TUPE transfers triggered by share sales

It is often easy to conclude that the UK’s Transfer of Undertakings (Protection of Employment) regulations (known as TUPE) do not apply to a share sale scenarios, as there is largely nothing that will change other than the names of the shareholders. However, case law provides some interesting instances where a share sale could trigger a TUPE transfer.

Millam v Print Factory (London) 1991 Ltd [2007] EWCA Civ 322 CA 

In this case, Mr Millam’s employer (Fencourt) was taken over by another company (McCorquodale) under a share sale agreement. Mr Millam was told that the identity of his employer was not changing, even though it was McCorquodale’s intention to fully incorporate the business of Fencourt into its own. 

McCorquodale took over payroll tasks and employee pension schemes. The two companies held combined board meetings. However, the companies continued to be separate entities, filed separate accounts, and had separate VAT registrations. 

McCorquodale and Fencourt subsequently went into administration. Fencourt was never sold, but McCorquodale was bought out by Print Factory. Mr Millam argued he was employed by McCorquodale by way of TUPE transfer. 

Effectively, the employment tribunal (ET), and latterly the Court of Appeal, held that McCorquodale was controlling Fencourt’s activities, and therefore a TUPE transfer had taken place. McCorquodale was handling a significant element of the management of Fencourt, which set its actions apart from those of a normal shareholder. 

ICAP Management Services Ltd v Berry and another [2017] EWHC 1321 (QB)

In this case, Mr Berry was employed by ICAP Management Services Ltd (IMSL). The shares in IMSL were owned by another company (ICAP Group), whose shares were in turn owned by another company (IGBHL), whose shares were in turn owned by another company (ICAP plc). 

Mr Berry handed in his notice and was required to spend 12 months on garden leave before he could start his new job, owing to competition clauses in his employment contract. During the notice period, ICAP plc sold its shares in IGBHL to TP plc. Mr Berry argued that the sale of IGBHL triggered a TUPE transfer, meaning he could object to the transfer, and his employment would terminate, allowing him to start his new job before the 12 months had elapsed. 

Ultimately, the court held that although the two companies IMSL and TP plc now had common ownership, they remained two distinct companies, and IMSL continued to be responsible for its own business and obligations as an employer. 

The test identified was whether the new owner had “stepped into the shoes” of the employer. A share transfer creates a change of ownership but not necessarily a change of employer. 

These two cases demonstrate that care must be taken around share sale scenarios which may be accompanied by some form of restructure or reorganisation. For example, if the new owner were to take steps to integrate with other group companies, or take over day-to-day control in some other way, effectively “stepping into the shoes” of the employer, TUPE issues will arise. 

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Hilary Steer is a solicitor in Wright, Johnston & Mackenzie’s conflict resolution group with particular expertise in the areas of Employment and Insolvency. She assists with complex employment disputes, acting for both employer and employee in Employment Tribunal proceedings.