The EAT recently had to consider whether TUPE introduced a statutory cap on the amount of a week's pay for the purpose of an award of compensation where there has been a failure to inform and consult (Zaman and others v Kozee Sleep Products Ltd t/a Dorlux Beds).
The case arose out of an administration, where an insolvent business was sold on the same day as the company went into administration. The employment tribunal upheld the claims against both the purchaser and the seller, jointly and severally, for breach of the duty under TUPE to inform and consult about the transfer. It awarded 13 weeks' pay to each affected employee, but applied the statutory cap on a week's pay, which at that time was £350. Under the old TUPE regulations there was no limit on a week’s pay, but when the regulations were overhauled in 2006 they appeared to impose the statutory limit on awards of this kind.
On appeal, the president of the EAT ruled that the cap does not apply in such cases. A failure to consult may, therefore, result in the maximum penalty of 13 weeks' full pay per affected employee. The three claimants in this case saw their compensation at least double from £4,550 to between £9,100 and £13,000 each.
Impact on practitioners
- In an insolvency situation, there is usually little time to comply with the information and consultation requirements under TUPE in advance of a sale of the business.
- Practitioners should, however, be aware that the maximum award for failure to do so is 13 weeks' actual pay. While such an award should, on current case law, be an unsecured claim (rather than an administration expense), the liability to pay it is joint and several between the seller and the purchaser, and the purchaser is likely to take the risk of an award into account when determining the consideration to be offered for the business
- To reduce the risk of a maximum award being made, practitioners should attempt to comply with the information and consultation requirements so far as possible in the proposed timescale and should be able to demonstrate what has been done to the purchaser.