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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.

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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).