In the recent case of I Lab Facilities Ltd v Metcalfe and others UKEAT/13/0224 the EAT ruled that where an insolvent company sold part of its business and closed the other part, the employees of the closed part of the business were not “affected employees” in relation to the sale. As a result, they were not entitled to be informed and consulted with under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

I Lab Facilities provided services to the film and TV industry. It had two parts to its business: “rushes” (initial production) work and “post-production” work. The two parts of the business had the ability to share resources and clients but the core activities of each part remained distinct – with their respective employees working in different premises, doing different types of work and with different working hours.

When the company began to experience financial difficulties, it initially hoped to sell both parts of the business but was eventually only able to sell the “rushes” part. This sale was a “relevant transfer” for the purposes of TUPE, and the rushes employees duly transferred to the new employer. The decision was taken to close down the post-production part of the business, and the employees of this part were dismissed.

The dismissed post-production employees brought claims in the employment tribunal that 1) they should have transferred along with the rushes part of the business and 2) that I Lab Facilities had failed in their duty to inform and consult with them under TUPE as “affected employees” of the transfer. The employment tribunal dismissed their first claim, holding that they were not entitled to TUPE-transfer; but upheld the claim that they were “affected employees”. In light of the employer’s failure to inform and consult with the post-production employees, the tribunal made a maximum protective award (13 weeks’ pay per employee) in their favour.

I Lab Facilities Ltd appealed the tribunal’s decision to the EAT.

The EAT, in granting the appeal, held that the post-production employees were not “affected employees” of the transfer, and therefore there was no duty to inform and consult with them under TUPE. The EAT accepted the argument that it would be wrong in law to hold that employees were “affected” by a transfer on the basis that they were excluded from it. The EAT did not consider it relevant that the original proposal had been to transfer the full business. It noted that the duty to consult does not arise immediately when a transfer is first envisaged by an employer, but “long enough before” the transfer to allow for consultation to take place.

Impact for employers

  • This case is useful for employers in both insolvency and non-insolvency cases, where part of a business is being sold, leaving other employees behind. If the employees being left behind are not directly affected by the transfer, the duty to inform and consult will not extend to them. That could be the case even if that remaining part of the business is closing down (albeit in those circumstances there may be collective consultation obligations in respect of redundancies, depending on the number of employees to be dismissed).
  • However, it is important to note that the duty to inform and consult with the “non-transferring” employees may still arise where they are actually likely to be affected in some way by the transfer; for example, if their work is to continue after the transfer, but the transfer will result in a reduction or change in the work that they do.
  • The duty to inform and consult will not engage where there is an intended transfer which in the end does not materialise.