An Employment Tribunal has found that a transferor breached its obligation under TUPE to provide employee liability information and awarded compensation to the transferee equivalent to GBP 500 per employee, notwithstanding that the total amount awarded exceeded the losses sustained by the transferee.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") require a transferor to provide a transferee with specified "employee liability information" ("ELI") not less than 28 days before the transfer, unless special circumstances mean that it is not reasonably practicable for the transferor to do so, ( Regulation 11(6)). For transfers which took place prior to 1 May 2014, the deadline was not less than 14 days before the transfer.
ELI includes information relating to the identity and age of each transferring employee, their particulars of employment and, particularly relevant to this case, information regarding any court or tribunal case, claim or action that the transferor has reasonable grounds to believe that an employee may bring against the transferee, arising out of the employee's employment with the transferor.
A transferee who is not provided with the relevant ELI can bring a claim to an Employment Tribunal for compensation, which will be such amount as the Tribunal considers "just and equitable in all the circumstances" having particular regard to any loss sustained by the transferee as a result, and the terms of any commercial agreement between the parties. The compensation should be at least GBP 500 per employee, unless the Tribunal considers it just and equitable to award a lower sum. The Tribunal must also consider whether the transferee has complied with its duty to mitigate its losses.
Eville & Jones (UK) Ltd v Grants Veterinary Services Ltd (In Liquidation)
Eville & Jones ("EJ") and Grants Veterinary Services ("GVS") both supplied veterinary and meat inspectors to slaughterhouses under contracts with the Food Standards Agency ("FSA"). The FSA decided to reorganise its operations and notified both companies that it would be terminating their contracts.
EJ was successful in the subsequent re-tendering process in respect of the supply of all meat inspector services for the FSA. It was agreed with GVS that GVS employees would transfer to EJ under TUPE on 2 April 2012. The deadline for submission of the ELI by GVS was therefore 19 March i.e. not less than 14 days before the transfer.
GVS found itself in increasing financial difficulties as a result of the loss of the FSA contract. By February 2012 the company was subject to a winding up petition by the HMRC, and its car leasing company threatened to terminate all its financing agreements.
GVS employees were due to be paid on 30 March but they were notified that payment of salaries would be delayed to 5 April. GVS said that it needed to assess what deductions would have to be made from salaries on account of damage to returned company cars. GVS subsequently presented its bank with a proposal for a company voluntary arrangement ("CVA"), following which its bank account was frozen. GVS ultimately failed to pay any salaries for March, and EJ settled claims directly with the employees.
EJ brought a claim against GVS for breach of the obligation to provide ELI arguing that GVS had reasonable grounds to believe that its employees might bring claims against EJ, but had failed to inform EJ of those claims.
The Tribunal upheld the claim. It found that by the ELI deadline, GVS was clearly in financial difficulties and that it was unlikely that the employees would be paid given the proposed CVA. The Tribunal was also sceptical of the explanation given by GVS for delaying the payment of salaries to 5 April. The Tribunal held that GVS had reasonable grounds to believe that claims might be brought against EJ for unpaid wages when it failed to pay the employees' salaries on 30 March.
The Tribunal then went on to consider compensation. It noted that it must have regard to any loss sustained by EJ as a result of the failure by GVS to notify it of the ELI, rather than liability for the unpaid wages itself, although the overall principle was to award compensation on a just and equitable basis.
The Tribunal accepted that EJ had incurred management expenses, legal costs and additional banking expenses as a result of having to react quickly to events, but assessed those costs at a much lower level than those put forward by EJ. It also rejected EJ's argument that its most significant loss was the "loss of opportunity" to reduce its liability on account of GVS's failure to comply with its ELI obligations - EJ was unable to adduce any evidence on what it would have done had it had known of the events earlier.
The Tribunal considered whether compensation should be equivalent to GBP 500 per GVS employee or whether it was just and equitable to award a lower sum. The Tribunal found that it might be just and equitable to do so where a failure to notify ELI was minor and inadvertent, but the failure by GVS was significant and anything but inadvertent. It also considered that it was not constrained by the maximum amount of loss sustained by EJ. The Tribunal therefore awarded GBP 500 per GVS employee, noting that whilst this meant that EJ's actual losses were less than the total amount of compensation awarded, the losses it had incurred were not insignificant and would have been a material sum.
In practice, the obligation to provide ELI is of limited value to a transferee who will usually want more detailed information than is prescribed under TUPE, and will want it much earlier than the stipulated deadline. Therefore, it is common to see provisions in the commercial agreement setting out what information will be provided by the transferor, and when, and remedies for breach.
However, the decision is useful as there is little case law on breach of the obligation to provide ELI, albeit that a Tribunal decision is non-binding. The Tribunal's assessment of compensation, in particular its decision that it would be just and equitable to award compensation in excess of the losses sustained by the transferee as a result of the failure to provide the ELI, is interesting.