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Assumptions can be dangerous when buying or selling a business, says Jesper Christensen, head of employment at Bircham Dyson Bell

When conducting M&A, it is vital to keep on top of employment law. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply to a wide variety of business transactions, including buying or selling a business as a going concern and changes in service providers.

TUPE imposes a number of employment related liabilities on employers involved in TUPE transfer situations, including the liability for failure to inform and consult employees about the forthcoming transfer.

Cost implication

Failure to comply with the obligation to inform and consult can render the employer liable for a protective award of up to 13 weeks’ pay per affected employee. Following Susie Radin Ltd v GMB & others (a redundancy consultation case), tribunals have applied this strictly, tending to award 13 weeks’ pay as a matter of course as a punitive measure against the employer.

This issue has been considered again recently in Cable Realisations v GMB, a case which has established the following principles:

1. The obligation to inform affected employees is a discrete obligation which arises even if no measures are contemplated in relation to a transfer.

2. Employers who fail to comply properly with their obligation to inform and consult do not automatically face a protective award of thirteen weeks’ pay per affected employee. Rather, the size of the protective award should reflect the justice of the case.

A further helping hand for employers in TUPE transfer situations also appears to have been provided by Royal Mail v Communication Workers Union.

In this case, Royal Mail took the view that TUPE did not apply to the sale of some Post Office services to WH Smith. The Court of Appeal accepted Royal Mail’s position, holding that the only obligation on a transferor employer is to communicate matters (such as the legal, social and economic implications of the transfer) as it believes them to be.

The Court was persuaded that it was not for the employer to warrant the accuracy of the law. If the employer provides incorrect information as to the legal implications of the transfer, it will not be liable for a failure to inform and consult on the basis of that mistake alone as long as the employer believed that the information was correct.

While this decision may be welcomed by employers, it is likely to prove a problematic decision in less clear cases. Royal Mail was able to show that it genuinely believed that TUPE did not apply to the sale and there was nothing to indicate that this belief was not genuinely held.

Other cases may necessitate the courts having to make an inquiry into the minds of employers to ascertain genuine belief. Employers may struggle to show that their beliefs are genuine, especially in relation to social and economic implications.

Unfortunately, the Court of Appeal has failed to give any particular guidance on this issue, other than to state that it may be difficult for an employer to establish genuine belief if it has failed to take legal advice.

To contact Jesper Christensen click here
To find out more about Birchm Dyson Bell click here

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