This important decision concerns the scope of the information that the outgoing employer has to supply to the incoming employer in the context of a TUPE transfer. Here, the EAT decided that information about the employment particulars of the transferring employees is not confined to contractual employment particulars, but could also encompass non-contractual entitlements (Born London Ltd v Spire Production Services Ltd, EAT).
Background Law
Regulation 11 of TUPE 2006 provides that the outgoing employer (the transferor) must provide the incoming employer (the transferee) with certain classes of information about the transferring employees. This information is known as the "employee liability information" (ELI). A failure by the transferor to provide the ELI within the relevant timescale would permit the transferee to bring a claim in the Employment Tribunal, seeking compensation of not less than £500 per employee (unless a lesser sum is justified).
The ELI is defined as:
- the identity and age of the employee;
- the particulars of employment that the transferor is obliged to give to the employee under s.1 of the Employment Rights Act 1996 (ERA 1996) (this includes particulars about the remuneration paid to the employee);
- details of any disciplinary or grievance procedures concerning the employee within the previous 2 years;
- information about any legal action brought by the employee against the transferor within the previous 2 years (or which the transferor has reasonable grounds to believe may be brought); and
- information of any collective agreement which will have effect after the transfer in its application in relation to the employee.
It is not clear whether the requirement to provide "particulars of employment" is confined to contractual entitlements or not. Neither Regulation 11 of TUPE, nor s.1 of the ERA 1996, address this point.
Facts
This case concerned a second generation outsourcing service provision change, whereby the transferee was taking over a printing contract from the transferor. When communicating the ELI to the transferee, the transferor elected to break down the particulars of employment of the transferring employees into contractual and non-contractual particulars. Notably, it stated that the 32 transferring employees were entitled to a non-contractual annual bonus of one week's pay plus £7.50 per year of service. However, after the transfer had taken place, it became clear that this bonus entitlement was contractual, rather than non-contractual.
The transferee employer brought a claim against the transferor on the grounds that inaccurate ELI had been provided. Essentially, the transferee's position was that if the bonus had been truly non-contractual then it would not have been bound to pay it to the employees (and would not have done so). The discovery that it was, in fact, a contractual bonus had resulted in losses of around £100,000 over the life of the contract. The transferee argued that the particulars of employment to be provided concerned contractual entitlements only, and that the mislabelling of the bonus as non-contractual meant that the transferor had failed to provide accurate ELI.
The transferor successfully applied to strike out the claim. The Employment Tribunal concluded that the employment particulars required by s.1 of the ERA 1996 are not restricted to contractual entitlements only. Furthermore, Regulation 11 of TUPE 2006 did not oblige the transferor to state whether the s.1 ERA 1996 particulars were considered to be contractual or non-contractual. By doing so in this case, the transferor had actually gone further than it needed to. Accordingly, there was no reasonable prospect of showing that the transferor had failed to provide the ELI. The transferee appealed to the EAT.
EAT's decision
The transferee argued that it was that it was implicit in s.1 of the ERA 1996 that the employer was required to state whether remuneration was contractual. In the alternative, they argued that this was required by the relevant European Directives.
However, the Judge concluded that some components of remuneration will be non-contractual and she was not persuaded that these were intended to fall outside the scope of s.1 of the ERA 1996. In turn, this meant that: "...the notification required by regulation 11 [of TUPE 2006] is not limited to contractual terms; it means what it says: the transferor is to notify the transferee of those matters required to be included in a section 1 statement, regardless of their contractual effect."
Further, the EAT concluded that the European Directives did not assist the transferee and did not confine the employment particulars to contractual entitlements only. The EAT also declined to refer the issue to the ECJ. The appeal was dismissed.
Comment
This decision highlights that transferor employers need to take a broad approach to the provision of employment particulars, to cover both contractual and non-contractual entitlements. Upon receipt of the ELI, the transferee employer will need to assess the information and may need to undertake further due diligence to obtain comfort as to the correct nature of the entitlements. The transferee may also be able to rely on contractual warranties and/or indemnities from the transferor regarding the contractual status of the employees' entitlements.
However, these solutions may not be readily available to a transferee in a second generation outsourcing situation where there is usually:
- no incentive for the outgoing contractor to assist the competing, incoming contractor by providing detailed responses to questions in excess of what is strictly required under TUPE; and
- no direct contractual relationship between the parties.
This, in turn, can be problematic for the client looking to reassign the contract, since the incoming contractor may insist on relevant indemnities to be given directly by the client. In these situations, the best approach for clients is to ensure such issues are addressed in the original outsourcing agreement. The original outsourcing agreement should ensure that the contractor: (i) is obliged to comply with an incoming contractor's due diligence questions; and (ii) provides warranties and/or indemnities to the client in respect of any inaccurate ELI information which, at least, mirror the warranties and/or indemnities that the client will provide to the incoming contractor.
