TUPE: Obligation to maintain National Minimum Wage records moves to transferee

In Mears Homecare Ltd v Bradburn and others the Employment Appeal Tribunal has confirmed that the duty on employers to maintain National Minimum Wage records moves to the transferee (or ‘new’ company) when a TUPE transfer takes place.

National Minimum Wage records: the law

Under s9 National Minimum Wage Act 1998 employers have an ongoing duty to keep sufficient records to establish that their workers have received the national minimum wage dating back three years. Where they believe that they have been underpaid, workers can require their employer to produce pay records. If the employer fails to do so within 14 days, a Tribunal can make a declaration and award up to 80 times the relevant NMW rate. The ‘employer’ for NMW purposes is "the person by whom the employee or worker is (or, where the employment has ceased, was) employed".

What happened?

In this case, the workers were employed by Mears Homecare Ltd until a TUPE transfer took place in October 2016, and their employment transferred over to two different transferees.

In February 2017 the claimants served "production notices" on Mears Homecare Ltd (the ‘transferor’) requesting wage information for the preceding 12 months. This 12 month period covered nine months where the workers were employed by Mears Homecare Ltd and three months during which they were employed by the transferees. Mears Homecare Ltd failed to respond within the necessary 14 days so the claimants issued Tribunal proceedings against the company.

The decision

The Employment Tribunal that first heard the case concluded that, looking at the definition in s9 National Minimum Wage Act 1998, Mears Homecare Ltd, as the transferor, was the "employer" for the purposes of the NMWA 1998. The Employment Tribunal ordered the transferor to pay each of the claimants £600 (80 times the hourly rate of the national minimum wage in force at the time).

Mears Homecare Ltd appealed against this decision and the Employment Appeal Tribunal upheld the appeal. It held that the workers should have served the production notices on the transferees, who were now the employers for NMW purposes.

The effect of TUPE was that the transferees had ‘stepped into the shoes’ of the transferor in relation to the workers’ contracts of employment. All of the transferor's rights, duties and obligations under or in connection with the contracts of employment transferred to the transferee. This included the duty to keep and produce NMW records.

The EAT acknowledged that minimum wage records do not form part of the mandatory ‘employee liability information’ that a transferor is legally required to provide to a transferee under the TUPE Regulations. However, this did not mean that the obligation to keep NMW records did not transfer.

What does this mean for me?

This decision is important for both parties to a TUPE transfer.

From a transferor perspective, it is important to note that the transferor will always remain liable under criminal law for any wilful failure to comply with the National Minimum Wage Act 1998. This means that transferors should protect their position by retaining a copy of NMW records and/or make a specific provision in the transfer agreement that the transferee will make any relevant pay records available to the transferor on request.

In order to comply with the obligation to provide pay records to workers, transferees will need to ensure that it receives full records from the transferor. Again, transferees may wish to specify, as part of the contractual arrangements for the transfer, that all minimum wage records maintained by the transferor are delivered over to the transferee. Transferees can further mitigate risk by requesting an indemnity from the transferor against any future claims.

Things might be a bit more complicated further down the line, for example in a second or third generation transfer (where workers transfer from a contractor to a subsequent contractor). In these circumstances there will be no direct contractual relationship between the transferor and the transferee. However, it might still be possible to obtain some protection from the client, amongst other options. If you find yourself in this situation, or have any other TUPE-related questions, we would be happy to advise you.