It is well known that the Transfer of Undertakings (Protection of Employment) Regulations 2006 (as amended) (“TUPE”) do not apply to share purchases. However the actions of a purchaser of shares before and immediately following a share purchase can still give rise to expensive problems under TUPE, as the recently-reported Employment Appeal Tribunal decision in Jackson Lloyd and Mears Group v Smith and others shows.
Mears Group (“MG”) bought the shares of Jackson Lloyd (“JL”), which was in financial difficulty, using a subsidiary as the purchasing vehicle. MG announced a programme of immediate integration. The board of JL was replaced on completion with MG nominees, and MG seized practical control on completion. Employees were told that MG had bought JL and that they would be moving over to MG. It ran the operation by means of an integration team. It imposed its own systems and processes. The JL board was bypassed, as in effect was the board of the purchasing subsidiary. JL became little more than a trading name. Many of these steps will be familiar to acquisitive companies. There was no compliance with TUPE – after all, this was merely a share purchase.
Funded by their trade union, employees of Jackson Lloyd brought claims in the Employment Tribunal against both JL and MG for a protective award of up to 13 weeks’ actual pay per employee (of which there were some 400-450).
Both the Employment Tribunal and the Employment Appeal Tribunal agreed that there had been a separate TUPE transfer which had taken place at the same time as the shares in JL had been acquired. As a result of the steps taken and the statements made by MG, the business and employees of JL had transferred to MG (not to its acquiring subsidiary). None of the information required by TUPE had been provided and there had been no consultation. Protective awards were therefore due to the employees. The amount of these has still to be determined.
Acquirers beware. The tendency of some buyers of shares to act quickly to integrate and control the target following purchase could land them with an expensive post-closing hangover.
Note however that this case was trade union backed and a non-unionised target company may not carry the same degree of risk as a unionised workforce. However, taking a few careful steps during and after the sale process will significantly reduce the chances of experiencing the same expensive fate as Mears Group.