Importance of employees’ rights in franchise resales/media/pdfs/brochures/franchising/... ·...
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December/January 2014 www.franchiseworld.co.uk 31 was a fair election process, highlighting failure to set an appropriate timescale for the election, and failure to inform the affected employees of the tie-break situation when selecting the second representative. On the first point, the tribunal found that Shields should have extended the nomination timescale so as to ensure that no employee would be excluded due to their regular working pattern. On the second point, the tribunal found that the unilateral decision compromised the fairness of the election. The ruling At first instance, Mr Langdon was awarded two weeks pay and Mr Brolly seven weeks pay, the difference representing the fact that Mr Langdon was adjudged not to have been disadvantaged by the tie-break issue as he had opted not to vote. On appeal, EAT agreed that there had been a failure to comply with the relevant provisions of Regulation 14 of TUPE. On the timescale point, it accepted that, whilst Mr Brolly had technically been entitled to vote, he had not been afforded the opportunity to exercise that entitle- ment. On the tie-break point, EAT concluded that the final selection was made by the employer, rather than the employees. EAT disagreed with the approach to compensation taken by the tribunal. EAT took into account that any compensation awarded should be punitive rather than compensatory, and it considered that the vast differences awarded to the claimants did not reflect this. With this in mind, we can turn to the facts of the case and the rulings of the Tribunal and the EAT case. Facts of the case The outgoing franchisee, Shields Automotive held a Toyota franchise and was involved in the sale of motor vehicles in Scotland. With effect from August 9, 2011, the franchise was transferred to Arnold Clark Automobiles Ltd, affecting a number of employees who, with the exception of one, all transferred to Arnold Clark. Despite the transfer being agreed in March 2010 and by July 2011, the heads of terms being in place, it took until 2pm on August 2, 2011 for the outgoing franchisee’s employees to be informed of the potential transfer of the franchise, and the employees were only given until 5pm that same afternoon to nominate representatives. One affected employee, a Mr Langdon elected not to vote due to concerns about the short timescales. Another, a Mr Brolly had a day off, which Shields was aware of, and did not therefore have the opportunity to vote. No reason was put forward by Shields as to why the elections could not remain open until early on August 3, to give Mr Brolly the opportunity to vote. The results of the election saw one outright leader, who was duly elected as the first representative, and a tie for second place. On the basis that one of the tied employees was to be absent from work on the day of the forthcoming consultation meeting, Shields unilaterally approved the other employee as the second representative. Mr Langdon and Mr Brolly brought claims based on a failure to comply with the information and consultation requirements under TUPE. At first instance, the tribunal did not criticise the quality and content of the consultation undertaken, but nevertheless considered that Shields had failed to ensure that there W hen a franchisee sells his business, the franchisor needs to ensure he has complied with the law that regulates the rights of his employees. Failure to do so can result in difficulties for the incoming franchisee and cause financial loss to both the franchisee and the franchisor. A recent case involving a Toyota dealership franchise provides a timely reminder for franchisors. The recent Employment Appeal Tribunal (EAT) case of Shields Automotive Ltd v Langdon and another, considered what compensation award should be made by the tribunal following a technical breach of the information and consultation provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and in particular, the obligations in relation to the election of appropriate representatives. TUPE considerations Under regulation 13 of TUPE, there is an obligation on the outgoing franchisee and the incoming franchisee to inform and consult appropriate representatives of affected employees, long enough before a relevant transfer takes place. Regulation 14 of TUPE concerns the election of employee representatives and requires, amongst other things, the following. ● The employer shall make such arrangements as are reasonably practicable to ensure the election is fair. ● All employees on the date of the election are entitled to vote for such representatives. Failure to inform or consult in accordance with the requirements of TUPE may lead to an employer being ordered to compensate affected employees to the extent that is just and equitable having regard to the seriousness of the failure, but not exceeding 13 weeks’ actual pay. Any such award must be punitive (that is, to punish the employer), rather than to compensate the employee. Importance of employees’ rights in franchise resales By Graham Payne, Frances Vickery and Julian Bohn, of Bird & Bird Graham Payne is a partner in the franchise, licensing and multi-channel strategies team at international law firm Bird & Bird. He has many years experience of all aspects of franchising. Frances Vickery and Julian Bohn are both solicitors at the firm specialising in employment law. ➥
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Transcript of Importance of employees’ rights in franchise resales/media/pdfs/brochures/franchising/... ·...
