TUPE – No remedy for recipient of incorrect Employee Liability Information
An incoming contractor (transferee) recently failed to obtain compensation from an outgoing contractor (transferor) for providing incorrect Employee Liability Information during a TUPE transfer process.
Where a business is sold, services are outsourced or insourced, or a contract changes hands. The transferor must provide certain prescribed Employee Liability Information to the buyers or incoming contractors (transferees) 28 days prior to the transfer. This is so that the transferee can know who will be transferring to them and what liabilities they will have.
In this case, the transferor had provided the required information within the time limit, but had incorrectly represented that the transferring employees’ Christmas bonuses were non-contractual.
The transferee sought to recover compensation from the transferor for having provided incorrect information, but the court rejected this claim.
However, the transferor was obliged to provide the information prescribed within the TUPE Regulations. The Regulations did not oblige the transferor to confirm whether the bonuses were contractual or not and, therefore, the transferee could not claim that the transferor had breached Regulation 11 by providing incorrect information.
It is difficult not to have sympathy with this transferee, who found themselves with liabilities they never expected to have and no means of recourse. However, the case does provide some useful lessons for anyone thinking of buying a business or bidding for a contract for services.
Firstly, don’t use the Employee Liability Information as a substitute for due diligence. Instead, when the Employee Liability Information comes, analyse it carefully, identify any gaps in information and raise any issues and questions directly with the transferor or their advisors. Question, in particular, any information that goes beyond what the transferor has to provide, or any assertions made, such as anything being non-contractual.
Secondly, if you are buying a business, you may wish to ask for indemnities from the seller to cover any costs resulting from incorrect information or the costs of defending any claims brought by transferring employees. This only applies to sales of businesses and not to service provision change cases, where neither the client nor the outgoing contractor is likely to agree to provide indemnities.
TUPE is notoriously complex and there are traps aplenty for employers to fall into. If you are thinking of buying a business, or bidding for a contract, and want to identify your potential liabilities and minimise your risks, please contact us and our HR Consultants and employment law advisor will be happy to assist you.