When TUPE Applies to Share Sales: Exceptions to the Rule C
Consultant Perspective
Angus Menzies
Solicitor (non practising), Legal Services (Employment)
angus.menzies@
kpmg.co.uk
Felicity Weston, Assistant Manager (Employment) Richard Phillips, Senior Manager (Corporate) also contributed to this article.
Angus Menzies is a non- practising solicitor and Director at KPMG. He heads up a client facing employment law group within a growing legal services team, having previously spent 6 years with an international law firm and 5 years in the City office of a national firm. As well as working on typical employment law matters Angus works closely with KPMG’s Employment Tax and IES teams providing employment law input to tax driven arrangements like salary sacrifice and to projects with cross-border elements like global employment companies and international assignments. He has a particular interest in what constitutes a “relevant transfer” under TUPE.
Many assume that private equity backed transactions avoid the scope of TUPE1 relying on the old adage that “TUPE does not apply to share transfers”. It is true to say that, generally, a share sale does not fall within TUPE’s scope because when the ownership in a company’s share capital is transferred, the legal identity of the employer is the same before and after the transfer. Indeed, extending TUPE protection to employees when an employer’s shares are bought or sold might be considered superfluous because all the rights and liabilities under employment contracts will be undisturbed by the transfer.
Historically, however, attempts have been made to afford greater employment protection to employees who work in businesses who might be affected by share acquisitions and disposals (for example, the Private Equity (Transfer of Undertakings and Protection of Employment) Bill 2007-08). The proponents of the Bill highlighted that share transfers often entail changes in management and reorganisations, which lead to contractual variations and dismissals, scenarios in which, under TUPE, employees enjoy significant protection. TUPE’s information and consultation obligations were also praised, and attempts were made to develop and expand upon these obligations in equity transfers as well as business transfers. However, the Bill was withdrawn at second reading in 2008, and the general principle remains that TUPE does not apply when there is a change of control of a business transfers by way of a share sale.
So, when does TUPE apply to a share transfer? As with any general principle, there are exceptions and those who ignore TUPE do so at their peril. There are several circumstances, both before and after a share sale to which TUPE can apply. For example, on an asset transfer which precedes a share sale, or when businesses are integrated following a share purchase.
Integration post share transfers In the case of Millam2
, Mr Millam was employed
as a printer by Fencourt Printers Limited (“Fencourt”). Fencourt was sold by way of a
share sale to McCorquodale Confidential Print Ltd (“McCorquodale”) on 2 November 1999 (the “Share Sale”). In 2005, both Fencourt and McCorquodale went into administration and the Print Factory (London 1991) Limited (“Print Factory”) bought McCorquodale’s business on 18 May 2005 by way of an asset transfer (the “Asset Transfer”). Mr Millam was dismissed on 17 May 2005, the day before the transfer and brought a series of claims against Print Factory.
Mr Millam alleged that by operation of TUPE, his employment had transferred from Fencourt to McCorquodale at the time of the Share Sale. The reason this was significant, was because if Mr Millam’s allegations were true, and he was an employee of McCorquodale immediately prior to the Asset Transfer, then Print Factory would have liabilities in relation to his dismissal.
The decision in the case of Millam centred around whether the business in which Mr Millam was originally employed (Fencourt) had been transferred to McCorquodale. The Court of Appeal agreed with the decision of the Employment Tribunal, and concluded that the business had indeed transferred across, because McCorquodale was in effect controlling Fencourt’s activities. Ostensibly, McCorquodale and Fencourt were operated as two separate businesses. They were registered as separate entities, with distinct VAT registrations and independent accounts. However, the Court concluded that McCorquodale had fully
56 Author Viewpoint
Risk and Insurance in Private Equity and M&A 2012/13
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