1. Court of Appeal decision on the application of TUPE to a share sale

In a potentially significant decision, the Court of Appeal, overturning the EAT, held that TUPE did apply to a situation where the shares of a company had been purchased by a holding company. Following the share acquisition, the business of the target was closely integrated with that of the parent company. There is often a degree of control and management asserted by a parent company over its subsidiary but, in this case, the control was such that the tribunal considered that there had actually been a TUPE transfer of the business following the share sale. Further, confusion had arisen as contradictory letters had been sent to the claimant – one of which stated that the employer remained unchanged following the share acquisition, another confirmed the continuation of employment under TUPE. The Court of Appeal reinstated the tribunal's decision that there had been a TUPE transfer.

The Court of Appeal considered that the EAT had misdirected itself by formulating the issue in terms of piercing the corporate veil. (The EAT had overturned the tribunal's decision that TUPE applied on the basis that the tribunal had erred in looking beyond the clear corporate structure given that there was no evidence of a sham.) However, the Court of Appeal held that at issue was not whether the two companies existed as separate legal entities (which was undisputed), but whether the business of the subsidiary had, in fact, been transferred up to the parent company. The EAT considered that a certain lack of independence was typical of a subsidiary and did not demonstrate that the parent company owned the subsidiary's business. However, the Court of Appeal considered that the EAT's conclusion gave insufficient weight to the specific findings of the tribunal that, in this particular case, the business activities of the target and the purchaser had been integrated to such a degree that the business carried on by the target, and not simply the shares, transferred to the purchasing parent company.

It remains true that TUPE does not generally apply to share sales. However, this case does lead to uncertainty. Whilst acknowledging that there is a clear distinction between share sales and business transfers, Lord Justice Moses, highlighted the difficulty that can arise, in practice, in determining whether or not the purchase of shares in a target company resulting in a 100% owned subsidiary, could also constitute a business transfer for the purposes of TUPE: "There will often be little to distinguish between the case of transfer of control on acquisition by a new parent and transfer of the business to a new parent." In this case, the tribunal identified a number of evidential indications which, in combination, established that control of the business, in the sense of how its day-to-day activities were run, had passed to the parent company.

Purchasers of companies should be aware of the possibility of TUPE applying following a share sale. The mere fact of control, which commonly exists between a parent and subsidiary, will usually be insufficient, on its own, to establish the transfer of the business from subsidiary to parent. However, this case does increase the risk that if the parent company takes over control of the target's business and integrates that business with its own, employees may succeed in arguing that their employment has transferred up to the parent company by operation of TUPE. It is particularly likely that this point would be argued on the occasion of an administration or liquidation, with employees seeking to position themselves in those parts of the business being sold off to future purchasers and/or in the case of changes to terms and conditions of employment. (Millam v The Print Factory)

2. Court of Appeal decision on what constitutes an economic entity for TUPE

The Court of Appeal recently confirmed the factors to be taken into account when considering whether a group of employees constitute a discrete economic entity capable of transferring under TUPE. The decision involved the dismissal of a number of short-term employees working for a ferry company following the company's decision to employ only permanent staff and to source short-term workers from a third party. The employees claimed that their employment should have TUPE- transferred to the third party. Although, the employees did, in some sense, belong to an identifiable group as they were all engaged on short-term contracts and fulfilled a specific role in the company's business; the Court of Appeal upheld the finding that the employees did not constitute an economic entity capable of transfer as they each did different work on different vessels. (Wain & ors v Guernsey Ship Management Ltd)

N.B. This case was decided by reference to TUPE 1981 and the result is likely to have been different under TUPE 2006 (which came into force on 6 April 2006). Whilst a court may have agreed there had not been a business transfer (now reg 3(1)(a) TUPE 2006), TUPE 2006 extends protection to employees where there is a change of service provider (or where services are outsourced or taken back in-house) and it is likely that these facts would have come within the scope of those provisions. This broader protection is extended to an organised grouping of employees which has, as its principal purpose, the carrying out of activities on behalf of the client. Unlike with business transfers, there is no requirement that the grouping retain its identity after transfer. Accordingly, employees in a similar situation in the future ie dismissed and offered re-engagement through a third party provider of services, are likely to be protected by the new service provision change provisions.

