Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), the transferor, as the outgoing employer, must inform representatives of the affected employees about the transfer, and potentially also consult with them. The transferee, as the incoming employer, can be on the hook if it hinders this process by failing to provide adequate information about the measures it envisages taking in relation to transferring employees after the transfer.

Duty to inform/consult under TUPE

In a transfer situation, TUPE states that it is the duty of the outgoing employer, i.e. the transferor, to inform representatives of the affected employees about the measures the incoming employer, i.e. the transferee, is proposing to take in relation to the transferring employees after the transfer. In order for the transferor to meet this obligation, a degree of cooperation between transferor and transferee is required. There is therefore a corresponding obligation upon the transferee to provide the necessary information about the envisaged measures to the transferor.

The transferor will have a defence to a claim that it failed to properly inform or consult the transferring employees about the transfer if it can show that it was “not reasonably practicable” for it to comply with its obligations – if, for example, a transferee did not provide the correct or all of the necessary information. If the transferor notifies the transferee of its intention to raise this defence, the transferee will be automatically joined as a party to the proceedings. Once the transferee has been joined as a party, the tribunal can order that it should be the transferee, rather than the transferor, that compensates the employees. The amount of compensation is whatever amount the tribunal considers just and equitable, up to 13 weeks’ gross pay for each affected employee.

The dispute in this case

The claimant in this case worked for Ms Middleton, a sole trader who ran a business providing hydrotherapy treatment for injured dogs called Black Dog Hydrotherapy. When Ms Middleton retired, she transferred the business to a company called Black Dog Hydrotherapy Ltd (BDH Ltd) which had been set up by one of the other employees. The claimant transferred to BDH Ltd under TUPE.

The claimant later resigned, citing a breakdown in relations and the fact that BDH Ltd intended to make changes to employees’ contracts. She brought a tribunal claim against Ms Middleton, seeking an award for failure to inform or consult, and against BDH Ltd for unpaid wages, holiday pay and unfair dismissal.

Following ACAS conciliation, the claimant settled her claims against BDH Ltd under a COT3 settlement agreement, but the claims against Ms Middleton proceeded to tribunal. At the hearing, Ms Middleton maintained that any failure to properly inform or consult the claimant had been caused by BDH Ltd not giving her the correct information about its proposed measures. Consequently, any liability for an award should fall to BDH Ltd. The tribunal agreed with this, but also found that the COT3 settlement agreement with BDH Ltd precluded any compensation being awarded against it. The tribunal was therefore left to consider only a “very technical breach” of TUPE, in that Ms Middleton hadn’t told the claimant that the new employer would be BDH Ltd, rather than the employee who set up BDH Ltd acting as a sole trader. On that basis the tribunal exercised its discretion and awarded no compensation.

The claimant appealed to the EAT. The EAT upheld the tribunal’s decision that the BDH Ltd was not liable but overturned the decision to make a zero award of compensation against Ms Middleton and sent the case back to a fresh tribunal for reconsideration.

Key points from the EAT’s decision

There are three main takeaways from this decision:

1. The outgoing employer must provide all the information required by TUPE

The EAT found that the tribunal had been wrong to make a zero award in respect of Ms Middleton’s failure to inform the claimant of the transferee’s name. The EAT considered that knowing precisely who one’s employer is, is of fundamental importance to any employee. It is part and parcel of the duty to tell employees that a transfer is to take place that the employees be informed of the identity of the transferee. It was not a “mere technicality” as the tribunal had said. In practice, the name of the transferee may not always be known at the outset, especially where some form of special purpose vehicle is involved to purchase a business, such as the new entity in this case. This ruling underlines the importance of ensuring that all the requisite information is provided, but employers should note that the information must be provided “long enough” before the relevant transfer to enable adequate consultation – meaning that information can technically be ‘drip fed’ as and when it arrives.

2. Confirmation of who should inform and consult

The tribunal had suggested that the claimant could have brought a claim directly against BDH Ltd for failure to inform or consult. The EAT made it clear that the tribunal had made a mistake here. In this case the obligation fell on Ms Middleton, not on BDH Ltd. There was no mechanism for the claimant to name BDH Ltd as a party to this portion of her claim. The only way to achieve this was by Ms Middleton citing BDH Ltd’s failure as her defence. This is a useful reminder that it is the duty of the affected employee’s employer to inform and consult under TUPE.

3. COT3 settled all claims

Claims for failure to inform or consult under TUPE can only be settled under a COT3 agreement reached via ACAS. The EAT found that the tribunal had been correct to find that the COT3 agreement reached between the claimant and BDH Ltd was wide enough to preclude any compensation being awarded against BDH Ltd, given the reference to “all claims” in the case being settled. The claimant was drawing a line under BDH Ltd’s entire involvement in the proceedings and was giving up her rights to a remedy against them. The ruling illustrates that a broadly drafted COT3 settlement can be relied upon to bar claims.

Conclusion

This is a technical decision reminding us who is responsible for what under TUPE and how to ensure liability is placed at the correct party’s feet. Outgoing employers should remember to provide TUPE information to the representatives of affected employees as and when they can, and incoming employers should beware the regime for imposing liability on them, if they fail to provide adequate information about the measures they are planning – a point which can be used to apply pressure to ensure their cooperation.

Clark v Middleton and another – judgment available here.