New ISG Ltd v Vernon and others (High Court)

Employees have the right to object to being transferred to a new employer under Regulation 4(7) of TUPE. They can do so by informing either the transferor or the transferee. The employee’s employment will then be terminated by operation of law at the time of the transfer. They are not for any purpose taken to have been dismissed.

Usually, the employee will raise an objection to the transfer prior to the transfer itself. In this case, however, Mr Vernon and his colleagues in the sales team were not informed of the identity of the transferee (to be known as New ISG Ltd) before the sale was completed. Neither were they informed that they had the right to object.

ISG had gone into administration in July 2007 and the administrators were looking to sell some of the assets of the company. They managed to complete the sale on 27 July 2007 to New ISG. Unfortunately for Mr Vernon and his colleagues the buyer was a subsidiary of a company for whom they had said earlier that day that they would not work for. Such a view had not prevented the sale going ahead. The sales team resigned on mass on 1 August 2007 and started to work for a competitor.

New ISG tried to impose covenants, preventing the sales team working for the competitor. These covenants were originally entered into by the sales team with the old ISG. New ISG sought an interim injunction to enforce the covenants, arguing that the right to object must be exercised before the transfer. Since that right had not been so exercised New ISG argued that the benefit of the covenants passed to them upon the transfer.

The High Court did not agree with New ISG. It held that a valid objection can take place after the date of the transfer where the employee does not know of the identity of the transferee and objects promptly upon the identity being made known to him. This allowed, in retrospect, the resignations to be construed as objections. Thus the contracts and benefit of the covenants did not transfer to New ISG.