Although understandable on the facts, this decision suggests a more conservative approach to identifying which employees are ‘affected’ employees for the purposes of the employer’s duty to inform and consult under Reg 13 in the context of insolvency.
In this case an insolvent company had two discrete parts to its business. One part was sold by the liquidator and the other wound up. Employees assigned to the part of the business that was wound up were not consulted about the transfer of the part that was sold. They claimed they ought to have been on the basis that at an early stage before the transfer it was suggested that the part of the business to which they were assigned would also be transferred. Their claims were upheld by the ET. However the EAT held that there was no requirement to consult as they were not affected by the transfer.
In reaching this conclusion Underhill P also considered the scenario where the transfer of part of a business leads to another part of the business being closed down, perhaps because it was loss making and was being kept afloat by the solvent part that was transferred. Whilst appearing to accept that at first blush the employees in the part that was closed down would be affected by the transfer he held that the Reg 13 was not apt to apply to ‘this kind of indirect effect, where the transfer as such has no impact on the employees’.
This raises the question – when is the effect direct and when is it indirect? What if both parts of the business share the main customers who then decide to take their business elsewhere when they learn of the transfer, causing the retained part to fold? Is the effect on the employees direct or indirect?
It was also held that an employer could never be in breach of the requirement to inform and consult if the transfer never in fact took place. The reason for this is that the obligation is to inform and consult ‘long enough’ before the transfer. If the transfer never takes place then how can it be said that the employer would definitely not have consulted?