Business transfers

There will be a business transfer where, 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 what has changed hands is a recognisable business, capable of continuing to function as a going concern, or alternatively 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 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 straight 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 circumstances 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;

• 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.

In each case, the tribunal must examine the motivation of the transferor/seller, to understand, for example, why particular assets are not being transferred or staff 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, TUPE will apply, and liability for the dismissals will pass to the new business. But if employees are dismissed before the transfer because their employer can no longer afford to pay their wages, TUPE will not apply, because this reason has nothing to do with TUPE. This need to examine the subjective motivation of the seller is one of the main weaknesses of TUPE protection and has led to many employees losing out.