Employment special report: Tupe or not Tupe?

While relatively small-scale redundancy exercises continue apace across law firms on both a covert and public level, the recent dissolution of Heller Ehrman sounded a warning bell for many in the legal profession.

It appeared that the days of the early 1990s, when law firms such as Turner Kenneth Brown suffered slow and painful declines, were gone and that we might be entering a new era of dramatic meltdowns.

As complete collapses have been so rare in the UK, there was a collective sharp intake of breath as we all watched the saga unfold and waited to see what would happen. Would staff be paid? Would another firm come to the rescue? When would the axe finally fall?

So there was much relief all round when, as The Lawyer reported on 3 November, Orrick Herrington & Sutcliffe stepped in and picked up the Heller corporate team, complete with ‘baggage’. Only a firm willing to make a long-term strategic investment in the London market, and negotiate its way through the legal minefield of English employment law, would view such a team (and its baggage) as a feasible proposition – stars or no stars.

Those interested in Heller’s talent in its US, Hong Kong, Singapore and China offices would have followed the ­relatively simple process of ‘offer and acceptance’. However, firms that circled to pick up the pieces from Heller’s London office would have quickly worked out that this was no straightforward ‘cherry-picking’ or ‘lemon-dropping’ exercise, as a quick lesson in the finer points of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (Tupe) would have revealed.

For the firms that lured away individual London partners, Tupe would only have been a theoretical legal risk. Their departures would have been like any other individual hire in the market, with the added advantage that any post-termination restrictions were unlikely to have any bite. After all, who would be in a position to enforce them, let alone argue that there was any legitimate ­business interest left to protect?

Special circumstances

However, the decision by some of the Heller partners and their assistants to move ­together raised different, and rather more complicated, Tupe-related issues. Could they be said to be an economic entity that retains its identity? If so, it was possible that some or all of the IT, accounts and ­secretarial staff who worked with them could also form part of that organised grouping of resources, as well as all of the associated assets and the liabilities.

And it is not just other law firms that needed to be wary: if concerned clients
took their work back in-house (albeit ­temporarily) or gave it to other firms on their panels, an informed employee could even try to argue that this was a service ­provision change and that they should also follow the work to its new home.

Only an employment tribunal can ­determine, often a long time after the event and with the benefit of considerable hindsight, if there was in fact a ‘relevant transfer’ for the purposes of Tupe. Determining whether Tupe applies is a very fact-heavy process, but what we can say with some ­certainty is that, in the case of group moves, there is a risk that Tupe could apply.

And so this must have led to another dilemma faced by so many businesses at the moment, when it is less than clear who will go where and when, or even if and how Tupe applies. Namely, when do you inform and consult?
While ;Tupe ;still ;has ;a ;special ­circumstances defence for a failure to inform and consult when it is not reasonably ­practicable, it is not a blanket defence – the employer needs to show that it took all such steps towards its performance as were ­reasonably practicable. In practice, though, it remains incredibly difficult to make out this defence.

Compromise agreements

The Tupe liabilities arise from successful claims of automatic unfair dismissal if some or all of the staff are not taken on, and ­consequential compensatory awards of up to £63,000 per person plus protective pay awards of up to 13 weeks’ actual pay for a failure to inform and consult.

When there is more than a handful of staff, and these staff are well paid, the total potential Tupe liability can be quite eye-watering. As staff who are not taken on are facing redundancy when unemployment is rising, there are few disincentives for such staff to bring claims.

If the legal press is correct, the commercial solution reached in the Heller case was a contribution towards the potential liability, effectively on a ‘without admission of ­liability’ basis. For the employees, this probably means compromise agreements signed off by an independent lawyer.

Although this solution does not provide the full employment protection envisaged by Tupe, it may reflect a new form of ‘best ­practice’ suited to what seem like ­unprecedented times. Perhaps it will be the case that doing the best you can for your employees is good enough.

Ann Bevitt is a partner and head of employment and Suzanne Horne an ­associate at Morrison & Foerster