How relevant are the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) in the context of a share sale? The Employment Appeal Tribunal's (EAT's) decision in Guvera Ltd v Butler(1) provides a reminder that TUPE can easily come into play when a buyer is considering what to do with its newly acquired subsidiary. In this case, the buyer's actions led to an unexpected TUPE transfer and a £3.5 million bill.
On the face of it, TUPE should not be a pertinent factor in a share sale. Ownership of a company's share capital can change hands without any discernible effect on the employees of that company; the identity of their employer remains the same before and after the sale.
However, this recent EAT ruling adds to a growing body of case law on this issue. In 2017, in ICAP Management Services Ltd v Berry, the High Court held that "a share transfer is not in itself a TUPE transfer, but may occasion such a transfer". This built on earlier cases showing that care should be taken when a share sale is accompanied by some form of restructure or reorganisation, or where the new owner of a company takes steps to take over control of that company's business in some other way.(2)
The ICAP judgment identified the 'indicia of transfer' – key things to look out for when considering whether integration activities following a share purchase might lead to a TUPE transfer. Essentially, a TUPE transfer may well occur if the new parent company:
- becomes responsible for carrying on the subsidiary's business;
- takes on the obligations of the employer; or
- takes over the day-to-day running of the business.
The latest EAT case is an example of a situation where the necessary indicia were present and a TUPE transfer had in fact occurred. It concerned Blinkbox Music Ltd (BML), which operated a music streaming business. In January 2015 BML's owner, Tesco, sold all of its shares in BML to a subsidiary of a company called Guvera.
At the time, BML employed 110 employees in its business, but the share sale had no immediate impact on them. BML continued to employ them notwithstanding the fact that BML's owner had changed from Tesco to Guvera. One of Guvera's directors became the sole director of BML and Guvera gave him a period of time to turn BML's struggling business around.
However, on May 11 2015 the BML director resigned. The following day, the chief executive officer (CEO) of Guvera sent his chief technical officer to BML with specific instructions on how to deal with the business going forward. These included requirements that certain information be provided to Guvera and that BML stop making payments while options were discussed with liquidators.
By this stage, Guvera was primarily interested in extracting certain assets and a small number of employees from BML. Fifty-four employees of BML were consequently dismissed as redundant on May 15 2015 and Guvera informed the remaining BML employees on May 18 that they had become employees of Guvera. BML went into administration on June 11 2015, having failed to pay redundancy and notice pay to the dismissed employees.
Had Guvera avoided any liability towards the dismissed employees by maintaining that they were employed by BML until the point of dismissal? The Employment Tribunal said no, finding that a TUPE transfer had occurred when Guvera's chief technical officer arrived at BML and started implementing the CEO's instructions. Guvera had assumed day-to-day control of BML's business "in a way that went beyond the mere exercise of ordinary supervision or information gathering between parent and subsidiary".
The ET concluded that BML's employees had transferred to Guvera under TUPE on May 12 2015 and were therefore Guvera employees when they were dismissed three days later.
Guvera appealed to the EAT, but it agreed with the approach taken by the Employment Tribunal. Guvera was no longer just the parent company of BML as it had taken control of BML's business and a TUPE transfer had occurred.
According to the EAT, the test to determine whether there has been a TUPE transfer is multi-factorial. The 'indicia of transfer' to which the High Court referred in ICAP are important aspects of that test, but no single factor is decisive either way. In this case, it was clear that Guvera had stepped into the shoes of BML as the employer.
This case illustrates that significant care should be taken when a parent company decides to show more of an interest in the business of its subsidiary (whether following a share acquisition or otherwise). If the parent starts making decisions and issuing directions in a manner which suggests that it has assumed control of the subsidiary, it could inadvertently become the employer of an entirely new workforce. Guvera has learned this lesson at a considerable cost.
For further information on this topic please contact Richard Moore at Lewis Silkin by telephone (+44 20 7074 8000?) or email (firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkinemployment.com.
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(1) Judgment available here.