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12th May 2014

Employees moved to a Parent Company via TUPE after a share deal

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The Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended by the 2014 Regulations) (“TUPE”) apply where there is a relevant transfer of a business. A relevant transfer occurs where there is a transfer of an undertaking (or part of an undertaking) to another person and that undertaking retains its identity.

The effect of TUPE is that the employment of the employees affected by the transfer, transfers seamlessly from the Seller to the Buyer. Where a TUPE transfer occurs, there is an obligation on the employer to inform and consult with representatives of the affected employees about certain aspects of the transfer.

As there is a requirement for there to be a transfer of an undertaking to another person in order for TUPE to apply, TUPE will not usually apply where the “deal” is a sale of the shares in the target company. The reason for this is that, in these circumstances, there is no change in the owner of the relevant business, nor the identity of the employer. The target company still owns the business and is still the employer of the employees. Therefore, no TUPE transfer.

However, in the case of Jackson Lloyd Limited & Mears Group Plc v Smith & others UKEAT/0127/13 the Employment Appeal Tribunal held that, in the particular circumstances, TUPE had applied so as to transfer the employment of the affected employees of the target company to its new ultimate parent company following a share purchase.

Jackson Lloyd Limited is a provider of repair and maintenance services in respect of social housing and employed approximately 400 employees. Mears Limited, a subsidiary of Mears Group Plc, purchased the shares of Jackson after Jackson had experienced financial difficulties.

Immediately following the share acquisition, Mears Limited and Mears Group PLC embarked on an integration programme. The members of Jackson’s board were replaced by members of Mears Group, the employees were informed that they would be moving over to Mears Group and the Mears Group systems, policies, procedures and methods were put in place in respect of the Jackson employees.

During and following the integration programme, Mears Group took over full control of the operations and employees of Jackson. No TUPE consultation took place and as a result a number of Jackson’s employees brought claims against Jackson and Mears Group for failure to inform and consult under TUPE.

Jackson and Mears Group argued that there had been no failure to inform and consult as TUPE did not apply to the share acquisition. The EAT held, however, that whilst the original share sale had not been covered by TUPE, the immediate integration of Jackson employees into Mears Group following the acquisition meant that there had been a transfer of the business from one legal person to another. As such there had been a TUPE transfer of the Jackson staff to Mears Group Plc.

As there had been a TUPE transfer and no TUPE consultation had taken place, there had been a failure to inform and consult and the Jackson employees concerned were entitled to a protective award (in essence, an award of up to 13 weeks pay per employee affected by the transfer).

Whilst the general principle that TUPE does not apply to a purchase of shares still exists, this case is an important reminder that if the purchaser of the shares in a target company deals with and manages the business of the newly acquired company following the share purchase in a certain way, TUPE may well apply. In this case, as the integration of the newly acquired company took place immediately after the transfer of shares and the ultimate new parent company took over complete control of the target company (Jackson), TUPE did apply.

It is therefore important to keep this case in mind if following the acquisition of a company’s shares the purchaser wants to integrate the newly acquired into its group.

For more information, please contact Gemma Hill on 01604 463309 or click here to email Gemma. For more information on our Employment services click here.