The law on consultation duties in TUPE situations has been settled for some
years. However, the law has recently gone full circle as to who has liability
for any failure to comply with those consultation duties.
The legal full circle
Up until early 2000, it was assumed that there was a significant incentive
on the transferring employer to comply with its consultation obligations. If it
did not, the individuals concerned could claim a protective award from it of up
to 13 weeks pay each. That claim did not pass to the transferee. Only if there
were very narrowly defined ‘special circumstances’ could such obligations be
avoided.
The cat was set among the pigeons in early 2000 in the Kerry case, which
said liability for protective awards did not stay with the transferor employer
but, contrary to everyone’s expectations, passed across to the transferee in
accordance with the normal rules for other liabilities on TUPE. There was a
huge outcry at this decision, since not only did it remove any real incentive
on a transferor employer to properly consult, but it put incoming transferee
employers into a very difficult situation, since it is often extremely
difficult to obtain any warranty or indemnity cover for liability.
The pendulum swung the other way in mid-2001 with the EAT decision in the
McKinnon case, which restored the previously assumed position, namely that
liability for protective awards stay with the transferor employer. That
decision was expressly stated to be on policy grounds, to ensure consultation
does in fact take place. In my view, that was a correct decision.
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The orthodoxy has again now been shattered in the recent decision of the EAT
in the Alamo case, which agreed with the Kerry decision, and again confirmed
that liability for the protective award passes to the transferee. Although the
EAT noted that this could hit the frequency of consultation, it said the
transferee need not worry since it could protect itself by warranties and
indemnities. Where they were not possible to obtain, the EAT speculated that
the special circumstances defence might possibly be applicable. However, the
way that defence has been construed to date would seem to preclude that
argument. The result is thus both unfair and unpragmatic.
All transferee employers must now factor into any bid or proposal the
possibility of picking up sizeable protective awards. The likelihood of that is
not always easy to predict, since the transferor will not necessarily tell
anyone what consultation it has undertaken, if any.
