The TUPE regulations do not generally apply where there is a transfer of control within the employing company as a result of a share sale agreement because, for TUPE to apply, there must be a transfer from one ‘person’ to another ‘person’. However, TUPE may apply to a share sale agreement not because of a ‘piercing of the corporate veil’ but because the company purchasing the shares has as a matter of fact also absorbed the day-to-day running of the business.
In Millam v The Print Factory (London) 1991 Ltd, the Court of Appeal has reversed the decision of the EAT, allowed an employee’s appeal, and declared that there was a TUPE transfer, even though the transaction took the form of a share sale agreement. This was not because the transaction was a sham but because, after the takeover, the employees were paid directly by the new owner, the new owner managed their pension scheme, and the sales staff moved to the new owner’s offices, from where the sales function was then carried out. Thus there had been a transfer from one ‘person’ to another.
Points to note:
# The legal structure of any transaction is important but is never conclusive in deciding whether it constitutes a TUPE transfer or not. That will always be a question of fact to be decided by a Tribunal, whatever form the parties may or may not have given to the transaction at the time.
# Where a purchaser starts to integrate the staff from the purchased company into its own business, or if it blurs the lines between the functions of the two companies, there is a much higher risk that TUPE will apply.
# In such a transaction, it is important to take legal advice not only on the wording of the relevant documentation but also on the employment law implications if the transaction is later found to have been a TUPE transfer. As the nature of the transaction may change as it progresses, this is something that should be monitored at all stages.
# The position is the same when dealing, under the 2006 TUPE regulations, with a service provision change. TUPE will apply wherever, as a matter of fact, the relevant activities cease to be carried out by one ‘person’ and are carried on instead by another ‘person’.