Court of Appeal TUPE risks following a share sale

Company A was sold to company B by way of a share sale. A few years later, both companies went into administration. Company B’s business was sold to company C by way of asset transfer, which was a transfer to which TUPE 1981 applied.

Before the earlier share sale, Millam was employed by company A, but argued that his employment had transferred to company B following the share sale, and that he should have transferred to company C on the later TUPE transfer. The issue for the Court of Appeal was who was Millam’s employer at the time of the TUPE transfer to company C.

The Court of Appeal agreed with Millam, and held that his employment had transferred to company B following the share sale. Company A’s business had integrated into company B’s business to such a degree post-sale that TUPE had been triggered. The reasons for this included that: company B handled company A’s sales function company B paid company A’s employees’ wages and administered the pension scheme there were combined board meetings and a large part of company A’s work was being carried on for company B.

Key points

The Court of Appeal restated the principle that TUPE does not apply to share sales (Brookes v Borough Care Services). TUPE can, however, apply where businesses are integrated following a share sale. The mere fact of control will usually be insufficient to trigger TUPE, but often there will be little to distinguish between the transfer of control and transfer of the business to a new parent.

There were unusual circumstances in this case, including references to business integration and TUPE in employee communications following the share sale.

What you should do

Be aware that there can be a business transfer following a share sale where there is sufficient integration between the parent and subsidiary post sale.

To avoid the risk of TUPE claims, to the extent possible, minimise integration between the buyer and the acquired business. Also ensure that employee communications do not refer to TUPE or suggest that TUPE applies.

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