25 July 2014
Taking over business of acquired company triggers employees’ right to protective award
Companies acquiring all the shares in another company and then take over the operation of its, including its employees, can inadvertently trigger the Transfer of Undertakings (Protection of Employment) (TUPE) rules. This includes the right to a protective award for those employees, according to a legal ruling.
A subsidiary company bought all the shares of a rival company, which employed more than 400 people. The rival company continued to exist because the new owners wanted customers and others to think it was still an independent competitor. However, in reality all its employees started working for the holding company in the new group, and the rival company operated as little more than a trading name of the holding company.
The employees claimed a protective award on grounds there had been a TUPE transfer from the rival company to the holding company. The TUPE rules are designed to protect employees in certain circumstances – for example, they require an employer to inform and consult with employees if the business or undertaking they work for is to be transferred to a new employer. Employees can claim a protective award of up to 90 days' gross pay if there is a failure to inform or consult about the transfer.
The Employment Appeal Tribunal agreed (in Jackson Lloyds Ltd and Mears Group PLC v Smith & Ors) there had been a TUPE transfer when the holding company started to operate the rival company's business as part of its own business. The employees could therefore claim a protective award.
Kathryn Fielder, senior associate in the employment law team comments: "A company acquiring the shares in another company should ensure that if, after the acquisition, it takes over the operation of the other company's business, it does not inadvertently trigger the TUPE rules, including the right to a protective award.