TUPE and share sale takeovers

Employees in share sale deals have little redress under Transfer of Undertaking regulations, says John McMullen, professor of labour law at the University of Leeds and author of Business Transfers and Employee Rights

Q There is a dispute over whether the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) apply to the £505m takeover by William Hill of rival chain Stanley Racing on the ground that it is a share deal (Personnel Today, 28 June). Does TUPE apply to such a takeover?

A TUPE does not apply to a take-over of a company by way of acquisition of its share capital. This is because TUPE requires the transfer of an undertaking ‘from one person to another’. In other words, it requires the legal identity of the employer to change. On a purchase of a company by way of share sale acquisition, the legal identity of the company actually remains the same; it is just that the ownership of its share capital changes hands.

Q Was this intended by the framers of the legislation?

A Yes. The exclusion of share sale takeovers is perfectly lawful. Although an original draft of the Acquired Rights Directive includ-ed share sale takeovers, these provisions were eventually omitted from the final draft. And the Employment Appeal Tribunal (EAT) confirmed the exclusion of share sales from TUPE in Henry v London General Transport Services Ltd (EAT/960/97). In Brookes v Borough Care Services 1998 IRLR 636, the EAT held the exclusion applies even if the employer has deliberately chosen the share acquisition route in favour of a business transfer to avoid the operation of the TUPE provisions.

Q But what do employees miss out on in share sale takeovers? If the employer stays the same, aren’t their contracts of employment unaffected?

A It is true to say that, in such a case, there being no change of employer, there is no effect on the employment contract. But on a TUPE transfer, employers are obliged to inform and consult employee representatives before the transfer, and very stringent rules apply protecting employees against transfer-connected dismissals. It is also not possible legally to ask employees to agree to changes in their employment terms and conditions if the variation is by reason of the transfer.
Finally, under the new TUPE Regulations, there will be a specific duty on a transferor employer to disclose very broad ranging information about employees’ right to a transferee in good time before a transfer. None of these protections apply where there is a share sale takeover.

Q Will this change when the new TUPE Regulations come into force in April 2006?

A No. The question whether to extend TUPE to share sales has been a matter of debate for a number of years. In fact, a House of Lords select committee came out in favour of including share sales in its 1995-96 session report. But when the Acquired Rights Directive was amended in 1998, share sales were not included. It would always be open for the UK to extend TUPE to share sales, but the draft TUPE Regulations 2005 make no provision to enfranchise workers on share sales.

Q So workers have no TUPE rights when there is a share sale takeover either now or when the new TUPE Regulations come in?

A Correct. It would always be open to workers and their representatives to examine the facts of a case to see whether, along with the purchase transaction, there is any collateral business transfer that might qualify under TUPE. But on a share acquisition plain and simple, TUPE does not apply.

Leeds University Business School and School of Law are now offering a short course in employment law, the first of its kind in Yorkshire and the North-East. For more details, contact Rebecca Davies. Tel 0113 343 4502 or e-mail
rebecca@lubs.leeds.ac.uk

 

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