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MILS EMPLOYMENT LAW CASE STUDYBack

MILsTransfer of Undertakings (Protection from Employment) Regulations 2006 with an asset purchase

We are looking to purchase the trade and assets of another existing business. As we are not interested in purchasing the Company itself, how this may affect our liability to TUPE in respect of the employees currently employed in that business?”

Although you are only looking to purchase trade and assets, the purchase may still fall under the TUPE Regulations 2006.

The TUPE Regulations are an important part of UK labour law. When they apply can be complicated, but where they apply they protect employees whose business is being transferred to another business. Failure to consider them can lead to significant financial penalties of the businesses concerned.

When do they apply?

A relevant transfer can occur when a business or undertaking or part of a business or undertaking is transferred from one employer to a new employer as a going concern i.e. there is a transfer of an economic entity which retains its identity after the transfer.

An ‘economic entity’ means an organised group of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary. In deciding whether there has been a relevant business transfer, the crucial question is whether or not there is a transfer of an economic entity which retains its identity after the transfer and is carried on by the transferee. In answering that question, all the factual circumstances will be considered, including:

  • The type of business;
  • Whether tangible assets such as premises, assets and equipment are transferred – although a relevant transfer may still take place even where no property is transferred to the transferee by the transferor;
  • Whether intangible assets such as goodwill and customer lists are transferred;
  • Whether the majority of employees are taken over by the transferee and, if not, the motive of the transferee in not taking them on;
  • The degree of similarity between the activities carried on before and after the transfer; and
  • Whether there has been any break in the performance of the activities.

Whether TUPE applies to a particular business transfer is not a simple question to answer since each case will turn on its own facts and ultimately, it will be a matter for an employment tribunal to decide if there is a disagreement between the parties.

TUPE does not apply to:

  • The transfer of shares in a company. This is because when a company’s shares are sold to new shareholders, there is no transfer of the business – the same company continues to be the employer. In short, for TUPE to apply, the identity of the employer must change.
  • The transfer of empty premises or assets only (for example, the sale of office equipment alone would not be covered, however, the sale of a business as a going concern which includes the equipment would be covered).
  • The situation where a client buys in services from a contractor in connection with a single specific event or task of short-term duration i.e. a one-off contract rather than the two parties entering into an ongoing relationship for the provision of the service. There is no statutory definition of what exactly constitutes ‘short-term duration’.
  • Arrangements between client and contractor which are wholly or mainly for the supply of goods for the client’s use.

If your purchase involves a going concern then the safer legal approach is to assume TUPE does apply and look to inform and consult in the usual way. If you expect to re-employ the staff then it would be prudent to proceed under TUPE.

Lastly, don’t forget, this advice is general in nature and will need to be tailored to any one particular situation. As an RMI member you have access to the RMI Legal advice line, as well as a number of industry experts for your assistance. Should you find yourself in the situation above, contact us at any stage for advice and assistance as appropriate.

Andrew Macmillan, Solicitor, Motor Industry Legal Services

Posted by Leana Kell on 13/02/2015