Tupe ruling signals shift in sellers’ staff liability

Court of Appeal rules that sellers in business transfers are liable for
employees who object to the move’s terms

When a business is transferred, the effects of Tupe are generally seen as
more concerning to the buyer than the seller.

The basic position is that the buyer inherits the staff and most liabilities
for them. But there are exceptions to this and the Court of Appeal has just
come up with a new one in Paul Humphreys v The University of Oxford (1) and The
Associated Examining Board (2).

Humphreys, an employee of the University, objected to having his employment
transferred to the AEB because it would involve a detrimental change to his
notice provisions.

Liability question

When the transfer went through, Humphreys brought a claim of wrongful
dismissal against the University, as well as the AEB. The Court of Appeal was
asked to decide whether it was possible for the University to have any
liability in these circumstances.

The University relied on paragraph 4(B) of Tupe which states that if an
employee objects to becoming employed by the transferee, he will be treated as
having been dismissed by the transferor when the transfer takes place. But he
will not have any claim against the transferor.

An appeal court considered a similar case in 1997 with Sita (GB) v Burton.
Here, the employees actually resigned before the transfer because they believed
the transferee was going to change their terms and conditions. They then
complained of unfair constructive dismissal against the transferor, relying on
the transferor’s duty to maintain their trust and confidence.

In that case, the EAT found that the employees had no remedy against the
transferor. The transferor was not in breach of contract. Moreover, the
regulations provided an absolute answer to any attempt by the transferee to
alter the terms unlawfully.

In Humpreys’ claim, the Court of Appeal approached the issue very
differently. It concluded that, if an employee objects to a transfer because of
a detrimental change to his terms and conditions proposed after the transfer,
the individual will be viewed as having been dismissed by the transferor at the
point of the transfer. The employee can then bring a claim against the
transferor in relation to his dismissal.

Claims risk

So what does this mean for employers involved in business transfers? If the
buyer proposes to change any of the employees’ terms and conditions to their
detriment after the transfer, the seller could face liability for unfair and
wrongful dismissal claims.

The seller will only avoid this potential liability if the employees do
something about the change of contractual terms after the transfer happens,
rather than before it.

It may seem unfair that the seller should be penalised for actions which
will be taken by the buyer. The answer for sellers must lie in the commercial
negotiations leading up to the transfer.

Insurance steps

The seller should insist on an indemnity from the buyer in respect of any
claim made by anyone who was employed before the transfer and who either
objected to the transfer before it happened or resigned in anticipation of the
transfer.

In the meantime, the University is seeking leave to appeal against the
decision to the House of Lords. We may not have heard the last on this subject.

By Jill Kelly, an associate with Tunbridge Wells law firm Thomson Snell
& Passmore

Key points

• Employees who object to a transfer before it happens will have their
employment terminated at the point of the transfer.

• Employees who object for personal reasons will have no claim against the
transferor or transferee.

• Employees who object because the transferee will change their terms of
employment can bring claims arising from the termination of their employment
against the transferor.

• The transferee will be liable to an employee who resigns after the
transfer because of a change to terms of employment.

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