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Millam v The Print Factory (London) 1991 Ltd

In the vast majority of cases involving a sale of shares, the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) do not apply. This is because the identity of the employer does not usually change when shares (as opposed to assets) are sold.

However the Court of Appeal has now said in Millam v The Print Factory (London) 1991 Ltd that if there is enough evidence to show the employer’s identity did change, tribunals can conclude that there has been a TUPE transfer.

Basic facts

Mr Millam worked for Fencourt Printers, which was sold to McCorquodale in 1999 as part of a share sale agreement. As the time, Mr Millam was told that the identity of his employer had not changed.

However, he was then told in August 2000 that his employment had been continued "under the TUPE regulations". Mr Millam was paid by McCorquodale which also administered his pension.

Both companies subsequently went into administration in 2005 and Mr Millam lost his job. The following day McCorquodale was bought by The Print Factory, and Mr Millam made a number of claims, including one that his employment had transferred to McCorquodale.

Decisions of lower courts

Although it is well established in law that share sales are excluded from the TUPE regulations, the tribunal decided that there had been a TUPE transfer from Fencourt Printers to McCorquodale in 1999.

It said that although the share sale agreement “gave the superficial impression” that there had not been a TUPE transfer, McCorquodale had been far more active than would be expected of a simple shareholder. It had taken over most of the management of Fencourt, made key decisions about its workload and ultimately made the decision to put the company into administration.

The EAT overturned that decision and held that, as a matter of law, the businesses remained separate companies. No assets and only one member of staff had been transferred to the parent company.

It concluded that the tribunal had “pierced the corporate veil.” In other words, it had looked behind the legal form and concluded that the business was not being run by Fencourt, but by its holding company, McCorquodale. It said that “to pierce the veil”, there must be evidence to show that the subsidiary company was a sham or façade, and no such evidence existed in this case.

Decision of Court of Appeal

The Court of Appeal, however, reinstated the decision of the tribunal. It accepted that it was often difficult to tell whether, following a transfer of shares from one parent company to another which owns the subsidiary outright, whether the TUPE regulations applied.

However, it said that the tribunal had been presented with enough evidence to establish that control of the business, in the sense of how its day-to-day activities were run, had passed from Fencourt to McCorquodale. Apart from anything else, Mr Millam received a letter in August 2000 confirming that his employment continued under the TUPE regulations.

The tribunal was also entitled to rely on the evidence contained in a number of newsletters, distributed by McCorquodale which showed that it had taken over the day-to-day management of Fencourt's business.

It criticised the EAT for not giving enough weight to these findings, and for concentrating too much on the legal structure of the companies. It agreed that the structure was important, but it was not conclusive in deciding “whether, within that legal structure, control of the business has been transferred as a matter of fact”.

It concluded, therefore, that the tribunal “was perfectly entitled to rely on the evidence to decide that there had been a transfer of Fencourt's business to McCorquodale. No error of law has been disclosed in that approach.” It therefore allowed the appeal and restored the tribunal decision.