- For practical employment law purposes, employers "associated" with each other are treated as though they are one and the same
- The definition of "associated employer" is especially important in connection with continuity of employment rules and in redundancy situations
Employment Rights Act definition
ERA 1996 s.231 provides:
"For the purposes of this Act any two employers shall be treated as associated if:
(a) one is a company of which the other (directly or indirectly) has control, or(b) both are companies of which a third person (directly or indirectly) has control;
and 'associated employer' shall be construed accordingly".
Thus employers are "associated" if one is a company controlled by the other or if both are companies over which a third person (company or individual) has direct or indirect control.
It follows from the above that at least one of the "associated employers" must be a company (Gardiner v London Borough of Merton  IRLR 472).
"Company" here means a limited company (see Hasley v Fair Employment Agency  IRLR 106 CA), which can be foreign (Hancill v Marcon Engineering Ltd EAT 1990 ICR 103, EAT)."Control" for this purpose means more than legal voting control in the company and/or tax law sense. For employment law purposes the meaning of "control" is concerned with practical rather than theoretical matters and therefore an employment tribunal should look at all the circumstances as to the way in which control had in fact been exercised in order to answer the question of who had control (see Tice v Cartwright 1999 ICR 769, EAT and Hair Colour Consultants Ltd v Mena EAT 1984 ICR 671, EAT).
In Glasgow City Council and others v Unison  CHIS 27 the Inner House of the Court of Session held that for the purposes of the equal pay legislation (section 79(9) Equality Act) a limited liability partnership falls within the definition of an associated company. In that case, services passed between City Parking (Glasgow) LLP and Cordia Services LLP and transferred female employees who brought equal pay claims were able to compare themselves with male employees who remained.
Continuity of employment
The definition of "associated employer" is especially important in connection with continuity of employment rules. A transfer of employment from one employer to another will not break continuity if the two employers are "associated" (ERA 1996 s.218(6) ). In such a case, the period of employment with the transferor will be continuous with the employment with the transferee, provided there is no gap in employment of a week (ending on a Saturday) or longer unless an exception in section 212 applies. See Holt v EB Security Ltd (in liquidation)  UKEAT 0558//11/1307.
Thus the EAT has said that Parliament's purpose was "to avoid the effect of manipulation of the employment relationship, depriving employees of their rights by the setting up by the same owners of a new business, shorn of continuity of service". As a result when a company was in administration with a view to being wound up and an employee was taken on by a new company doing similar business and owned and run by the same individual as the company which was being wound up the two companies counted as "associated employers". The result was that the employee could add his period of service with the company in liquidation to his period with his current employer in calculating his period of continuous service (da Silva v Composite Mouldings & Design Ltd EAT 2009 ICR 416).
There is specific provision to ensure that the businesses of associated employers are treated as one for redundancy purposes (ERA 1996 s.139(2)).
The Redundancy Payments (Continuity of Employment in Local Government, etc.) (Modification) Order 1999, SI 1999/2277 protects redundancy pay rights of local authority (and similar) staff who, not being employed by "a company", cannot benefit from the above provisions of ERA 1996 s.139(2) if their employment is switched from one employer to another within local government service (or similar). Schedule 1 to the 1999 order contains a full list of the employments to which it applies. The order came into effect on 1st September 1999 and revokes earlier orders to similar effect, notably the Redundancy Payments (Local Government) (Modification) Order 1983, SI 1983/1160. It has subsequently been amended (see the Redundancy Payments (Continuity of Employment in Local Government, etc.) (Modification) (Amendment) Order 2001 SI 2001/866 and the Redundancy Payments (Continuity of Employment in Local Government, etc.) (Modification) (Amendment) Order 2002, SI 2002/532)
The Redundancy Payments (National Health Service) (Modification) Order 1993, SI 1993/3167 achieves a similar result for NHS employees so that all of an employee’s service for the NHS counts as one period of employment for the purposes of statutory redundancy pay.