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Business transfers
[ch 12: pages 374-376]There will be a business transfer where, immediately after the transfer, there is an identifiable economic entity that has retained its identity. This is often described as the “going concern” test. Broadly speaking, it involves examining whether whatever has changed hands on the transfer date is a recognisable business, capable of continuing to function as a going concern, as opposed to just a collection of assets, such as land and buildings, where there is no intention of carrying on the business.
The economic entity does not have to exist separately before the transfer. TUPE will still apply if the separate business only emerges as a result of the transfer (Fairhurst Ward Abbotts Limited v Botes Building Limited [2004] IRLR 304).
TUPE can still apply even if the sold business is integrated into the buyer’s business immediately after the transfer.
To decide whether a business transfer has taken place, tribunals adopt what is often described as a “multifactorial” test. This is just another way of saying that the tribunal must examine all the relevant facts and context to decide what has happened. Relevant factors can include:
• the type of business being transferred;
• the assets being transferred and whether these include goodwill, equipment or premises;
• whether the majority of the employees are being taken on by the new business, and if not, why not;
• whether customers are transferring;
• similarities and differences between the activities of the new and old business; and
• any break during which activities are suspended, the reason for and length of that break.
The leading European cases that established this test are Suzen [1997] IRLR 255 and Spikjers [1986] ECR 1119.
There can sometimes be a transfer even where operations are temporarily suspended before a sale or service provision change (Housing Maintenance Solutions Limited v McAteer [2014] UKEAT/0440/13/LA).
In Wood v Caledonian Social Club Limited EAT/0528/09, a bar suspended operations when it lost its alcohol licence, and Mr Wood was dismissed. Even so, when the bar reopened a few weeks later under new management, he was allowed to bring a claim for unfair dismissal against the new business.
Tribunals sometimes need to look at the motivation of the transferor/seller to understand why staff are not being taken on by a new business. Especially in the context of insolvency and business rescue, administrators often argue that pre-sale dismissals are due to not having enough money to pay wages, and have nothing to do with the sale of the business. This is one of the main areas where TUPE fails to protect workers. The situation has been made even more difficult as a result of the changes to TUPE made in 2014 (see page 404). Here is a notorious example from 2002:
In 2002 a Liverpool employment tribunal announced that 86 workers dismissed by their former employer, Friction Dynamics, a car parts manufacturer in North Wales, had won claims for unfair dismissal. The workers had been sacked for taking strike action in defence of their terms and conditions of employment and the recognition of their union, TGWU.
But the tribunal victory was virtually worthless because the employer collapsed into insolvent administration. The business then re-emerged, effectively under the same management, but renamed Dynamex Friction. But the employment contracts of employees dismissed by the administrator before the collapse did not transfer to the new business because the administrator was found to have dismissed them because there were no funds to pay their wages (a reason unrelated to the transfer), and there was no evidence that the administrator colluded with management regarding its plan to resurrect the business as a new company. The insolvency meant that workers only recovered their basic awards, money that came from the taxpayer not from the employer.
Dynamex Friction v Amicus [2008] EWCA Civ 381