When Can a Share Sale lead to a TUPE transfer?

The EAT have explained that a share sale could trigger a TUPE transfer in certain circumstances.

10th April 2014

 

The EAT explains in Jackson Lloyd Ltd and Mears Group Plc v Smith and others

When deciding if TUPE applies in a corporate transaction, the first question has always been “is it a share sale or an asset sale?” If it is a share sale, it is easy to presume that TUPE will not apply as the employer remains the same and it is just the ownership that changes. It is only if it’s an asset sale that people are accustomed to thinking about TUPE. However, the recent EAT decision in Jackson Lloyd Ltd and Mears Group Plc v Smith and others is a reminder that there is a bit more to it than that. 

The background to the case is as follows:

  • Jackson Lloyd Limited was the employer of around 450 people.
  • Mears Group Plc was the parent company of Mears Limited.
  • In September 2010 Mears Limited bought all of the shares in Jackson Lloyd Limited.

The EAT found that there was a business transfer under TUPE to the ultimate parent company Mears Group. The share sale did not directly result in the TUPE transfer, but it did trigger a “co-extensive” TUPE transfer when all of the relevant factors were taken into account. Those factors were: 

  • The existing Jackson Lloyd board members resigned and were replaced by Mears Group nominees.
  • The employees were told that as Mears Group had purchased Jackson Lloyd there would be an integration programme which would result in them moving over to Mears Group. 
  • The integration exercise went ahead and was overseen by Mears Group employees and an integration consultant. The integration included changing policies, procedures, work methods and control to Mears Group, while retaining the Jackson Lloyd branding and uniform for staff. 
  • The changes were enforced by Mears Group employees rather than, for example, the Jackson Lloyd HR team, and they were not made in accordance with the existing Jackson Lloyd mechanisms for making such changes.

Mears Group’s actions after the share sale were sufficient to trigger a business transfer under TUPE. Importantly, the employees did not transfer to Mears Limited, the company that bought the shares in their employer: they transferred to the ultimate parent company Mears Group because it took over control of Jackson Lloyd and went as far as to tell employees that they would be moving over to it.  The share sale brought the companies into the same group which enabled Mears Group to take control in this way. 

The case also serves as a reminder that if there is no TUPE consultation (which will undoubtedly be the case if it is not recognised that TUPE applies) then individual employees may be able to bring claims directly for failure to inform and consult without relying on representatives.  Jackson Lloyd had worked with employee representatives in the past but the representatives’ terms of appointment had all expired and the EAT were satisfied that these former representatives were not proper representatives for the purposes of TUPE consultation.  Consequently, as there were no representatives to pursue TUPE claims any of the employees affected by the transfer could bring an individual claim for compensation for the failure to inform and consult with them about the TUPE transfer. 

What key things should you be aware of?

  • It is possible for TUPE to apply after a share sale depending on what is done with the business of the acquired company, so make sure you keep the possibility of TUPE in the back of your mind even after the deal structure has been agreed.
  • Think carefully about employee communications following an acquisition. Here, it was relevant that employees had been told there would be an integration programme and that they would be moving to the parent company. 
  • The tribunal will often approach the question of TUPE from the employee’s perspective. If the changes had been more gradual, involved collaboration with Jackson Lloyd personnel and were made in accordance with existing Jackson Lloyd policy, then it is less likely that a TUPE transfer would have been deemed to have taken place already. 

The judgement can be accessed here