The neglected aspect of TUPE - Employee Liability Information

Cases arising from the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are commonplace in the tribunal and appeal courts. However, these are primarily disputes over whether a TUPE transfer has occurred, or whether there has been a failure to inform and consult employees and/or representatives. A neglected aspect of TUPE, at least in the litigation sense, is the requirement to provide Employee Liability Information ("ELI"). This is the familiar obligation on the transferor to provide certain basic information about transferring employees (such as the employee's basic terms and conditions of employment) to the transferee. Previously this had to be done at least 14 days before the transfer date, but, with the changes to TUPE this year, it has been increased to 28 days before the transfer date.

Failure to provide this information can lead to an award in the tribunal for at least £500 per transferring employee. Unusually, this is an award made to the transferee, not the employees.

There are very rarely claims litigated in respect of this ELI obligation. This is for a number of likely reasons, namely that these matters are often provided for in the commercial documentation accompanying any transfer; costs arising from any failure to provide ELI are difficult to show ordinarily; and the employment tribunal is an unusual forum for any commercial dispute to take place.

Therefore, it is interesting to note the recent case of Eville & Jones (UK) Ltd v Grants Veterinary Services Ltd (In Liquidation), as an example of litigation of this type, notwithstanding it is not an appellate case.

The employment tribunal considered whether, as a result of a service provision change, Grants Veterinary Services Ltd ("Grants") had failed in its obligation to provide Eville & Jones (UK) Ltd ("Eville") with notification of ELI. The tribunal held that Grants failed in their ELI obligations as transferor and awarded Eville £65,000 as compensation, which represents £500 for all 131 employees who transferred.

The reason for this award was that as part of the ELI, the transferor must provide the transferee with information regarding any court or tribunal case, claim or action brought by any of the transferring employees. This extends to cases brought against the transferor within the previous 2 years or – importantly - cases that the transferor has reasonable grounds to believe may be brought against the transferee arising out of the employee's employment.

In short, Grants were in financial difficulty in the period before the service they provided was re-tendered, with Eville being the successful bidder. In the months before the date of the transfer, Grants were served with a winding up petition by HMRC; gave notice of their intention to appoint an administrator; gave notice to employees their salaries were to be paid late; and had their banking facilities frozen. All of which meant that the staff, expecting late payment of their salary were not paid at all by Grant before the date of the transfer. This meant that the employees had a claim for unlawful deduction from wages, the liability for which had passed under TUPE to Eville.

The tribunal held that by date the ELI was to be provided to Eville, as transferee, Grants were fully aware of their financial difficulties and that their planned insolvency arrangements would mean that it was unlikely their staff would be paid. It was considered by the tribunal that the likely litigation against Eville would have been in the reasonable knowledge of Grants before deadline for the ELI; which was 19 March 2012. Due to Grants' knowledge of these facts and circumstances, it was not accepted that the relevant 'special circumstances' existed excusing Grants from making this disclosure in the ELI on the basis that it was not 'reasonably practicable'.

It is interesting to note that the award of £65,000 reflected not the cost incurred by Eville as a result of the failure, which was £42,000, nor the values of the salaries, but the minimum sum awardable of £500 per employee. This was viewed as just and equitable. Importantly, the tribunal commented that the value of the compensatory award was not constrained or likely to be capped to the value of the losses suffered by a transferee, who in this case was Eville.

Although perhaps relatively distinct in its facts, this case serves as a warning to transferors – particularly in service provision changes, where there may not be direct contractual commercial documentation between the transferor and transferee – to comply with the ELI obligations. In large scale transfers, there are potentially hefty financial consequences for failure to comply, particularly if this failure is deliberate.

One useful quirk of TUPE is the ability for parties to determine and agree a sum payable in respect of a failure to comply with ELI obligations, and the tribunal must take such terms into account in its considerations. It may be prudent – if possible – to try to utilise this provision to limit potential liability.

To discuss the implications of TUPE for your business, please contact one of our employment team.