Case law: Change in ownership of employer company's shares does not usually amount to TUPE transfer

Individuals employed by a limited company whose shares are acquired by new owners, remain employed by that company despite the change of ownership, so the TUPE rules do not apply, according to a recent ruling.

An employee handed in his notice to take up a new job with a competitor business. His employer – a limited company - put him on 12 months' garden leave. While on garden leave, a third party (another limited company) acquired the share capital of his employer's holding company – which then became the new holding company's subsidiary. The employee took the opportunity to notify his employer that he considered the transaction to amount to a TUPE transfer, and that he objected to the transfer.

The TUPE rules are designed to protect employees in certain circumstances – by preserving their jobs and their terms and conditions of employment - when a business or undertaking they work for is transferred from their current employer to a new one.

One of the rights enjoyed by an employee if TUPE rules apply is to object to their transfer under the rules. The effect of an objection is that the employee's contract is immediately terminated. If there had been a TUPE transfer in this case, the effect of the employee's objection would be that his employment terminated immediately and he could leave to join the competitor immediately rather than having to wait until his garden leave ended. That is exactly what he did. His employer then applied for an injunction to force him to finish his 12 months' garden leave.

The High Court ruled that the TUPE rules only apply if there is a change of employer. The fact the share capital of the employer's holding company was acquired by a third party did not of itself change the employment relationship between the employer and its employees. The employee remained employed by the same entity. The acquisition meant merely that the employer had a new holding company. There is an exception to this principle if the new owner actually exercises overarching day-to-day (sometimes referred to as 'supreme') control over its new subsidiary's affairs, creating a de facto TUPE transfer. However, that exception did not apply in this instance – indeed the employer and its new owner operated as competitor brands.

The employee could not therefore object and bring his employment to an immediate end as he had hoped, and the court ordered him to complete his garden leave.

Operative date

• Now

Recommendation

• Limited company employers whose shares are acquired by new owners should ensure the new owners do not start exercising day-to-day control of the employer -or risk employees alleging that the transaction is a TUPE transfer, and enjoying rights associated with such a transfer

Case ref: ICAP Management Services Ltd v Berry & Anor [2017] EWHC 1321 (QB)

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.