Transfer of an economic entity that retains its identity

The first type of transfer is a transfer of an economic entity which retains its identity (regulation 3(1)(a) of TUPE). An “economic entity” is defined in the regulations as “an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary” (regulation 3(2)).

This kind of transfer is sometimes referred to as a transfer of a business as a going concern. In essence, tribunals are asked to consider whether, looking at all the facts, what is being transferred is a distinct business, capable of continuing to function as a going concern, or alternatively just a collection of assets.

The economic entity does not have to exist separately before the transfer, instead it can emerge as a result of the transfer (Fairhurst Ward Abbotts Limited v Botes Building Limited [2004] IRLR 304). And integration of the sold business into the buyer’s business will not stop TUPE applying, as long as the link is maintained between the workers and materials and their economic activity before the transfer (Klarenberg v Ferrotron Technologies GmbH [2009] IRLR 301).

Tribunals look at many different factors to decide whether there has been a transfer of an economic entity which retains its identity including, for example:

• What kind of business is being transferred

• what assets are being are transferred and whether the transfer includes 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 to the new business;

• similarities and differences between the activities of the new business and the old business;

• any break during which activities are suspended, the reason for and length of that break.

In each case, the tribunal should examine the motivation of the transferor/seller, to understand why particular assets are not being transferred or why staff are not being taken on. If, for example, all the staff are sacked before the transfer because the buyer refuses to take on the seller’s workforce, or because the seller wants to achieve a better price for the business as a going concern, TUPE should apply and liability for the dismissals should pass to the transferee/purchaser.

The leading cases establishing this test were Suzen v Zehnacker Gebaudereinigung GmbH Krankenhausservice C-13/95 [1997] IRLR 255 (“Suzen”) and Spikjers v Gebroeders Benedik Abbatoir [1986] ECR 1119 {“Spikjers”).