17 Jul 2012

Designed to help employees by automatically transferring their employment and giving them protection against dismissal, the TUPE Regulations can apply on the termination, assignment or reversion of a lease.  This can come as an unwelcome surprise to new tenants and to landlords who may inherit employees working at properties, and the liabilities relating to them, from former tenants. 

For example, if a tenant of a pub assigns the lease of the pub and the new tenant also operates a pub from the premises, the employees of the former tenant may automatically transfer and become employees of the new tenant.

The recent case of LOM Management Ltd v Sweeney involved the assignment of a lease of a pub from one tenant to another.  An employee who lost her job when the lease was assigned argued that the assignment was caught by the TUPE Regulations and therefore her employment should instead have transferred from the old tenant to the new one.  The Employment Tribunal agreed and said that the new tenant should compensate her for the loss of her job.

The new tenant appealed to the Employment Appeal Tribunal (EAT) which found in favour of the new tenant and overturned the Employment Tribunal’s decision.  The EAT noted that the burden of establishing that TUPE applies lies on employees and stated that ““Whilst TUPE may apply where there has been an assignation of a lease of commercial premises…” the employee must “…show not only that the lease transferred but that there was, on the facts, a business also transferred which was intrinsically linked to the property and satisfied the definition of economic activity [in TUPE]”.

The employee who had brought the case had failed to do this and had simply shown that there was an assignment of a commercial lease.  The EAT stated that such an assignment “does not, of itself, establish that TUPE applies”.

Conclusion

This case is good news for new tenants in that it provides them with some comfort that simply taking on a lease does not, by itself, mean that the TUPE Regulations will apply.  However, it also serves as a reminder of how the application of the TUPE Regulations turns on the particular facts of a situation and the importance of considering these at the outset of any proposed transaction.

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