Furthermore, the employees of PF were told at the time of sale that it was M's intention to fully incorporate the business of PF into their own. After the takeover, the PAYE documents showed that M was the company which now paid the employee’s wages. M also managed the contributory pension scheme. Even so, the companies were registered as being separate, and were being run as two separate companies with M controlling PF's activities.
The employee was dismissed and so complained to the Employment Tribunal.
Subsequent to that dismissal, PF bought the business of M and became the respondent to the complaint. A preliminary issue was ordered to be tried as to whether the employee's employment had by operation of the TUPE Regulations transferred from PF to M at the time PF was sold by its parent company to M.
The tribunal duly concluded that there was indeed a TUPE transfer from PF to M. PF then appealed to the Employment Appeals Tribunal (“EAT”). The grounds for the appeal by PF were that the tribunal had erred in law in that it had ‘pierced the corporate veil’ in reaching its conclusion, which was not permissible. The EAT determined that the companies were, as a matter of law, run independently. It was therefore plain that PF retained its own assets and its own employees.
The EAT decided that the lack of independence, which was typical of a subsidiary, did not demonstrate that the holding company owned the subsidiary's business and that, as a matter of law, it was the corporate entity that ran the business. In the absence of any sham, the courts were entitled to look no further. The EAT held that the appeal succeeded due to the fact that the effect of the tribunal's decision was to ‘pierce the corporate veil’, which it was not entitled to do.
The employee appealed. The appeal was dismissed.
The legal structure, although important, could not be conclusive in deciding the issue of whether, within that legal structure, control of the business had been transferred as a matter of fact. The EAT had misdirected itself.
An issue of ‘piercing the corporate veil’ only arose when it was established that activity x was carried on by company A, but for policy reasons it was sought to show that in reality the activity was the responsibility of the owner of company A.
In this case, the tribunal did not find that the activity was being carried on by PF, and then ‘pierced the veil’ to attribute the activity as a matter of law to M. It was held that, as a matter of fact, the activity was being carried on by M, and not by PF. That concentration on the issue of corporate structure led the EAT not to give proper weight to the findings of the tribunal.
Furthermore, despite the fact that the EAT was correct in saying that a subsidiary's lack of independence did not demonstrate that the holding company owned the business, that observation did not give weight to the fact that the tribunal found the arrangements in this case were not typical, to the extent that the business was that of M.
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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.