The EAT said that employees working in the part of the business that was not being transferred were not "affected employees" protected by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). This meant that the duty to "inform and consult" those employees before the transfer took place did not apply to those employees, even though their part of the business ultimately closed down after the transfer took place.
In his ruling, Mr Justice Underhill said that the phrase "affected by the transfer", within the meaning of TUPE, was not "apt enough" to cover "indirect" effects, "where the transfer as such has no impact on the employees". In this case the business, which provided services to the film and television industry, was in serious financial difficulties and was ultimately liquidated.
"For the avoidance of doubt, we are not to be taken as saying that there can never be an obligation to inform and consult in relation to any employee of the transferor who is not transferred," he said. "A proposed transfer may well affect such employees if they do some work in or for the undertaking (or part) whose transfer is proposed (albeit not "assigned" to that part): the loss of part of their work may well affect them."
"But that is different from saying that they are affected simply because the transfer has left the remaining part of the undertaking less viable," he said.
Similarly, an employer is not under a duty to consult if it had originally contemplated transferring a part of the business, but ultimately did not do so, he said.
TUPE protects the rights of employees when their company is taken over by a new owner or the work that they provide is outsourced, brought back in house or there is a change of service provider. In this case, the company carried out two different types of work which were carried out by two different sets of employees. This was a result of the fact that the employees had traditionally worked for two different companies, which merged in 2009.
On running into financial difficulties, the company had originally planned to transfer both parts of the business to a new owner. Ultimately, the liquidator only transferred the part that dealt with 'rushes' work and not the employees who worked in post-production. These employees were dismissed when the company was liquidated. At an initial employment tribunal hearing, the employees were found to be unfairly dismissed. They were "clearly affected by the relevant transfer by being effectively excluded from it, having been informed that they would be a part of it", the tribunal said.
However, Mr Justice Underhill at the EAT disagreed. TUPE does not create a duty for the employer to consult affected employees "when he first envisages that he will take the relevant measures", but rather "long enough before the transfer to allow consultation to take place", he said.
"That being so, it can never be said definitively that the employer is in breach of that obligation until the transfer has occurred," he said.
"In our view, [TUPE] means that there can be no complaint of a breach of the obligations under them unless there has indeed been a relevant transfer ... No doubt an intending transferor who takes no steps to inform or consult the employees potentially affected by the transfer is not behaving well and will be in breach if the transfer proceeds; but if in the end there is no transfer, and no employees are 'affected', it does not seem to us axiomatic that any sanction is called for," he said.