December/January 2014 www.franchiseworld.co.uk 31
was a fair election process, highlightingfailure to set an appropriate timescale for theelection, and failure to inform the affectedemployees of the tie-break situation whenselecting the second representative.
On the first point, the tribunal foundthat Shields should have extended thenomination timescale so as to ensure thatno employee would be excluded due totheir regular working pattern. On thesecond point, the tribunal found that theunilateral decision compromised thefairness of the election.
The rulingAt first instance, Mr Langdon was
awarded two weeks pay and Mr Brollyseven weeks pay, the differencerepresenting the fact that Mr Langdonwas adjudged not to have beendisadvantaged by the tie-break issue ashe had opted not to vote.
On appeal, EAT agreed that there hadbeen a failure to comply with the relevantprovisions of Regulation 14 of TUPE. Onthe timescale point, it accepted that,whilst Mr Brolly had technically beenentitled to vote, he had not been affordedthe opportunity to exercise that entitle-ment. On the tie-break point, EATconcluded that the final selection wasmade by the employer, rather than theemployees.
EAT disagreed with the approach tocompensation taken by the tribunal. EATtook into account that any compensationawarded should be punitive rather thancompensatory, and it considered that thevast differences awarded to the claimantsdid not reflect this.
With this in mind, we can turn to thefacts of the case and the rulings of theTribunal and the EAT case.
Facts of the caseThe outgoing franchisee, Shields
Automotive held a Toyota franchise andwas involved in the sale of motor vehiclesin Scotland. With effect from August 9,2011, the franchise was transferred toArnold Clark Automobiles Ltd, affectinga number of employees who, with theexception of one, all transferred toArnold Clark.
Despite the transfer being agreed inMarch 2010 and by July 2011, the headsof terms being in place, it took until 2pmon August 2, 2011 for the outgoingfranchisee’s employees to be informed ofthe potential transfer of the franchise,and the employees were only given until5pm that same afternoon to nominaterepresentatives.
One affected employee, a Mr Langdonelected not to vote due to concerns aboutthe short timescales.
Another, a Mr Brolly had a day off,which Shields was aware of, and did nottherefore have the opportunity to vote.No reason was put forward by Shields asto why the elections could not remainopen until early on August 3, to giveMr Brolly the opportunity to vote.
The results of the election saw oneoutright leader, who was duly elected asthe first representative, and a tie for secondplace. On the basis that one of the tiedemployees was to be absent from work onthe day of the forthcoming consultationmeeting, Shields unilaterally approvedthe other employee as the secondrepresentative.
Mr Langdon and Mr Brolly broughtclaims based on a failure to comply withthe information and consultationrequirements under TUPE. At firstinstance, the tribunal did not criticise thequality and content of the consultationundertaken, but nevertheless consideredthat Shields had failed to ensure that there
When a franchisee sells his business,the franchisor needs to ensure he
has complied with the law that regulatesthe rights of his employees.
Failure to do so can result in difficultiesfor the incoming franchisee and causefinancial loss to both the franchisee andthe franchisor. A recent case involving aToyota dealership franchise provides atimely reminder for franchisors.
The recent Employment AppealTribunal (EAT) case of Shields AutomotiveLtd v Langdon and another, consideredwhat compensation award should bemade by the tribunal following a technicalbreach of the information and consultationprovisions of the Transfer of Undertakings(Protection of Employment) Regulations2006 (TUPE) and in particular, theobligations in relation to the election ofappropriate representatives.
TUPE considerationsUnder regulation 13 of TUPE, there is
an obligation on the outgoing franchiseeand the incoming franchisee to informand consult appropriate representatives ofaffected employees, long enough before arelevant transfer takes place.
Regulation 14 of TUPE concerns theelection of employee representativesand requires, amongst other things, thefollowing.
● The employer shall make sucharrangements as are reasonablypracticable to ensure the election is fair.
