TUPE regulations have for some time been an area of uncertainty for administrators and those purchasing businesses out of administration. Two recent Court of Appeal judgments have provided some clarity but both have the potential to undermine the rescue culture.
In Spaceright Europe Ltd v (1) Baillavoine (2) Secretary of State for Business Innovation and Skills the Court of Appeal looked at the inconsistent authorities that had developed at Employment Appeal Tribunal level as to the correct construction of Regulation 7(1) of TUPE, which states that the dismisal of an employee is automatically unfair where the principal reason for the dismissal is (a) the transfer of the business or (b) a reason connected to the transfer that is not an economic, technical or organisational reason. In Spaceright it was found that the dismissal of the claimant by the administrator was for a transfer-connected reason and was automatically unfair, regardless of the fact that the dismissal was made prior to the administrator finding a purchaser of the business.
In Key2 Law (Surrey) LLP v Gaynor De’Antiquis, the Court of Appeal upheld an EAT decision to the effect that Regulation 8(7) of TUPE does not apply to administrations. Regulation 8(7) dissaplies certain other TUPE clauses which provide that pre-transfer unfair dismissal liabilities automatically pass to the purchaser upon the condition that “the transferor is the subject of… insolvency proceedings which have been instituted with a view to the liquidation of the of the assets of the transferor and under the supervision of an insolvency practitioner.” In reaching this decision, the Court considered that administrations do not constitute insolvency proceedings ‘instituted with a view to the liquidation of the assets’ of the transferor.
In a recent case handled by this office, these judgements had an impact upon the sale of a business; potential purchasers were put off by the prospect of a contingent TUPE liability and the final sale price was reduced to compensate for the associated risk. Unfair dismissal claims can be sizeable, particular where a business has highly paid employees. At the time of writing, the maximum sum that can be awarded to an employee under a claim for unfair dismissal is £80,400.
Looking ahead, it is likely that all administrations will be adversly affected by these Judgements as prospective purchasers of distressed businesses submit reduced offers to accomodate the risk associated with TUPE. In some cases, purchasers may prefer to acquire a business out of liquidation as a safeguard against such claims and whereas in recent years liquidation has been perceived as the burial ground for business they may, in certain circumstances, be deemed the optimum route for business recovery.