Transfer ruling encourages responsibility

Awards of compensation for a failure to inform and consult about staff transfers under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) should be penal and not compensatory, according to the Employment Appeal Tribunal (EAT) in Sweetin v Coral Racing.

Ms Sweetin was employed by Toals, a firm of bookmakers, at its shop in Stranraer, Scotland.

Following a TUPE transfer in September 2003, her employment transferred to Coral Racing. Neither Toals nor Coral carried out any form of information and consultation in connection with the transfer.

Failure to consult

In December 2003, Sweetin resigned from her post following an alleged failure by Coral to deal with an unrelated grievance.
She brought a number of claims against the company, including a claim for compensation for the failure to inform and consult her about the transfer.

Under the 1981 TUPE regulations, if an employer fails to comply with its information and consultation obligations, a tribunal has the power to order it to give up to 13 weeks’ pay to each affected employee.

As the law currently stands, liability for a transferor’s failure to inform and consult passes to the transferee on a TUPE transfer, which is presumably why Sweetin brought her complaint against Coral.

Serious breach

In this case, the tribunal held that there had been a failure to inform and consult, and awarded Sweetin six weeks’ pay. She appealed against the decision, arguing that the tribunal should have awarded her the maximum amount of compensation in light of the seriousness of the breach.

The EAT agreed with Sweetin. It said that, considering the total failure to inform and consult, the starting point for the tribunal in awarding compensation should have been the maximum amount of 13 weeks’ pay.

It pointed out that the information and consultation provisions under the TUPE regulations were similar to the consultation provisions under the Trade Union and Labour Relations (Consolidation) Act 1992. And it referred to the Court of Appeal’s recent guidance in Susie Radin Ltd v GMB and others on the factors to consider when determining the amount of a protective award.

Penal award

The EAT said that both pieces of legislation required the tribunal to focus on the nature and extent of the employer’s breach and that such awards were clearly intended to be penal rather than compensatory.

It went on to say, however, that tribunals were entitled to have regard to any losses suffered by the employee as a result of the employer’s failure to inform and consult, so long as they recognised that the purpose of any award was penal and that proof of loss was not necessary and should not determine the level at which to fix the award.

The EAT went on to award Sweetin 13 weeks’ pay.

Key implications

The EAT has made it clear that when calculating compensation for a failure to inform and consult about a TUPE transfer, tribunals will focus on the employer’s breach, which means that future awards are likely to be higher rather than lower than previous awards.

The TUPE Regulations 2006 will come into force on 6 April 2006. While the principles outlined above will remain relevant after this date, under the proposed regulations the transferor and transferee may be held jointly liable to pay any award of compensation for a failure by the transferor to comply with its information and consultation requirements. In other words, transferors will not be able to sit back and relax with regard to their information and consultation obligations.

Both transferors and transferees should consider including appropriate indemnities and warranties in any transfer agreement so both parties are clear on the extent to which they will be liable for any failure on the part of the other to inform and consult properly.

By Sue Nickson, partner and head of international employment, Hammonds

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