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Employment  Memo 2007 Newsletter Issue 2

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Transfer of the business

Types of transfer

1. Whether economic identity?

¶7932 TUPE now contains an express definition of an economic entity based on the principles drawn from case law decided before the new TUPE regulations came into force. Consequently, this case decided under the old TUPE rules still provides guidance.

In this case, the claimants had been working on short-term contracts for a company, Wightlink (Guernsey) Limited (WGL), which supplied personnel to do a variety of jobs on different ferries. WGL decided to change its practices and to only employ permanent employees with the result that the claimants were offered the same work by another company, Guernsey Ship Management (which WGL had entered into an arrangement with) for lower pay. The claimants brought an action that this was a TUPE transfer in order to seek TUPE protection with regard to their terms, but this failed on the grounds that they did not form an economic entity. On appeal, the Court of Appeal held that although, on the one hand, the claimants could be said to belong to a group which could be identified because all members had short-term contracts and fulfilled a specific role in WGL’s business, on the other hand they all did different work, on different vessels. To the Court’s mind, neither factor was conclusive and the tribunal was entitled to hold that, taking both factors into account, this group was not an economic entity.

Wain & Ors v Guernsey Ship Management Ltd [2007] EWCA Civ 294

2. Evidence of business transfer following a transfer of shares

¶7932 This case concerned a transfer of the shares of a subsidiary company to its parent company. The Court of Appeal has emphasised that the mere fact of a transfer of control, i.e. ownership of the shares of the company, will not be sufficient to establish the transfer of the business from subsidiary to parent. What is needed for a TUPE transfer is for the overall arrangement to have changed so that the subsidiary’s day-to-day activities can be shown to have transferred to the parent company. This is simply a question of fact and it is not necessary to “pierce the corporate veil” to ascertain whether the transaction was in fact more than a share sale. In this case, as the tribunal had found that on the facts the subsidiary’s day-to-day activities had transferred to the parent company it was entitled to hold that there had been a TUPE transfer.

Millam v The Print Factory (London) 1991 Ltd [2007] EWCA Civ 322 now reported at [2007] IRLR 526, CA

Comment  As can be seen, a pure transfer of shares remains outside the scope of the TUPE rules.

Varying terms and conditions

Favourable conditions agreed on transfer

¶¶8015+ The new TUPE regulations make it clear that variations due to the transfer (or connected to the transfer and not due to an ETO reason) are void (¶8015). However, the EAT has recently held that this does not prevent an employee from taking advantage of a variation which he considers more favourable.