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Business transfers
[ch 12: pages 448-450]There will be a business transfer where, immediately after a transfer such as a business sale, 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 on the transfer date is a recognisable business, capable of continuing to operate as a going concern, as opposed to just a collection of assets, such as land and buildings, with no intention to carry on the business.
The economic entity need not 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).
In addition, TUPE can apply even if the sold business is integrated into the buyer’s business straight after the transfer.
In the UK, tribunals apply what is known as a “multi-factorial test” to decide whether a business transfer has taken place. In other words, all the factors making up the transaction must be examined – without singling out any one factor – to decide what has happened (Cheeseman v R Brewers Contracts Limited [2001] IRLR 144). Relevant factors might include, for example:
• the type of business;
• the assets being transferred and whether these include goodwill, equipment or premises;
• whether most 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, and the reason for and length of that break.
The EAT has recently reaffirmed the importance of this “multifactorial test”. The case arose when a franchise operation closed while a member of staff was on maternity leave:
ALNO produced kitchens and promoted its products using franchise agreements. SJM, a franchisee, operated out of showrooms managed by the claimant, Ms Turner. SJM gave notice to surrender the franchise shortly before Turner went on maternity leave. ALNO initially planned to take over the lease and invited Turner to join as an employee. But when the agreement fell through, ALNO decided to refurbish the premises and carry on running the showroom itself. An 18-month delay was caused by the discovery of a structural defect, meaning that ALNO still had not started trading by the date of the tribunal hearing.
Turner brought a tribunal claim arguing that her employment transferred to ALNO. The tribunal ruled that a business transfer had taken place, mainly because of the franchisor’s initial intention to take over the franchise. But the EAT reversed the ruling. The parties’ intention was important, but not decisive. The tribunal had failed to apply the multi-factorial test. In particular, it had not considered the following factors: no goodwill transferred, ALNO did not take on the franchisee, his tools, equipment or vehicle, and the business was closed down for too long. There was no transfer.
ALNO (UK) Ltd v Turner [2016] UKEAT/0349/15
TUPE will apply even if some activities were being carried out unlawfully before the transfer, for example, because the employer was breaking tax laws (Ejiofor t/a Mitchell & Co Solicitors v Sullivan [2014] UKEAT/02868/13/SM).
Where employees are not taken on by a new business, the tribunal will need to determine why not. Pre-transfer dismissals are only automatically unfair in breach of TUPE if the main reason for dismissal was a planned business sale or service provision change (see page 484). This is one of the main weaknesses of TUPE protection, especially in the context of business failure. This is even more the case as a result of changes to TUPE enacted in January 2014 (CRTUPEAR 14) (see page 484).
It is all too easy for a new business owner to argue that employees lost their jobs not because of a planned sale, but instead because there was no money in the insolvent business to pay their wages (a reason unrelated to the transfer), and that as a result, their employment does not transfer to the new business. Here is a notorious illustration:
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.
However, the tribunal victory was virtually worthless because the employer collapsed into insolvent administration. The business re-emerged 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 not because of the planned transfer of the business to its new owner, but instead because there were no funds to pay their wages (a reason unrelated to the transfer).
Dynamex Friction v Amicus [2008] EWCA Civ 381