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Failure to Consult under TUPE Regs

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An important decision, Alamo Group v Tucker, has been handed down by the EAT, dealing with liability for failing to consult under regulations 10 and 11 of TUPE.

Regulations 10 and 11 provide that a sum of up to 13 weeks' pay (not capped at £260pw) is payable to all affected employees who are not consulted by their employer prior to a TUPE transfer. This can result in very substantial awards being made when a large number of employees are involved.

Over the last few years, there has been controversy over who pays this sum: the transferor or the transferee. The strict wording of TUPE suggests that, even though the obligation is on the transferor, the liability transfer to the transferee as soon as the sale of the business has taken place. This was the approach adopted by the EAT in Kerry Foods v Creber [2000] ICR 536, in which it was held that liability did transfer.

However, in TGWU v McKinnon [2001] IRLR 597, another division of the EAT declined to follow Kerry and held that liability does not transfer. Many commentators (well, me, anyway!) preferred the decision in TGWU v McKinnon and thought that, for a variety of reasons, Kerry was wrong on that and other counts.

In Alamo Group v Tucker (EAT 24/2/02), HHJ Altman gives a clear and well-reasoned judgment preferring the result in Kerry (whilst not adopting the same reasoning!). Subject to any appeal, it now seems that liability for failure to consult will transfer to the tranferee.

Practical Implications

In light of this judgment, transferees should take care to:

• ensure that proper indemnities are included in the purchase agreement, protecting them from any default by the transferor;

• perhaps insert a provision in the contract placing in escrow, at the time of completion, the potential liability under regulations 10 and 11 (i.e. 13 weeks pay for each affected employee). This can then be released to the vendor if no claims are lodged, and can provide security for the purchaser in the event that the vendor becomes insolvent and the contractual indemnities become worthless;

• provide all relevant information to the transferor about their intentions vis a vis affected employees - and, possibly, copy it to the relevant trade union or employee representatives (although this may not be commercially practical during negotiations).