Where a business transfers by way of a share sale, TUPE does not apply because the identity of the employer remains the same. However, a TUPE transfer can take place alongside or as a result of operational changes connected to a share sale and, in a recent case, the Court of Appeal decided that this can happen where a parent company effectively takes over a subsidiary company's business.

The background

Where a TUPE transfer takes place, those employees assigned to the business being transferred will transfer to purchaser on their existing terms and conditions of employment. However, where a business transfers by way of a sale of shares in the company, TUPE does not apply because the identity of the employer remains the same.

The facts

Mr Millam was employed as a printer by Fencourt Printers Limited ("F"). F was sold to McCorquodale Confidential Print Ltd ("M") in 1999 by way of a share sale. Both F and M went into administration separately in 2005. The Print Factory (London 1991) Limited acquired M on 18 May 2005 by way of a TUPE transfer. Mr Millam was dismissed on 17 May, the day before the transfer. He brought a number of claims against Print Factory, arguing that immediately before the transfer he had been employed by M (on the basis that his employment had transferred from F by way of a TUPE transfer).

F and M were separately registered at Companies House and had two VAT registrations and two sets of accounts, although combined board meetings were held. Following the takeover of F by M, M began to handle F's sales function and a single sales representative moved from F to M. All other F staff continued to carry out their functions at F's premises. At the same time, however, work was transferred from M to F, partly to make F appear a more attractive purchasing opportunity for potential buyers. PAYE documents showed that M paid the employees' wages and administered the pension scheme. Also, M made key decisions in relation to workload, attempted to bring about contractual changes and made the decision to put F into administration.

The decision

The Court of Appeal decided that the business activities of F and M had been integrated to such a degree that the business carried on by F, and not simply the shares, had transferred to M under TUPE. Therefore, Mr Millam's employment had transferred from F to M by virtue of TUPE.

There is often a degree of control and management asserted by a parent company over its subsidiary which, in itself, is insufficient to establish the transfer of a business. However, in this case a number of factors were established which demonstrated that control of the business (in the sense of how the day-to-day activities were run) had transferred and that, therefore, TUPE applied.

Purchasers should be aware of the possibility of TUPE applying to a share sale, particularly where the intention is to fully integrate the target business into their own.

In practice

  • The general principle remains that in the majority of share transfer situations there will be no change in the identity of the employer and, therefore, no TUPE transfer.
  • The mere fact that a parent controls a subsidiary will usually be insufficient, on its own, to establish the transfer of the business from subsidiary to parent.
  • If a parent company takes over control of the acquired company's business and integrates that business with its own, employees may succeed in arguing that their employment has transferred up to the parent company by operation of TUPE.
  • It is likely that employees would argue that their employment had transferred in this way if it was to their benefit in the context of any changes being made to terms and conditions of employment, in the event of a future TUPE transfer of part of the business or when the acquired company is subject to administration or liquidation proceedings.

Millam v The Print Factory (London) 1991 Ltd 2007 EWCA Civ 322