TUPE: obligation to maintain pay records transfers with staff

The 1998 National Minimum Wage Act (NMWA) requires an employer to maintain wage records for a period of three years. These records must be produced on demand by a worker who has reasonable grounds to believe that they have not been paid the NMW. The employer remains liable to provide the information on request of a former worker "where the employment has ceased".

The TUPE regulations give effect to the EU's Acquired Rights Directive, and govern the rights of employees when the business they work for is transferred to a new owner. Where TUPE applies, all the "rights, powers, duties and liabilities" of the transferring business under the employment contract are transferred to the acquiring business.

In an earlier ruling, an employment tribunal found that the employment of a number of care workers had "ceased" in the words of the NMWA when their former employer, Mears Homecare Ltd, transferred its business to two separate transferees. Mears was therefore still bound by the record production requirements of the NMWA.

The EAT has now overturned this ruling. Mr Justice Choudhury found, firstly, that the care workers' employment had not "ceased" but rather had transferred; and, secondly, that the employer's obligations under the NMWA transferred to the new employers along with all other rights and obligations.

"[TUPE] provides that a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor," said Mr Justice Choudhury in his judgment. "In the absence of any other mechanism operating to terminate the employment, such as the giving of notice, it is clear, in my judgment, that the contract of employment does not terminate when a relevant transfer takes place. Instead, it continues as if it had originally been made between the person so employed and the transferee."

"[TUPE] provides that the effect of a relevant transfer is that 'all of the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred' ... There are limited exceptions to the broad scope of this regulation, none of which relate to the obligations arising under the NMWA. As a matter of statutory construction, therefore, there is nothing in TUPE that has the effect of excluding the obligation to preserve and maintain records from the collection of rights and obligations that will transfer to the transferee," he said.

Under the NMWA, an employer which does not provide a worker with the required pay information within 14 days of the request may be required by an employment tribunal to pay the worker a sum equal to 80 times the hourly amount of the current NMW. Mears therefore faced a significant financial penalty as a result of the tribunal's earlier decision.

The judge acknowledged that it may be "more convenient" for the transferring business to maintain the records, given that it had collated them in the first place. However, "mere inconvenience" was not a sufficient reason for the obligation not to transfer, he said.

"It will be important for employers to be live to the fact that where an employee transfers to a new employer under the TUPE regulations, the obligation to maintain pay records under the NMWA also transfers," said employment law expert Emma Noble of Pinsent Masons, the law firm behind Out-Law.

"The effect of TUPE means that employers may be on the hook for a breach of the NMW legislation which took place prior to the transfer - with the exception of any criminal liability as a result of a wilful failure to comply with the NMWA, in which case the transferor would remain criminally liable. Many employers will find it difficult to defend such a claim, particularly where they have either not insisted that all records maintained for the purposes of the NMWA transfer with the employee or, as is more likely, where there is a scarcity of records held by the transferor to begin with," she said.

Noble pointed out that the 1998 Working Time Regulations also imposes record-keeping requirements on employers. In May, the Court of Justice of the EU (CJEU) determined in a Spanish case that employers must keep an "objective, reliable and accessible system" enabling the duration of working time worked each day by each worker to be measured.

"This links in with the Mears case in terms of employers' record-keeping obligations, in terms of compliance with both NME legislation and working time legislation," she said. "As the NMW increases, so does the risk that 'salaried' employers may be paid less than the required hourly rate. It can be hard for employers to show that salaried employees have only worked their contracted hours, so record keeping as to working time is important where there is only a small buffer above the minimum rate."

"As well as seeking to agree employee pay records transfer with the employee, employers may also seek to agree that any records which demonstrate that limits on working time have been complied with should also transfer to the new employer, in addition to the mandatory employer liability information the transferor is required to provide under regulation 11 of TUPE. The parties may wish to seek protection by way of indemnity where this is likely to be an issue," she said.