Employment Law – Buying and Selling Businesses – TUPE Consultation

David Lawson considers the consultation obligations imposed by TUPE in the light of the November 2004 EAT decision of Howard v Millrise Ltd, in particular the duties and potential liabilities of transferee purchasers of businesses.

Regulation 10 of the Transfer of Undertakings (Protection of Employment) Regulations (SI 1981/1794), as amended (‘TUPE’) requires employers to consult all employees who are affected by a TUPE transfer. This applies to vendors and purchasers and, for example, requires a purchaser to consult its current employees about how the purchase will affect them as well as imposing the more obvious requirement for vendors to consult.

The inconvenience this creates flows from the tricky requirement of the Courts (and the Regulations) that such consultation be ‘genuine’. The consultation must take place long enough before the transfer: for employee representatives to consider the arrangements surrounding the transfer and to make representations; for the employer to respond to those representations, including giving reasons for any representations which are rejected.

This is difficult enough where there is a recognised union already available for consultation. If there is no union the employer must consult elected representatives. Where these also do not exist they must be elected and it is not acceptable to talk to employees individually or (of course) to ignore the requirement to consult. There are requirements of fairness for the election which make immediate action difficult and a requirement on the employer to wait a ‘reasonable time’ for the affected workers to hold an election which makes immediate action impossible.

In Howard v (1) Millrise Limited t/a Colourflow (In Liquidation) (2) S G Printers t/a Colourflow Millrise Ltd (EAT 9/11/04, unreported) the EAT noted, to its surprise, that these issues had not been determined in any known case and confirmed the principles set out in this note. Mr Howard was one of seven employees. His employer was in financial difficulties and began negotiations to sell the business at the start of April. On 15 April they dismissed Mr Howard (and one co-worker) and on 30 April the business was sold. The Applicant won his breach of contract and (automatically) unfair dismissal claims but lost his claim for failure to consult because he was not an elected representative.

The EAT held that the employer is obliged to:

• invite employees to elect representatives;
• give the employees a ‘reasonable time’ to do so;
• consult with those people elected.

Only if the employees fail to carry out an election within a reasonable time can the employer consult directly – and therefore individually – with the employees. (However, it is for the employer to make arrangements to ensure that the election is fair and, if challenged, to prove that it was fair. This may reduce the practical possibility of relying on the employees’ failure to act).

Purchasers of businesses face a two-fold liability. First, they may need to hold elections within and consult their own workforce. Secondly, EAT authority suggests (although there is a conflict of authority summarised in Alamo Group v Tucker [2003] ICR 829, CA) that liability for failure to consult does transfer to the purchaser.

There is a defence that the failure to consult was due to special circumstances which rendered it not reasonably practicable to comply and that the employer took such steps to comply as were practicable. Perhaps this might apply where businesses were purchased urgently from insolvency practitioners.

Where an award is appropriate applicants are likely to argue, by analogy to consultation requirements in collective redundancies, that maximum awards should be made (Suzie Radin v GMB [2004] IRLR 400, CA).

The result is that many sale and purchase agreements require a balance of risks between speed and secrecy on the one hand and group litigation from disaffected employees on the other. In the circumstances the latter is perhaps remarkably rare.