TUPE or not TUPE?

A sale of shares in a company will not ordinarily engage the Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended) (TUPE).

ICAP Management Services Limited v Dean Berry and BGC Services (Holdings) LLP (BGC) has looked at the circumstances in which a TUPE transfer could arise on a share sale. The share sale in question in ICAP took place as part of a complex restructuring. The individual in question, who had served notice of resignation prior to the sale, remained employed by the same entity before and after the sale. He saw an opportunity to argue that there had been a TUPE transfer as a means of securing an early release. If there had been a TUPE transfer, he would have been able to object to the transfer and treat his employment as terminated with immediate effect and without serving out the remainder of his notice period.

On the facts, the court held that there had not been a TUPE transfer. As such the garden leave provisions in Mr Berry’s employment contract were enforceable for the duration of his notice period.

Mr Justice Garnham held that the test (the ICAP test) for whether a business has been transferred from one company to another under TUPE following a share transfer is as follows:

has the purchaser:

(a) become responsible for carrying on a business;

(b) incurred the obligations of employer; and

(c) taken over day to day running of the business.

The question of whether the purchaser (or other group member) has ‘stepped into the shoes of the employer’ is a helpful way to summarise this test. Changes taking place above the level of day to day management (eg strategic targets, implementation of group-wide HR policies) and consolidation of support functions do not demonstrate the taking over of the day to day running of a business. Likewise, changes in governance and management structures or integrations of support functions, resulting from a change in legal ownership, will not show that purchaser has incurred the obligations of the employer. The facts need to demonstrate a change of employer, which is different from normal post-completion synergies implemented by a new owner.

Clearly, TUPE is likely to apply where the assets of the acquired company are hived to another entity within the purchaser’s group. The ICAP case is a reminder that a TUPE transfer may also arise in other circumstances following a share sale if the purchaser (or other group company) has directly taken over the actual operation of the business and stepped into the shoes of the employer.

The case also offers an avenue for opportunistic employees looking to wriggle out of contractual obligations.

Companies involved in M&A activity should therefore be mindful that TUPE transfers may arise following share sales in circumstances other than post-sale business transfers, with implications for (amongst other things) information and consultation and harmonisation of employment terms.