This is an Employment Tribunal decision and therefore has no value as precedent but it is a rare reported case regarding the failure by a transferor to provide the necessary employee liability information (‘ELI’) under Reg 11 and a claim under Reg 12.
Grants provided inspectors to the Food Standards Agency under a contract that expired on 1 April 2012. The contract was put out to tender and EJ Ltd were successful. 131 of Grants employees were to transfer to EJ Ltd. Grants were in financial difficulties. There had been the involvement of insolvency practitioners and a winding up petition issued but not presented in the period leading up to March 2012. In March the bank account was frozen. On 27 March the MD of Grants informed employees that their salaries which were due to be paid on the 30 March 2012 (i.e. before the transfer) would not be paid until 5 April 2012 (after the transfer). Grants told EJ Ltd that it would nevertheless honour the obligation to pay. It did not do so leaving EJ Ltd with the liability (of around £400k) arising out of the unlawful deduction of wages with EJ Ltd
The claim in the ET was brought under Reg 12. Reg 11(2)(d) requires the transferee to notify the transferor of claims or potential claims by employees. Reg 12(3) provides that if a complaint of a failure to provide ELI is well founded it may make an award of compensation to be payable by the transferor to the transferee. The amount of compensation is to be that which the ET considers is just and equitable (Reg 12(4)) and will not be less than £500 per employee unless the ET considers it just and equitable to award a lesser sum.
The ET judgment
The ET made the minimum award of £500 per employee which gave a total award of £65,500. There is some interesting analysis in the decision. First the ET held that even if EJ Ltd had been told 14 days before the transfer that the transferring employees were not going to be paid there was very little it could have done about it. It could have involved the Food Standards Agency but there was no evidence that the FSA could done anything and EJ Ltd was already bound by contract to provide the service from the 2 April 2012. EJ Ltd had however incurred substantial management costs in the order of £42,400 together with some modest legal and banking costs and for this reason the ET was not prepared to reduce the award of £500 per employee.
Readers may find it useful to also see how another ET dealt with same issue in Paul v PFGPS Ltd. In that case compensation for the actual loss sustained by the transferee was awarded.