Employees TUPE Transferred to Purchaser’s Parent Company Following Share Sale

TUPE applied where, following a share sale, the purchaser’s parent company took over day to day control of the company’s business activities.

In Jackson Lloyd Ltd and Mears Group v Smith, Mears Ltd (“M Ltd”), a subsidiary of Mears Group plc (“M PLC”) acquired Jackson Lloyd (“JL”) via a share sale. Members of JL’s board resigned and were replaced with M Group nominees. The employees were told that M Group had acquired the company and would be embarking on an integration programme, as a result of which they would move over to M Group. A team of integration managers and support staff attended JL’s sites to oversee the integration.

A number of employees brought tribunal claims against JL and M Group for failure to inform and consult under TUPE. The tribunal had to consider whether TUPE applied. It ruled that the acquisition of JL’s shares by M Ltd did not amount to a TUPE transfer. However, JL’s employees had TUPE transferred to M Group at that time. From the date of acquisition by M Ltd, M Group had exercised control over JL’S business.

The EAT upheld the tribunal decision. The tribunal had been entitled to take account of what happened after the share sale, including the statement of intent and the arrival of the integration team and conclude that there had been a TUPE transfer to M Group.

It rejected the employer’s argument that any transfer had been to M Ltd and not M Group. The employees had not claimed that the share sale constituted a TUPE transfer but that the share sale triggered a co-extensive but separate TUPE transfer to M Group. Their argument was that the evidence showed that as a matter of fact day to day control of JL’s business activities had passed to M Group and the tribunal had been entitled to accept this on the facts.

Although TUPE does not apply where there is a share acquisition, as opposed to an acquisition of the business, the Court of Appeal previously ruled held in Millam v Print Factory that TUPE may apply where, following a share acquisition, the business of the acquired company is in fact integrated into the purchaser’s business and carried on by the purchaser. The decision in Jackson LLoyd is made on the same basis, the only difference being that the business was integrated into the business of the purchaser’s parent company, rather than the business of the purchaser itself.

Companies involved in share acquisitions need to be aware of the risk that TUPE may apply if they plan to integrate the business of the acquired company into their existing business. Failure to do so could result in unexpected claims, not just for failure to inform and consult but potentially for automatic unfair dismissal where employees are dismissed or resign as a result of detrimental changes in working conditions.