Veils of another sort were in issue in a recent Court of Appeal case involving the Transfer of Undertakings Regulations (TUPE). The court had to consider the relationship between a subsidiary and a parent company that had recently acquired its shares. Normally TUPE does not apply to share sales, as the identity of the employer doesn’t change, but in this case the Employment Tribunal (ET) had found that the parent company had assumed an unusual measure of control over the activities of its newly acquired subsidiary. It therefore concluded that the business previously carried on by the target subsidiary had in fact been transferred to the new parent company under TUPE.
The EAT overturned this decision because it decided that the ET had been wrong to ignore the corporate structure or, putting it in legalese, to pierce the corporate veil. The Court of Appeal said the EAT was wrong to draw this conclusion. In TUPE cases the corporate structure was just a starting point. The correct question to ask was whether there had been a transfer of a business. This would not usually happen in share sales, but that did not mean it could never happen if the day to day conduct of the underlying business was assumed by the parent company after the sale.