3. Meaning of dismissal "immediately before" the transfer

In another interesting TUPE case (Friction Dynamics Ltd v Amicus), also decided by reference to TUPE 1981, the EAT confirmed the approach set out by the House of Lords in Litster v Forth Dry Dock & Engineering that liability for the dismissal of employees prior to the transfer will remain with the transferor if the dismissal is for an economic, technical or organisational (ETO) reason unconnected with the transfer. If a pre-transfer dismissal is connected with the transfer but is not for an ETO reason, then liability will transfer to the transferee, even if the employee was no longer employed at the time of the transfer.

In this case, joint administrators were appointed during the annual shutdown and they took the decision to dismiss the workforce. These dismissed employees and their trade union subsequently brought claims for unfair dismissal and for failure to consult. It was alleged that the former owner of the company in administration had stage-managed the administration to get rid of the workforce, with the intention of then buying the assets of the company so it could rise "Phoenix-like" out of the ashes. At issue was whether liability for the claims should transfer under TUPE on the sale of the assets. The dismissals were effected by the administrator, whose stated reason was purely economic; the business had no assets out of which to pay the wages. The facts of this case are similar to those in the case of Honeycombe 78 Ltd v Cummins & Secretary of State for Trade and Industry in which employees were dismissed the day after an administration order was made as there were no assets from which to pay them, but, two weeks later, a relevant transfer took place to a shelf company set up by the previous owners of the company in administration – in a rather surprising decision, the EAT held in that case that the administrator's reasons for dismissal were economic, not transfer-related.

The EAT remitted the Friction case to tribunal to make clear findings of fact on the areas in dispute but it will be an interesting one to watch. (Friction Dynamics Ltd v Amicus)

4. No obligation to pay salary to a disabled employee on sick leave

The Court of Appeal has confirmed that an employer's failure to continue to pay salary to a disabled employee whose entitlement to sick pay had been exhausted under the employer's sick pay policy, was neither a failure to make reasonable adjustments nor disability-related discrimination. This decision will come as a relief to employers and reflects public policy considerations that the Disability Discrimination Act 1995 should not be interpreted to encourage people to stay off work and it was not reasonable to require an employer to subsidise indefinitely a disabled employee on long-term sick leave. (O'Hanlon v HM Revenue & Customs)

Going forward, it should be harder for a disabled employee to succeed in a claim for full pay during sick leave, once the contractual entitlement to pay has been exhausted, unless, as in Nottinghamshire County Council v Meikle, it is the employer's failure to make reasonable adjustments which causes the absence.

5. Requirement for teacher to remove veil was not religious discrimination

The EAT has upheld the tribunal's decision in the widely reported case of Azmi v Kirklees Metropolitan Borough Council, that an instruction to remove the full veil when carrying out duties as a teacher, was not direct discrimination on grounds of religion or belief. Mrs Azmi had not been treated less favourably than a comparator would have been in similar circumstances and the correct comparator was a woman, whether Muslim or not, who covered her face (not, as Mrs Azmi argued, a Muslim woman who covered her head but not her face).

Further, even though the instruction potentially amounted to indirect discrimination (ie where an apparently neutral provision, criterion or practice has, in practice, a disproportionate adverse impact on one particular group), the EAT considered that the employer had been justified in responding as it did. The instruction to remove the veil when teaching a class but, permitting the veil to be worn at other times on School grounds, amounted to a proportionate means of achieving the legitimate aim of providing the best quality education.

Useful guidance is given by the EAT on the principles of law regarding proportionality. Firstly, in relation to whether or not the aim is legitimate, the employer need only show that the proposal is justified objectively not that no other proposal is possible. Here, the need to raise the educational achievements of the children in the school was a legitimate aim. Secondly, the tribunal should make its own judgment as to whether the proposal is reasonably necessary after a fair and detailed analysis of the reasonable needs of the employer's business and working practices. Here there was evidence that, before issuing the instruction there had been observations of Mrs Azmi teaching and assisting the children and there were concerns about how effective her communication was when she wore the veil.

The EAT also made the interesting (but non-binding) comment that claims arising out of manifestations of religious belief (including the wearing of religious clothing or symbols, or participating in religious observances) did not necessarily have to be dealt with as instances of indirect discrimination. Treating an individual less favourably because of some manifestation of their religious belief could be direct discrimination. Mrs Azmi's request to refer this question to the European Court of Justice was refused.

