Background

One of the key obligations for an outgoing service provider in a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is the provision of information concerning its liabilities towards those employees who are affected by an impending transfer. The outgoing service provider, or transferor, is required to provide specific employment liability information (ELI) to the incoming service provider, or transferee. If the outgoing service provider fails to comply with this statutory obligation, the incoming service provider can seek compensation for any loss suffered as a result.

The Employment Appeal Tribunal (EAT) was recently called upon to consider an appeal concerning ELI relating to a Christmas bonus payment. In 2006, the auctioneers Sotheby’s outsourced the printing of their catalogues to a print finishing firm called Spire Production Services. The printing contract subsequently passed to Born London Limited with the effect that 32 staff transferred from Spire to Born on 1 January 2015.

The claim

Prior to the transfer date, Spire provided Born with ELI as required by TUPE. This information included details of a Christmas bonus that was payable every November. Spire described the bonus as being non-contractual as it had been so described when Spire inherited it from Sotheby’s. However, it transpired that all 32 employees had been paid the bonus every year in which they had been employed by Spire. Born realised that the bonus appeared to have become a contractual term through custom and practice. Their suspicions were well founded as the bonus was found to be a contractual term in a separate Employment Tribunal claim brought against Spire by some of the transferring staff.

In Born’s Employment Tribunal claim, it argued that Spire had failed to provide accurate ELI as required by TUPE regarding the contractual status of the bonus. Born sought compensation of £100,000 from Spire. The claim did not succeed at the Employment Tribunal and Born appealed to the EAT.

Employment Appeal Tribunal decision

The EAT noted that Spire was obliged to provide Born with the particulars of employment that an employer is obliged to give an employee under section 1 of the Employment Rights Act 1996. The EAT decided that this obligation did not require that Spire should inform Born of contractual terms only.

I do not read the requirement imposed upon a transferor – to notify the transferee of ‘all the rights and obligations that will be transferred’ – to be limited to simply the contractual rights. Employment Appeal Tribunal

Spire therefore did not have any duty to state whether or not a particular aspect of an employee’s remuneration was contractual or not. In any event, the EAT found that although Spire had mistakenly labelled the Christmas bonus payment as non-contractual, this information did not fall within the section 1 particulars and it was therefore not part of the ELI.

The EAT’s decision will be a relief for the outgoing service provider in a service provision change as it confirms that the incoming service provider must bear the responsibility for carrying out sufficient due diligence to ascertain the extent of its contractual obligations to the employees who transfer to it under TUPE. An incoming service provider should err on the side of caution when reviewing the ELI. As this case has shown, even if a particular entitlement is expressed to be “non-contractual”, there is always a risk that it may have become an implied contractual term through custom and practice.

Photograph: “Type” by Tom Eversley