When one company acquires all or part of the assets of another, is the former legally obliged to take on the latter’s employees on the same terms as before? That issue was the focus of an important Employment Tribunal (ET) case arising from the insolvency of a major high street retailer.
When the retailer entered administration and ceased to trade, it had 135 stores up and down the country and a substantial number of employees lost their jobs. Another company subsequently acquired some of the stricken retailer’s stock and intellectual property rights together with a licence to occupy 44 of its former stores.
Five of the retailer’s ex-employees argued before the ET at a preliminary hearing that Regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applied to them. On that basis, they asserted that their employment contracts with the retailer had transferred to the purchaser and were to be treated as if they were originally made with the purchaser.
Ruling on the matter, the ET noted that the purchaser acquired only a relatively small proportion of the retailer’s stores and had taken on a maximum of 154 of its staff, to whom it accepted that TUPE applied. Although some of the retailer’s employees at non-acquired stores applied for and obtained work with the purchaser, there was no acquisition of the retailer’s customer base or of its head office staff as a whole.
The retailer operated a franchise model and each of the 44 stores acquired functioned as an independent cost centre, with its own profit and loss account. They could each be regarded as economic entities in their own right. However, they had no identity separate from that of the retailer as a whole and, taken together, they could not be viewed as having formed a single economic entity immediately prior to the acquisition.
Taking all factors into account, the ET was not satisfied that the retailer’s business as a whole transferred to the purchaser. The purchaser simply acquired 44 individual stores, each of which represented a distinct economic entity. None of the five employees was therefore assigned to a transferred entity prior to the acquisition. Other issues in the case would be the subject of a further hearing, if not agreed.