4 July 2012

"Consultant" transferred under TUPE

Freedman gives us an example of the difference between a person being accepted as self-employed for the purposes of tax and national insurance but in fact being an employee. Dr Freedman operated a business as a sole trader, and in 2009 incorporated it as Career Energy Ltd (CEL). A new company, Career Energy Consultancy Services Ltd (CECSL), was formed and  52% of its shares were sold to an investor.  As part of the overall transaction, CEL was put into liquidation and its employees, assets and contracts were transferred to CECSL. Dr Freedman then continued to act as Chief Executive under a new service agreement until February 2010 when the investor who controlled the majority shareholding replaced him as Chief Executive. Thereafter Dr Freedman continued as a director and carried out the same duties; however he was described as a consultant and was paid salary and commissions gross against invoices submitted.  In October 2010 CECSL went into insolvent liquidation.

An ET found that there had been no transfer of Dr Freedman's employment in 2009, that he had ceased to be an employee in February 2010 and so declined to consider a claim for unfair dismissal and accrued holiday, on the ground that it had no jurisdiction to hear the case. The EAT overturned this decision, considering that in focussing on the share transfer, the ET had failed to take into account the transfer of assets and contracts, and had been wrong to decide that there had been no transfer of his employment. Further,  when Dr Freedman became a consultant he had in fact continued to be an employee regardless of the label put on the relationship by the parties. The EAT remarked that:

"The only difference appears to have been that the manner in which he was paid changed; he submitted invoices and was responsible for his own National Insurance and PAYE, and the Respondent ceased to be."

The EAT therefore considered that the ET had jurisdiction to hear Dr Freedman's claims, and referred the case to a new tribunal to decide. One lesson to be learned from this case is that while a pure share sale does not fall within TUPE, a more complex transaction can include both a share sale and a transfer of business.  Another is that the parties may label a working relationship as one thing, and HMRC may accept this, but an employment tribunal can take an entirely different view.