Important TUPE development on sale or purchase of a group business

The ECJ has recently held that the Acquired Rights Directive (ARD) applies on the transfer of an undertaking by a group company where a different group company employs the affected employees, provided the "employees" are permanently assigned to the undertaking being transferred.

Specifically, the group company selling the business (the transferor in terms of TUPE) had no contractual relationship with the employees seconded to its business by the group's human resources service company.

The wording of TUPE does not, on a literal interpretation, apply to a non-contractual employer (in this case the selling/ transferor company). It provides for the transfer of employees who are employed by the transferor and assigned to the undertaking. The courts and tribunals in the UK have so far been reluctant to look behind the corporate structure, except where it is being relied on as a sham.

It is likely that tribunals in the UK would follow this decision and pierce the corporate veil.

Parties involved in the sale and purchase of businesses whose employees are employed by another group company should, therefore, pay heed to this potential TUPE risk and take service company employees into account. In those circumstances, the seller should, prior to a transfer:

1.provide information to and consult with representatives of the affected employees (including service company employees engaged in the business being transferred);

2.disclose information about all such employees; and

3.consider whether it is necessary to re-assign any such employees to other areas of the business so that they do not transfer.

Case: Albron Catering BV v FNV Bondgenoten and another

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