The baring of teeth in popular culture (for Halloween, the dental work in Real Wives of Orange County and by media vampires) has recently been reflected in commercial and judicial culture too.
How? By an Employment Tribunal ordering a transferor to pay £65,500 to a transferee as compensation for the transferor having failed to provide Employee Liability Information.
Is it significant? Yes, because providing Employee Liability Information at least 28 (previously 14) days before a TUPE transfer takes place has long been regarded by many as a waste of time.
Why? Because most tenders or business purchases involve a diligence exercise that roots out this (and much more) data already, relegating Employee Liability Information to a backwater.
So? Transferors now need to be very careful not to disregard an obligation that has previously been more honoured in the breach than in the observance.
This is the background:
regulation 11 of TUPE requires a transferor to provide the transferee with certain information about the transferring employees, unless there are special circumstances that excuse this;
the Employee Liability Information includes “any court or tribunal case, claim or action that the transferor has reasonable grounds to believe that an employee may bring against the transferee, arising out of the employee’s employment with the transferor”;
in this case, Eville & Jones (UK) Ltd (“Eville“) won a contract that resulted in it replacing Grants Veterinary Services Ltd (“Grants“) as a supplier to the Food Standards Agency (“FSA“). So Eville was expecting Grants’ employees to transfer to it under TUPE;
as a result of losing its contractor status (the FSA was its only client) Grants got into financial difficulties that involved discussions about possible insolvency and, as a result of having its bank account frozen, could not pay its staff their final month’s salary before the transfer to Eville;
in fact, Grants’ employees never got paid by it and they brought claims against Eville for their entitlement to salary (because TUPE causes rights and liabilities to transfer automatically);
Eville then issued Employment Tribunal proceedings against Grants for breach of TUPE, arguing that Grants had reasonable grounds to believe that its employees might bring claims against Eville arising out of their employment with it and that it had failed to inform Eville;Top
The Employment Tribunal upheld the claim and made an award of £500 for each of the 131 transferring employees.
Compensation or enrichment? It’s interesting to note that £500 per employee is the minimum award that can be made in this situation and that the total amount awarded was probably more than the cost to Eville of setting things straight again. So Eville were “quids-in”. But the Employment Tribunal was comfortable with this: it reflected the fact that Grants’ failure was significant and deliberate.
And your lessons? There are several:
If you’re a transferor:
obviously: provide the Employee Liability Information;
provide it a 2nd time (or refer to it as having been provided) when responding to a due diligence questionnaire;
if you’re a transferee;
try to get an indemnity from the seller (in an SPA);
try to get an indemnity from the customer (on a service provision change);
remember that indemnities are pointless – and you’re on your own – in an insolvency;
don’t forget to do a true-up after taking over a contract: you only have 3 months within which to bring a claim for not having been provided with Employee Liability Information.
TUPE will soon be 34 years of age – in its prime (some might say) – but no doubt with potential. So if you are faced with this sort of commercial situation, get in touch: by investing in some practical advice you’ll save a lot of money by minimising your risks.