legal advice

The recent case of Millam v Print Factory (London) 1991 Ltd [2007], involved a dispute relating to the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). The employee was employed by Print Factory Ltd (PF). The holding company of PF was taken over and subsequently sold to M Ltd by way of a share sale agreement. The employee was informed that the identity of his employer was not changing, but was later told that his employment had been ‘continued’ under the TUPE Regulations.
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.