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2nd September 2004
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Which of the following most accurately describes the problem?

Operators who choose to diversify may create an associated company

to handle a different aspect of the business. But what are the legal pitfalls of making such a move? David Craik reports.

Creating associated companies is a convenient way for a business to diversify into a variety of other industries. But if you're a haulier contemplating a move into the world of, say, furniture retail or food storage what are the legal implications? What consultation should take place with your employees? How will terms and conditions of employment be affected? What will be the consequences for your 0-licence if transportation is required for the associate company's work?

The key to creation Andrew Woolfall, solicitor with road transport lawyer Backhouse Jones, says the key to making the creation of associated companies legally sound is to research every possibility: "Sometimes hauliers will set up different companies to do different types of work. This is fine as long as the operator's licence system is properly maintained.

"This is a complicated subject and I know haulage companies that have fallen foul of it. For example, take a business called A Haulage. It is faced with two primary choices when it decides to diversify. It could set up a complete ly new limited company called X Ltd or create a different trading arm called X. which it still runs and manages."

X Ltd would employ its own staff, under the parent company A Haulage has created, and would be responsible for regulatory issues including obtaining a new 0-licence. It would be a business in its own right and would have its own legal identity. It would need its own registered office, a secretary and a director, and would file its own accounts with the Registrar of Companies. "The trading arm X, however. would not need a new 0-licence," says Woolfall. "It would still be a part of A Haulage and could run vehicles on A Haulage's 0-licence. It is common for new limited companies to be left to carry out the work on A Haulage's 0-licence and not apply for its own licence. If the limited company is found to have fallen foul of the law by using A Haulage's discs then A Haulage could be brought to a public inquiry."

Woolfall's advice is to ensure that all 0-licence queries are "comprehensively dealt with" before a limited company begins trading. He encourages communication with the operator's local Traffic Area Office (TAO) for advice:This could include applying for a group 0-licence, with all the associated companies allowed to run the parent company's vehicles, including, in this example, X Ltd.All the names of the subsidiaries should be put forward in a written application to the local TAO.

Employment

The Transport & General Workers Union says if a parent company decides to diversify and create associated companies the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) will apply. This means employees' terms and conditions must not change if they move from A Haulage to X Ltd and they must be properly consulted of the changes planned.

"We would advise our members if they find themselves in such a situation to consult their local union official at the earliest opportunity," says a T&G spokesman. —This would give us a chance to get involved."

However. Jonathon Backhouse, partner with Backhouse Jones, says TUPE regulations would not be needed if a mobility clause were written into an employee's contract. "Also, if there is a clause which states that an employee is employed as a group employee then it means that contracts can be transferred between businesses. Effectively, the employees are all within the same group."

However, he advises employers to tread very carefully in such situations because "employees could still claim constructive dismissal if they find that their rights have changed with the move,ineluding hours worked and pay entitlements".

The T&G adds that if a haulage company holds a recognition agreement with a union,but creates an associated company with fewer than 20 employees — the minimum needed for recognition purposes — the union would act swiftly: "We would argue that our right to recognition survives the change.

"If the employer resists this then we can make an application to the Central Arbitration Committee for statutory recog nition," he explains. "However, we are unaware of any cases where this has applied."

Given all the complex rules and regulations regarding the creation of associated companies, why do operators do it?

Christopher Over,partner with law firm Over Taylor Biggs, believes motives can sometimes be suspect: "Operators think they can distance themselves from health and safety regulations and drivers' regulations, but they soon realise they cannot. They may be advised they can get tax breaks or they may feel it may help them in how they pay and organise their debts."

Backhouse urges caution with regard to the tax status of associated companies: "They could bring your tax thresholds down — you could attract a lot more tax. It is vital that you receive professional accounting advice before making any moves." And Over concludes: "If you are going to make the move then do it carefully and with sophistication." •


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