On a separate, but related point, two recent tribunal decisions have both found that the requirement for a practising Christian to work on Sundays was indirect discrimination on grounds of religion or belief. (Edge v Visual Security Services Ltd, Estorinho v Zoran Jokic t/a Zorans Delicatessen, as reported in EOC review April 2007)

6. Refusal to offer alternative days off work to an employee who did not work Mondays was not discrimination on grounds of part-time status

The Court of Session, upholding the earlier decision of the EAT, held that an employer's failure to give a part-time employee who did not work Mondays pro- rata days off work to reflect the bank holidays was not discrimination under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

However, care should be taken in applying this decision more generally given the rather unusual circumstances of this case in which the employer operated a seven-day working week with a policy of only paying for statutory holidays that were normal working days. Accordingly, there were both full-time and part-time workers on a variety of patterns that may or may not have included Mondays. Although it was accepted that an employee who worked part-time Wednesday – Friday was treated less favourably than a full time employee who worked Monday – Friday in relation to bank holidays, this was through "the accident" of having agreed not to work on Mondays or Tuesdays. It was clear that a full-time employee who worked Tuesday to Saturday would also not receive the benefit of statutory holidays which fell on Mondays. Accordingly, there was no less favourable treatment on prohibited grounds. (McMenemy v Capita Business Services Ltd)

Currently, under the Working Time Regulations 1998, workers are entitled to four weeks' paid annual leave in each leave year. This entitlement will increase to 4.8 weeks from 1 October 2007 and to 5.6 weeks from 1 October 2008, subject to a maximum statutory entitlement of 28 days. The Government has not yet published its response to the Further Consultation document which included detailed proposals and draft regulations. One practical concern is that the draft regulations do not actually specify that the additional days' holiday are intended to represent bank holidays although, the legislation is clearly intended to implement this manifesto commitment. Accordingly, there is a risk that employers whose contracts contain a standard clause stating that workers are entitled to "statutory holiday plus public holidays" could find workers are entitled to the increased 28 days statutory holiday in addition to public holidays. This seems to be an unforeseen consequence of the proposed increase to statutory holiday which may be corrected during the current consultation process.

7. Springboard injunction only awarded where unfair competitive advantage

A recent High Court decision highlights that convincing evidence of the alleged unfair competitive advantage is necessary to succeed in an application for springboard relief and provides a salutary warning of the effects of new CPR 5.4C in relation to confidentiality injunctions.

The case concerned two individuals who had left Utopia, a company which imported fresh fruit and vegetables, to set up their own competing business, Ripe Now Ltd. It was alleged that the individuals had taken Utopia's confidential information (including a contact list of 58 suppliers and customers of Utopia) and that this had given them a head start in setting up their business in competition. A springboard injunction can operate to restrain an (ex) employee from obtaining an unfair competitive advantage where they have misused confidential information, even where that information is now in the public domain. The restraint is typically for the period of time that the court considers the person had an unfair advantage or the period it would have taken the employee to have assembled the confidential information using lawful means. Utopia sought an injunction restraining use of their confidential information and springboard relief.

Confidential information injunction refused - referring to Faccenda Chicken Ltd v Fowler, the High Court considered that information will only be protected if it can properly be classed as a trade secret or is of such a highly confidential nature that it requires the same protection as a trade secret. The effect of Civil Procedure Rule 5.4C was of critical importance in this case as, from 2 October 2006, anyone can obtain a copy of the particulars of claim. The injunction sought in respect of the contact list containing the names and e-mail addresses of suppliers and purchasers of Utopia was refused as all the details were set out in the particulars of claim which, as result of CPR 5.4C, were already in the public domain.

