Business Sales & Purchases

Can a buyer claim for furloughed employees who transfer under TUPE?

Do employees on furlough leave transfer under TUPE like normal employees?

Spolier alert >>> the answer is that it is not clear from HMRC’s guidance so far. We are waiting for clarification in the coming days or weeks. As yet, HMRC guidance does not address the position where employees TUPE-transfer to a new employer after 28 February and so were not on the new employer’s payroll as at that date.

Why is this an issue?

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE” to its friends), following an business sale, employees will automatically transfer from the selling company to the buyer. TUPE ensures that they cannot be sacked prior to the business transfer and also that they are guaranteed identical terms and conditions of employment. An employee will still transfer even if they are on long-term sick leave or maternity leave.

So, isn’t it automatic that an employee on furlough leave will also transfer?

Yes it is. Employees who have been placed on furlough leave (or the “Coronavirus Job Retention Scheme” if we are being polite) will also transfer to the new employer.

Surely the buyer can keep claiming back furlough costs from the Government then?

Ahem. This is where the issue arises. The current government guidance (published 4 April 2020) states that employers “can only claim for furloughed employees that were on your PAYE payroll on or before 28 February 2020”. This presents a problem for a buyer business, because employees transferring into their businesses after 1 March 2020 would not have been on the payroll and so would not be eligible to be furloughed.

Clearly, the Government is making up the rules as they go, without the benefit of a proper consultation – e.g. they have been issuing clarifications and corrections when anomalies (such as this one) become apparent. But as yet, there has been no clarification addressing TUPE.

But what if I have already exchanged contracts on a business purchase and am committed to take the furloughed employees? Do I have to take them off furlough?

The aim of the furlough scheme was to avoid redundancies. If a buyer is not able to furlough its newly acquired employees (because it cannot claim back their salary)  then it will probably look at making redundancies or temporary lay-offs. This is the opposite of the intended purpose of the furlough scheme. It also runs counter to the intended purpose of TUPE, which is to protect employees from being subjected to any less favourable terms and conditions of employment.

What do the experts say?

Influential barrister, Daniel Barnett gives this reasoning:

1. TUPE operates to transfer all “rights, duties, powers and liabilities” under the employment contract, but only between employer and employee. It does not include third parties.

2. Furlough leave concerns employers and HMRC, although it clearly affects employees, they are not party to the arrangement.

3. TUPE will not transfer furlough leave itself. Although TUPE transfers continuity of employment, this does not mean that the employee was on the new employer’s payroll scheme from 28 February, which is the express requirement of furlough leave. 

4. In support of this position, the transferee does not have the right to obtain payroll data from the transferor that HMRC would require for any furlough claims. 

Other commentators have suggested that HMRC’s intention was that furlough should be available to the buying business. Evidently, HMRC will need to issue a clarification at some point. HMRC has not yet made any official announcement that the law is going to be amended to account for this anomaly. Any business transfer (that includes already furloughed employees) that happened after 28 February 2020 is left exposed to not being able to make a furlough claim for those employees.