The Court of Appeal held that although the TUPE Regulations do not apply to a share sale, they can apply where businesses are integrated on or after that share sale.
Facts: Mr Millam was employed by Fencourt Printers Limited (Fencourt). In 1999, McCorquodale Confidential Print Ltd (McCorquodale) bought Fencourt by way of a share sale. The Fencourt employees were told that it was McCorquodale’s intention to incorporate fully the business of Fencourt into its own.
McCorquodale took various steps to integrate the Fencourt business. These included paying wages to Fencourt staff, managing the Fencourt pension scheme, combining some of the board meetings, and taking over Fencourt’s sales function. However, Fencourt was not fully integrated within McCorqoudale. The companies were separately registered, had separate VAT registrations and also produced separate accounts.
In 2005, both companies went into administration. McCorquodale was subsequently bought by The Print Factory (London) 1991 Ltd (The Print Factory). No buyer could be found for Fencourt.
Mr Millam brought claims against The Print Factory, seeking a ruling that there had been a transfer of his employment from Fencourt to McCorquodale under TUPE. The Employment Tribunal agreed with Mr Millam. Whilst the share sale agreement gave the impression that no TUPE transfer had occurred, McCorquodale had done far more than a simple shareholder would have done following a share sale. In particular, McCorquodale’s integration of parts of the Fencourt business with its own, and its handling of a significant element of the management of Fencourt, set its actions apart from those of a mere shareholder.
The EAT overturned that decision, concluding that the Employment Tribunal had been wrong to ‘lift the corporate veil’, i.e. it was not appropriate for the Tribunal to look beyond the legal set up of the companies. The Court of Appeal overruled the EAT decision. The Employment Tribunal had not lifted the corporate veil, and was entitled to conclude that a TUPE transfer between Fencourt and McCorquodale had taken place.
In conclusion, to help avoid the risk of TUPE claims following a share sale, minimise the integration between the buyer and the acquired business. Also make sure that communications with staff do not refer to TUPE or suggest that TUPE applies.