● All employees on the date of theelection are entitled to vote for suchrepresentatives.
Failure to inform or consult inaccordance with the requirements ofTUPE may lead to an employer beingordered to compensate affected employeesto the extent that is just and equitablehaving regard to the seriousness of thefailure, but not exceeding 13 weeks’actual pay. Any such award must bepunitive (that is, to punish the employer),rather than to compensate the employee.
Importance of employees’rights in franchise resalesBy Graham Payne, Frances Vickery and Julian Bohn, of Bird & Bird
Graham Payne is a partner in thefranchise, licensing and multi-channelstrategies team at international lawfirm Bird & Bird. He has many yearsexperience of all aspects of franchising.
Frances Vickery and Julian Bohn areboth solicitors at the firm specialising inemployment law.
➥➥
32 www.franchiseworld.co.uk December/January 2014
It considered that more emphasisshould have been placed on the seriousnessof the breaches, rather than their impacton each employee.
EAT also referred to the case ofTodd v Strain where there had been afailure to inform and consult, albeit someinformation had been shared on aninformal basis with employees. In thatcase, the employees were awarded sevenweeks actual pay in respect of the failuresby the employer.
The tribunal in the Shields case wasof the view that the breach of the TUPEregulations by Shields was lesssignificant than that by the transferor inTodd v Strain, and yet it made the sameaward to Mr Brolly as had been made tothe employees in the latter case (i.e. sevenweeks actual pay).
Given that EAT considered there tohave been a full consultation by Shields, itdeemed the breach of Regulation 14 inrelation to the election of appropriaterepresentative to be a technical breachand accordingly kept Mr Langdon’saward at two weeks’pay, whilst reducingMr Brolly’s to three weeks.
Lessons for franchisorsThere are lessons to be learnt here
by franchisors who consent to theirfranchisees selling their businesses.
Clearly, it is important for thefranchisor to ensure that where a TUPEtransfer occurs, the outgoing franchiseeinforms and, where necessary, consultswith appropriate representatives pursuantto Regulation 13 of TUPE.
It is also important to ensure that atthe outset of any TUPE transfer processthe outgoing franchisee ensures that theelection of appropriate representatives isnot overlooked and that it carries out afair election process. This should be acondition precedent of the franchisor’sconsent to the sale.
Although it is clear from the judgmentin Shields that an Employment Tribunalcan (and will) reduce awards so that theyare at a level that is appropriate, takinginto account the extent of the breach andif it is a technical breach only. Wherethere are a large number of affectedemployees, who can claim that theelection of appropriate representatives i www.twobirds.com
has not been carried out in accordancewith Regulation 14 of TUPE, the cost ofthe awards and the adverse impact on thefranchisee’s business could be significant.
It is open to an Employment Tribunalto make the transferor and transfereejointly and severally liable in respect ofany compensation payable (i.e. theemployees bringing the claims couldchoose to bring a claim against either orboth of the parties).
As the incoming franchisee will havelittle or no control over how the outgoingfranchisee carries out the electionprocess, the franchisor should oblige theoutgoing franchisee to fulfil its legalobligations.
The franchisor should also ensure thatas part of the incoming franchisee’s duediligence process in acquiring the fran-chise, he satisfies himself that Regulation14 has been properly followed or seekswarranty and/or indemnity protectionagainst any claims and compensationawards for failure to comply with TUPERegulations.
Women in ParliamentMembers of EWIF, the women’s franchise group, on a tour ofthe Houses of Parliament with their host, Justin Tomlinson(seated), MP for Swindon North. His wife Jo is a pet carefranchisor. EWIF is to hold a London regional meeting in theHouse. From left are: seated – Linda Price (Swimtime),Carole Stubbs (Why Franchise), Tomlinson and Vickie
Knighton (Why Franchise). Standing – Mandy Bagot (CloudBookkeeping), Sally Findlay (Recognition Express), HowardWhite (Mundays), Jane Masih (Owen White), Louise Harris(Wilkins Chimney Sweep), Louise Bruce (Big Red Box PR),Anne-Marie Wilkins (Diddidance), Karen Sherr (MusicalMinis) and Helen Thompson (Kyros Franchising).
