Employment Law: Transfer trouble

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An empty pub means no revenue from rent, premises potentially vulnerable to vandalism, and ownership of an uninsurable asset which may be...

An empty pub means no revenue from rent, premises potentially vulnerable to vandalism, and ownership of an uninsurable asset which may be deteriorating in condition and therefore value… every landlord's nightmare.

So when a lease comes to an end, landlords want to get a new tenant in as quickly as possible. In the current climate, successfully recruiting tenants who are willing to take on a pub for the right price is a dream come true for most landlords.

In the meantime, as bar stools remain upside down on tables, legal issues are arising. Pub owners and landlords who sub-let need to be aware of potential legal obligations that exist towards employees during these times.

The law

This area is governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (more commonly referred to as TUPE) which protects an employee's rights on the sale of a business or a change of service provider.

This includes when a lease expires, either because of forfeiture or surrender, and the landlord or new tenant carries on the same activity. After the termination of a lease, if the landlord grants a new lease to a new tenant who carries on running the pub with no interruptions, then a relevant transfer arises between the outgoing tenant and the new tenant.

In these circumstances, employees' terms and conditions are protected and their employment will continue with the new tenant, who will become their new employer.

Changes to the employees' terms and conditions are not allowed unless the reason is nothing to do with the transfer or is an "economic, technical or organisational" reason, entailing changes in the workforce.

If changes are made to incoming employees' terms and conditions and those changes do not come within these exemptions, then they will be rendered void under TUPE. Furthermore, the new tenant will be unable to dismiss any of the transferring employees unless the reason is nothing to do with the transfer or is an "economic, technical or organisational" reason, entailing changes in the workforce.

This means that redundancies could be justified if the new tenant considered they had too many employees. But employers must still carry out a fair redundancy process, including pooling the new employees with its existing employees, if applicable.

What if the pub closes between tenants?

It is often the case that, on taking up a new lease for a pub, the tenant will want to close the pub for a certain period in order to, say, refurbish it. Because of this downtime, does TUPE no longer apply?

In the recent decision of Wood v London Colney Parish Council, the Employment Appeal Tribunal held that closure of the pub was only a temporary cessation of the business and therefore the economic entity had retained its identity.

This was because, at the time of the transfer, the parish council intended that the bar would be re-opened. The fact that there was no premises licence in place at the time of the transfer did not prevent there being a relevant transfer. The bar steward's employment had transferred under TUPE and he was able to proceed with his unfair dismissal claim against the parish council.

The issue here is the reason for the cessation in activities. This would need to be assessed on an individual basis. In essence, is the business which is carried on following the closure and refurbishment essentially the same business which was carried on before the transfer took place?

Practical steps - what should landlords do?

In an ideal world, a landlord would ask the new tenant to indemnify them for any liability under TUPE which may occur in the future. This is something to consider adding to the tenancy agreement when these are being negotiated.

You must avoid changing the employees' terms and conditions as a result of the transfer. This is the case even if you are trying to 'harmonise' transferring employees' terms and conditions with your existing staff. Harmonisation of terms is generally prohibited.

If you are a new tenant and you intend to close the pub to refurbish it, as a general rule, if your refurbishment takes less than three months, you should expect to take on the employees as a result of TUPE.

They may not want to hang around for the pub to re-open and if this is the case, you should ask them to sign a letter confirming they have opted out of TUPE, i.e. that they do not want to transfer to you.

If your refurbishment is going to take longer than three months, then you should take specialist legal advice, as you should not automatically assume that TUPE will not apply.

• As an experienced advisor to pub companies and breweries who are faced with the turmoil of TUPE, please feel free to contact Kimbells (www.kimbells.com) for tailored advice to avoid the pitfalls.

Related topics: Property law, Training

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