essentially the same after Martlet became a subsidiary of Hyde Housing Association. However, the Hyde Group became responsible for providing centralised HR and payroll services to Martlet. From 1 August 2008, the Claimant’s payslip changed to show Hyde Housing Association as his employer.

Martlet then converted to an industrial and provident society with exempt charitable status. A restructure of Property Services in the Hyde Group was also undertaken. On 18 July 2013, the Hyde Group wrote to the Claimant confirming an offer to the position of “Repairs Specialist – Internal”.

The restructure required all Martlet employees to become employed by the Hyde Group and therefore each member of the Group would employ the Martlet employees on a joint and several basis. The Claimant was provided with a contract of employment confirming that his employer was to be the Hyde Group. The Claimant did not sign, objecting to changes in terms and conditions under the new contract, namely the loss of a bonus.

On 21 August 2013, Hyde Group gave the Claimant notice of the termination of his employment with effect from 16 October 2013.  The Claimant subsequently lodged his claim of unfair dismissal. However, a preliminary issue was raised by the Claimant who alleged that there had been a TUPE transfer at the point he was offered joint contracts of employment with the other companies in the Hyde Group.  The Employment Tribunal found that there had been a TUPE transfer on the basis that responsibility for carrying out the business of the unit had changed from Martlet to Martlet and the other members of the Hyde Group.

The EAT Findings

The EAT disagreed with the Tribunals decision and found that there was no TUPE transfer. When considering Regulation 3(1), the EAT confirmed that a transfer to “another person” is essential in order for TUPE to apply. This must be interpreted as referring to a separate legal person from the transferor.  Given that one of the members of the Hyde Group (Martlet) was the same legal entity as the original employer and transferor, TUPE could not apply. The original employer (Martlet) had at all times retained liability for the Claimant’s employment which meant that the identity of the employer had not changed in a way that was legally relevant for TUPE purposes. The control of the business remained in the hands of Martlet; Martlet remained an employer, retaining liability for the Claimant’s employment.

The Claimant was granted permission to appeal to the Court of Appeal given the unusual facts of the case and the lack of previous authority on this issue.

Comment

The EAT also clarified that where the economic entity transfers to a Group which then becomes the employer liable on a joint and several basis, a transfer for the purposes of Regulation 3(1)(a) may apply but will be fact specific. Provided such a transfer does not result in the fragmentation of the economic entity so that it loses its identity, it is possible that TUPE may apply.

For advice on how to avoid unexpected TUPE liabilities in corporate restructuring, please contact a member of the Devonshires Employment Team.

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