What’s the point of employee liability information?

2 May 2017 By Charles Wynn-Evans

A recent EAT decision demonstrates the limitations of the obligation to provide employee liability information ahead of a TUPE transfer

Regulation 11 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) imposes an obligation on transferors to provide employee liability information (ELI). In 2014, the time limit for providing the information was changed from 14 to 28 days before the transfer. The ELI is theoretically useful for the transferee to establish what obligations it is inheriting. This is especially the case where, for example, on a retendering, the transferee does not have a contractual or commercial relationship with the outgoing employer that enables it to insist on confirmation of the entitlements of the transferring employees.

Regulation 11 requires the transferee to confirm to the transferee information about those who are ‘in scope’ for TUPE purposes, or would have been but for the fact their employment has terminated. This must be in writing or in ‘accessible form’ (eg via a data room). The relevant information includes the identities and ages of the transferring employees; particulars of employment that an employer is obliged to give to an employee under section 1 of the Employment Rights Act 1996; information about disciplinary and grievance processes in the preceding two years; claims brought in the last two years or which might be brought; and details of collective agreements. The transferor must update the information to reflect changes after it is provided.

In Born London Ltd v Spire Production Services Ltd, Born had taken over a contract from Spire by way of a TUPE transfer. The ELI provided by Spire stated that a non-contractual Christmas bonus was in place. It transpired that this was incorrect and Born sought compensation under regulation 11 to reflect the loss caused, subject to a minimum award of £500 per employee unless such an award would not be ‘just and equitable’.

Both the employment tribunal and the Employment Appeal Tribunal (EAT) held that the obligation to provide ELI did not include an obligation to state whether an entitlement to remuneration was contractual. The obligation is to provide the particulars required in a ‘section 1 statement’ for the purposes of the Employment Rights Act – including details of the employee’s remuneration and the method by which it is calculated. A section 1 statement does not always constitute a contract of employment, but it will often be persuasive evidence of the contractual position where this is not provided as part of a formal employment contract. The EAT confirmed that this may cover non-contractual and contractual items.

It is difficult to fault this judgment as a matter of analysis. Had it been intended that the transferor should confirm the contractual status of the transferring employees’ entitlements, then presumably this would have been provided explicitly – and to do so would have materially altered the relationship between transferor and transferee by landing the transferor with an obligation effectively to warrant the legal status of its arrangements with its employees.

However, as the EAT recognised, the decision demonstrates the limited nature of ELI and, where possible, the desirability of full due diligence wider in scope and detail than the ELI obligation so that the transferee is aware of what it will be inheriting, what arrangements it needs to put in place to honour the transferring employees’ entitlements and identify what matters it might wish to seek to change.

While the Born decision illustrates the limitations of regulation 11, the obligation to provide ELI remains important, both in terms of enabling the transferee to be informed of the obligations it will be inheriting and the liabilities the transferor may incur if it breaches its obligations.

In Paul v PFGPS Ltd t/a Clapham SPMS & Others, a transferee recovered significant compensation – around £50,000 – in respect of the unfair dismissal liabilities it incurred when, following a TUPE transfer, it did not take on certain individuals who the transferor considered were not employees and were therefore not included in the ELI provided but who successfully established that they were employees and therefore had unfair dismissal and protective award claims against the transferee.

Likewise, in Eville & Jones (UK) Ltd v Grants Veterinary Services Ltd, the minimum award for breach of the ELI obligation of £500 per employee was made. The transferee was not told about claims for unpaid wages that it was going to inherit. While it would have faced those liabilities anyway, the management, legal and banking costs it suffered as a result of the claims coming to light meant the tribunal was content to make the minimum award of £500 per employee.

While the obligation to provide ELI will not answer all the questions a transferee may have, it is still helpful. However, wherever possible, fuller due diligence should be sought.

Charles Wynn-Evans is a partner at Dechert

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