A joint venture (JV) is a commercial arrangement between two or more businesses with a view to achieving a particular objective. This can be to collaborate on a project or for investment purposes. JVs are commonly used in the construction sector to combine expertise between companies.
There is no “one-size-fits-all” approach to establishing a JV, but the two most common routes are by setting up a new legal entity (often a limited company or a limited liability partnership), or by two or more companies entering into a contractual arrangement to work together.
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While it can be straightforward to establish the JV, it is worth considering the employment implications, something that is often overlooked.
What employment issues can arise when entering into a joint venture?
On creation, the JV will not have any existing employees. Thought needs to be given as to who will be required to be employed, in terms of the skills and experience the JV is intended to promote. Will different employees be required at different stages of the project or for different durations?
If the JV operates as a distinct legal entity, it is able to employ individuals directly. However, the businesses in the JV will need to decide what terms will be offered. Simply maintaining terms from the two constituent businesses could give rise to equal pay claims against the JV if there are differences in salaries for similar roles.
If the JV is simply a contractual arrangement between two businesses, it has no legal standing to employ any individuals and most commonly, staff will simply be assigned to work on the JV project by their existing employers. Those employers will retain all obligations in relation to the employees, but the employees may be targeted, for example for bonus purposes, on the success of the JV.
“If the JV is simply a contractual arrangement between two businesses, it has no legal standing to employ any individuals and most commonly, staff will simply be assigned to work on the JV project by their existing employers.”
A secondment may be used where the employee is to work with the JV for a limited period of time, and/or where the participating businesses want to give reassurance to the employees that they can return to their previous roles once the JV ends. In a secondment arrangement, there will be an agreement between the current employer and the JV, and a second agreement between the employer and the employee.
The employer retains responsibility for managing all employment issues relating to the employee, but the employee will take instruction from the JV. The employer will also need to consider appropriate arrangements for anyone backfilling a seconded role – it is prudent to make the contract either fixed-term and/or state expressly that it terminates on the return of the permanent employee.
If any part of the business operated by an employer is to be transferred to the JV, or any services outsourced to the JV, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) could apply. TUPE protects the terms and conditions of employees, and automatically transfers employment. Employees are protected against dismissal because of the transfer and there are obligations on the employer and the JV to inform (and potentially consult) staff.
What happens when the joint venture ends?
One of the key issues, which may be determinative of the employment arrangements, is what will happen to the staff when the project ends. If employees are employed directly, the JV will be responsible for conducting a redundancy process, which may trigger collective consultation if there are proposals to make 20 or more employees redundant in a 90-day period.
“One of the key issues, which may be determinative of the employment arrangements, is what will happen to the staff when the project ends.”
The JV would need to consider whether any alternative employment was available, which could involve an assessment of vacancies within the businesses making up the JV, which may be tricky to coordinate. The JV would need to pay any notice and statutory redundancy payments. Employees may have continuous service from their employment with the constituent businesses depending on the relative shareholdings and whether the JV is an “associated employer”.
If employees are seconded, they would usually return to their original roles on completion of the secondment.
Are there any other issues to consider?
If the JV needs to consider recruiting migrant workers for specialist roles, this may also dictate the structure. An entity registered in the UK can apply for a Home Office sponsor licence under the worker route most applicable to the needs of the business. Home Office guidance has confirmed that it will not accept informal arrangements between two entities in a joint venture as sufficient evidence of the link of common ownership or control between a UK entity and an overseas entity in the case of intra-group transfers.
It would not be permitted to second any existing sponsored workers to a JV – sponsor licence holders must evidence that they will maintain full responsibility for a worker‘s duties and management.
Lucy Gordon is director in the employment team at Walker Morris.
