TUPE

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Brookes v Borough Care Services EAT

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This case is authority for the proposition that a share transfer is not a transfer within the meaning of Reg 3 of TUPE.  Thus if the shares in a corporate employer are purchased by another party who then, having purchased those shares, changes the composition of the Board and the employees’ terms and conditions are  subsequently changed as a consequence, then those employees have no recourse to the protection afforded by TUPE.

The Facts

Before 1992, Wigan Metropolitan Borough Council (‘Wigan MBC’) managed a number of care homes for the elderly in the Wigan area. All the employees in the appeal were employed by Wigan MBC in that undertaking.  In 1992, Borough Care Services Ltd (‘BCS’), was set up by Wigan MBC. It was a company limited by guarantee. In that same year, the care homes were transferred by Wigan MBC to BCS. That was a relevant transfer falling within TUPE. The employees’ employment was accordingly transferred to BCS who became their employer.

CLS Care Services Ltd (‘CLS’)  learned of the intention of Wigan MBC and BCS to transfer the undertaking of the Wigan homes to the voluntary sector.  CLS made a formal bid on 8th February 1996. The bid envisaged that CLS “would create a new statutory entity contract with the staff of BCS and with Wigan MBC”. What that amounted to was the intention to form CLS (Wigan) Ltd, a new industrial and provident society, to which the undertaking of the Wigan homes would be transferred. It was envisaged that it would be a relevant TUPE transfer.  Before this decsion could be implemented the EAT  gave judgment in Wilson v St Helen’s Borough Council [1996] ICR 711 in which it was decided that a transferee could not make even a consensual variation of an employee’s terms and conditions.   (This was necessary to put the homes on a sound financial footing. )   It was therefore decided to follow a “share transfer” route.  The members and directors of BCS would resign, CLS would become the sole member of BCS and the members of CLS would become directors of BCS.  On 25th July 1996, the existing members of BCS resigned. CLS became the member of BCS. The existing directors of BCS resigned (save for the nominee of Wigan MBC). The members of CLS became the directors of BCS.

Although, because of the personality of BCS, it was not strictly a share transfer, that is the way it was treated before the ET and EAT.

The employees argued that there was for all practical purposes a change in employer and TUPE should be given a purposive construction to reflect the realities of the position.  In doing so it was argued that CLS and BCS should be treated as a single economic entity.   Furthermore it was admitted that the reason for the arrangements between CLS and BCS was to avoid the effects of TUPE and that this was impermissible.

The Judgment

The EAT disagreed it held:

That the employees’ argument was contrary to the fundamental principle that a company is a separate legal person with its own identity, distinct from its members. Further, it led to other fundamental difficulties. For example, did the argument extend not just to a 100% transfer of shares but to a simple majority transfer?

Further, the Regulations and the Directive refer quite specifically to the change of employer and to a transfer and transferee being any natural or legal person. They could have addressed, but did not, the circumstance in which there was no transfer from a legal person to another legal person, but the shareholding membership of the legal person changed though its separate legal identity remained untouched.

For those reasons the employees’ employer throughout was BCS.  This had not changed.  There was no transfer.

Link to judgment

 

 

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