[ Editior’s Note: A few typing corrections were made on 15/01/2019]

Tease Out Hidden Liabilities

The type of liabilities to examine are relatively well documented. However, there are a few that employers fail to identify usually because they are unaware that certain liabilities incurred by the outgoing employer will become liabilities of the new employer. If you are the new employer, you need to be explicit in the information and assurances sought from the transferor (the old employer). Look out for hidden liabilities. Examples are:

– Breaches of the National Minimum Wage regulations;
– A break in the provision of services prior to transfer;
– The cessation of particular types of benefit;
– Individuals offered early retirement prior to the transfer;
– Proof of the right to work in the UK and sponsorship of non UK workers.

National Minimum Wage Liabilities

A failure to pay the National Miminum Wage by the old employer will result in the new employer becoming liable. HMRC will enforce payment from the new employer, irrespective of the fact that the previous employer was at fault. The financial costs will include both the underpayments and penalty charges. Pursuing the new employer has been the practice of HMRC for liabilities arising after 2nd July 2018.

Another common pitfall for the unwary is whether additional payments were due but not paid to individuals. Underpayments of unsocial hours premia, overtime supplements and holiday pay can be a source of dispute over several years which the current employer has failed to resolve.

You will need to clarify whether there are any employees who have not been paid the National Minimum Wage (or other payments above). You should seek their names, the shortfall in payments and the date on which the shortfall(s) in payments arose. The wording of your question has to be such that it ‘reminds’ the transferor of the potential shortfalls such as a clear statement that all hours deemed in law, as working time, have been paid at or above the appropriate National Minimum Wage rate. That is particularly pertinent in organisations such as residential care homes.

False Assumption that a Break in the Service Provision Occurred

Check out any assumptions made about the effect of a break of several months in the provision of a service means that TUPE is not applicable to the transfer. That could be an expensive assumption. Recently, the European Court of Justice ruled [1] that even a 5 month break would not necessarily defeat a claim of liability against the new employer. The facts of the case meant that the ‘break’ started before the school holidays and continued for three months while the school was closed for the holidays. The service in question resumed when the new school term started. As much of the break was during the school holidays, the Court stated that, on the facts, it did not lead to a break in the provision of the service.

Tricky Benefits

Expensive liablilies can also arise relating to benefits. In particular, permanent health insurance benefits need careful review to identify any individuals who may be entitled to continue to receive such benefits. Terminations denying such a benefit may be deemed unlawful. The wording of such benefits should be examined to uncover any actual liabilities. If there are, agreement should be reached on any financial adjustments that are necessary in the light of such liabilities.

If the old employer dismissed an individual as early retirement benefits had been agreed, that liability will usually pass to the new employer. It is one of the exceptions to the general rule that occupational pension schemes do not transfer to the new employer.

Proof of the Right to Work in the UK

The new employer should check that the transferring employer has acceptable records as evidence of the right to work in the UK of those employees who will transfer. Similarly, the on going status of any sponsored workers should be checked as the approval of a sponsorship often ceases when a transfer occurs. There are exceptions. If this is an issue that effects your organisation, you should read Annex 8 of the Home Office guidance [2]

Remain Alert

Managers involved as the recipient of a transfer situation, should:

– Obtain advice;
– Review what information must be and should be sought from the current employer before the transfer;
– Check that the information and records being provided contain sufficient proof and facts;
– Use your operational knowledge to identify any unusual aspects for which indemnities should be sought.

Sources:

[1] Colino Sigüenza v Ayuntamiento de Valladolid ECJ – 08 August 2018 – whether a break in a service provision counts.
[2] Home Office ‘Tiers 2 and 5: guidance for sponsors Version 01/19’ – see Annex 8 regarding TUPE transfers.

Related Article: Simplifying Employment Rights and Law

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If you would like an independent eye cast across the indemnities that are likely to be pertinent to your context, before and after a transfer, please call us to discuss the help we may provide to you.

Jim Harrington of HR Management Dimensions – 07808 765588