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changing the last pay day before a business transfer is a measure requiring consultation

13 September 2012

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees in most business transfers and changes in contractors, so that the employment of those in the business or of the out-going contractor transfers to the new owner or contractor.

TUPE also imposes obligations on the outgoing employer to inform employee representatives about the proposed transfer and, where the employer envisages that it will take any measures in relation to employees, to consult with appropriate representatives with a view to reaching agreement on the measures. These obligations are to be taken seriously - an employment tribunal can award up to 13 weeks pay per employee for a failure to do so.

Outgoing employers in this situation do not often take measures in relation to their own employees, or so we thought. In the recent case of Todd v Strain & others the Employment Appeal Tribunal (EAT) held that quite minor administrative matters as a result of employees switching from one employers payroll to another were measures within the meaning of TUPE and so required consultation.

Mrs Todd owned a care home and, on 4 January 2008 sold it to Care Concern GB in consequence of which the following happened:

  1. Mrs Todd paid wages for 1 to 3 January shortly after the transfer, rather than waiting until the end of the month, which would be the employees normal pay-day
  2. The payment of three days wages might attract no, or possibly an inadequate deduction for tax and national insurance, which would require adjustment at the end of the month
  3. Mrs Todd paid a couple of extra hours pay reflecting the holiday entitlement for the 1 to 3 January period, which was then reclaimed by Care Concern at the end of the month

The EAT found that it was "not at all clear that there was any, or any but the most trivial, disadvantage to employees" but nonetheless found that the pay arrangements amounted to a measure which Mrs Todd should have consulted employee representatives over. The EAT awarded seven weeks pay for each of the 32 employees (totalling over four years pay). This, in the EATs view, was appropriate in view of Mrs Todds complete failure to arrange for the election of employee representatives (although this was mitigated by the fact that she provided employees with most of the required information); and her failure to inform and consult about the revised pay arrangements. It was appropriate to award compensation for the latter because, it had been found, these revised arrangements caused the employees to worry.

The result of this case may be that innocuous administrative arrangements which happen as a result of a transfer such as closing early the day before the transfer, or arranging a meeting with the new owners, could be measures requiring consultation with employee representatives.

Practical steps for the outgoing employer

  • If in doubt, err on the side of caution. Even very minor departures from the norm could be measures within the meaning of TUPE and should be subject to formal consultation with employee representatives
  • Plan ahead - representatives might need to be appointed by way of an election before consultation can take place
  • Consider TUPE indemnities in the contract / sale agreement. If your bargaining position is strong enough, you may be able to obtain an indemnity from the other party in respect of awards for any failure to inform and consult

Practical steps for the incoming employer

  • Remember that under TUPE you are liable jointly with the outgoing employer for their failure to consult transferring employees, so make detailed enquiries about any measures the outgoing employer might take, and the extent to which they have consulted on them
  • Again, consider apportioning liabilities under TUPE in the contract / sale agreement

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17Sep

In-house lawyers' update Manchester office

Our next in-house lawyers' sessions will give in-house lawyers the tools and strategies for dealing with some of the problems caused by recent changes to the law.

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25Sep

In-house lawyers' update Nottingham office

Our next in-house lawyers' sessions will give in-house lawyers the tools and strategies for dealing with some of the problems caused by recent changes to the law.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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