Under the Transfer of Undertakings (Protection of Employment) Regulations 1981, the transferor has an obligation to consult staff as soon as possible about a potential transfer.

Failure to do so leaves the transfer company liable to pay compensation of up to 13 weeks.

But what happens when the transferor denies that there has even been a transfer? In Amicus v Friction Dynamex Ltd (2005, IRLR 724), the High Court said it had jurisdiction to extend an interim injunction freezing the assets of the companies to which the original company was transferred in case they tried to dissipate them.

 

What were the facts?

Friction Dynamex Ltd, based in Wales, was owned and controlled by Craig Smith, an American citizen. In August 2003, the company went into administration, but rose "phoenix-like out of the ashes" to be transferred into the ownership of two other companies, Dynamex Friction Ltd and Ferotec Realty Ltd. These were also allegedly under the control of Mr Smith.

Amicus, which represented some of the dismissed employees, claimed that there had been a TUPE transfer of Friction Dynamex Ltd to the two companies. As a result, Mr Smith should have consulted with the union over a number of redundancies.

 

What did the two parties argue?

The union argued that as it was inevitable that compensation would be ordered at the substantive hearing before the tribunal, it asked for the continuation of an earlier interim injunction ordering the two companies not to dispose of their assets.

It went on to argue that, although there had been no actual awards of compensation as yet, the union had a "cause of action" which it had pursued - namely the pending claims at the employment tribunal.

The company, on the other hand, said that the court had no jurisdiction to grant a freezing order for something that did not exist at the time of applying for it.

Amazingly, it even argued that anyone bringing a tribunal claim could not be protected by the High Court if the respondents seemed to be about to dissipate their assets.

In any event, it said there was no evidence that the company had been about to do so, given that, once it had gone into administration, the administrators were in charge of what happened to the assets.

The union disagreed, pointing to the fact that Dynamex and Realty were clearly jointly running the undertaking that had previously belonged to Friction.

 

What did the high court decide?

Fortunately, the High Court was not impressed by the company's arguments. It said that it had the power to make a freezing order, as long as the cause of action was already in existence when the claimant made the application.

In these circumstances, it was satisfied that the employment tribunal proceedings satisfied these requirements.

It said that: "It would be highly unfortunate if this court did not have jurisdiction in circumstances where a person with a very strong case for compensation in the employment tribunal was frustrated by a respondent or defendant who is able to dissipate assets and thus bring to an end any realistic prospect of that individual recovering compensation."

In this situation, the court concluded that the union had a good case, and there was a very real fear that the company would dissipate its assets. It therefore decided that, as there were assets to which a freezing order could attach, it would continue the interim order pending the conclusion of employment tribunal proceedings.

 

Comment

Although trade unions may want to use this approach against employers trying to evade their responsibilities, it is unlikely that the High Court will intervene unless (as here) there was a significant amount of money involved and a very strong case that compensation would be awarded.