Misstatement About Christmas Bonus Not a Breach of TUPE
In the case of Born London Limited v Spire Production Services Limited, the EAT has held that incorrect employee liability information given by the transferor was not a breach of Regulation 11 of TUPE.
The Facts
Sotheby's, the well-known auctioneers, outsourced the printing of their catalogues to Spire in 2006. When the contract ended, Sotheby's then contracted with a new company, Born, to do the work. This constituted a service provision change (SPC) under TUPE and as a result, 32 employees transferred from Spire to Born on 1 January 2015.
Prior to the transfer, Spire provided Born with information about the employees as required under TUPE (this is known as ''employee liability information''). As part of this information, employees' terms were listed separately as 'contractual' and 'non-contractual', and it was said that each employee was entitled to a non-contractual Christmas bonus of one week's pay, plus £7.50 per year of service, payable each November.
Born contended that this was incorrect, as the bonus was in fact contractual in nature and only applied to employees with more than two years' continuous service. Born alleged that Spire had therefore provided incorrect employee liability information for the purposes of regulation 11 of TUPE and Born sought compensation of more than £100,000 (the potential cost of the bonus over the lifetime of the contract).
The Tribunals' Decisions
The Employment Tribunal accepted that Spire's characterisation of the Christmas bonus as 'non-contractual' was inaccurate but identified the key question as being whether or not Spire was required to specify if a term relating to remuneration was contractual.
In considering this issue, the tribunal observed that regulation 11 of TUPE only required Spire to provide Born with those particulars of employment that an employer is obliged to give to an employee pursuant to section 1 of the Employment Rights Act 1996 (ERA). It noted that nothing in section 1 required an employer to categorise remuneration into contractual and non-contractual elements. Spire had, therefore, complied with its obligations under TUPE.
Born appealed but the EAT agreed with the Employment Tribunal's decision that regulation 11 only obliged a transferor to notify a transferee of those matters required to be included in a section 1 statement, regardless of their contractual effect. Whilst the EAT recognised that Born would wish to have greater clarity as to the precise nature (whether contractual or otherwise) of some of the matters listed, that was for Born to pursue as part of its due diligence and is not a requirement laid down upon a transferor by regulation 11 of TUPE. Therefore, the appeal was dismissed.
Best Practice
In making this decision, the EAT recognises how difficult it can be to decide whether elements of remuneration are contractual or not. This case is clear that where TUPE applies to a SPC, transferees need to carry out their own due diligence not rely solely on the information given to them by the transferor under TUPE.
It is also a useful reminder to ensure that where possible, as a transferee, you have in place well drafted warranties and indemnities from the transferor in order to protect you from any unexpected liabilities.