Springboard relief refused- little evidence had been presented to substantiate Utopia's claim that the springboard advantage was up to two years and the court considered that the restraint was so wide that it would put a stop to Ripe Now Ltd's business. The court referred to Sun Valley Foods Ltd v Vincent [2000] which held that it was not enough to establish that the defendants had made unlawful use of proprietary information; it was also necessary to show that a competitive advantage had been gained which would continue unless the courts stepped in and granted an injunction. The High Court also took into account the short period between the application and the speedy trial hearing (six to eight weeks) and the possibility that the granting of an injunction could possibly bring Ripe Now's business to a permanent end which would also impact on innocent third party customers who had given evidence that they would suffer serious loss if Ripe Now's business failed. (Utopia UK Ltd v Wright & Hook)

8. Equal Pay update

An interesting point to arise from the latest EAT decision in the Bainbridge v Redcar & Cleveland Borough Council litigation is that where an individual wishes to bring an equal pay claim against their employer, each allegation that a comparator was paid more is treated as a separate cause of action. Accordingly, employees are free to bring fresh proceedings in respect of the same period of time if they choose to cite a new comparator. The normal principles of issue estoppel and cause of action estoppel which prevent a claimant from issuing proceedings in respect of matters already considered by a tribunal would not apply in this instance. An unsuccessful finding in respect of one comparator would not prevent a claimant from succeeding in relation to another comparator. (Bainbridge v Redcar & Cleveland Borough Council )

9. A claim cannot be stayed while grievance lodged to comply with the SGP

If a claimant has not complied with a necessary requirement of the statutory grievance procedure (eg failed to set out the grievance in writing or failed to wait 28 days before presenting the claim), then a tribunal is not entitled to stay his claim while he does so. The tribunal has no jurisdiction to hear the claim and the claim should be rejected. Section 32 of the Employment Act 2002 provides that once the issue of procedural compliance has arisen in relation to the statutory grievance procedures, then the tribunal simply has no jurisdiction to hear a claim unless it is presented after compliance with the procedural steps. Rule 1(8) of the Employment Tribunals Rules of Procedure 2004 prohibits a chairman or tribunal from considering the "substance of the claim" until the claimant has complied with the statutory procedures, leaving open the argument that it was implicit that a stay might be granted. The EAT did not accept that the effect of Rule 1(8) was "to trump" s32 by permitting a stay in these circumstances. (LB Hounslow v Miller)

10. Witness evidence given in confidence not always protected from disclosure

Employers should be reassured by a recent decision of the EAT on procedure in which the EAT held that the order to disclose witness evidence given in confidence during an employer's investigation was an error of law. Disclosure had been ordered on the basis that the document was of "obvious relevance" to the grievance procedure, notwithstanding that the evidence had been given in confidence to an HR director in the course of an investigation and on an anonymous basis as the individual feared reprisals from the claimant. Whilst a Chairman does have discretion to order disclosure of witness evidence given in confidence where this is considered necessary for the fair disposal of proceeding, the issue of confidentiality and the public interest of enabling employers to take statements in such situations must be properly considered. (Arqiva Limited v Sagoo)

11. Publications

  • ACAS has published a revised guide on redundancy. 
  • ACAS leaflet –updated guidance from ACAS on the right to apply for flexible working and work-life balance.
  • ACAS guide on Smoking at Work – this is available here and a useful Q&A for employers on how to deal with issues that may arise when smoking in public places is banned from 1 July 2007 is available here.
  • ACAS has published its findings on the impact that anti-discrimination regulations on sexual orientation and religion or belief have had since their introduction in 2003. It concludes that claims brought under the regulations have been dominated by alleged instances of harassment, bullying and physical assaults.
  • Religion or Belief (Questions and Replies) Order 2007 has now been published and will come into force on 30 April 2007. It prescribes forms by which a person who has brought or is considering bringing proceedings under Part 2 of the Equality Act 2006 (discrimination on grounds of religion or belief) may question the respondent or potential respondent.
  • Survey on pregnancy at work – the EOC has issued a press release following an online survey in which 1 in 6 women said they were not treated very well by their employment whilst pregnant and 1 in 4 felt they were not treated very well on their return after maternity leave. The EOC has launched a toolkit to help bridge the "knowledge gap" and make pregnancy in the workplace easier for everyone which is available here.
  • The United Nations (UN) adopted a new convention on disability rights on 13 December 2006 and the Convention and its Optional Protocol opened for signature on 30 March 2007. The UK signed the Convention (but not the Optional Protocol) and is now checking its legislation, policies and practices against the Convention's obligations. Before ratification, the Convention will be laid before both Houses of Parliament and be considered by the Joint Committee on Human Rights. The Convention's purpose is to promote and ensure the full and equal enjoyment of all human rights by disabled people. It covers a number of key areas such as accessibility, personal mobility, health, education, employment, habilitation and rehabilitation, participation in political life, and equality and non-discrimination.