Regulation 7 of TUPE states that a dismissal will be automatically unfair if the main reason for dismissal is the transfer itself, or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (‘ETO reason’). This provision has caused some uncertainty where employees are dismissed by an administrator in order to make a business more attractive to a prospective (but as yet unknown) purchaser. In Ibex Trading v Walton (1994), the EAT held that in these circumstances the reason for dismissal was not connected with the transfer, because at the time of dismissal, there was no actual or prospective purchase for the transfer to be connected with. However, in Harrison Bowden v Bowden (1998) and Morris v John Grose (1998), the EAT took the opposite view: dismissals could be for a reason connected with the transfer even though no actual prospective purchaser had been identified at the time of dismissal. The Court of Appeal has now made it clear, in Spaceright Europe Ltd v Baillavoine & Secretary of State for Business Innovation and Skills, that tribunals should follow the approach in Harrison Bowden and Morris, rather than Ibex.
Mr Baillavoine, the Chief Executive, was dismissed by administrators in order to save the costs of his salary and because, in any event, he would not be required by a prospective purchaser. About a month later the business and assets were transferred to Spaceright. The Court of Appeal ruled that in these circumstances, a tribunal must determine the precise reason for dismissal and decide whether that reason was connected with the transfer. This could be the case even if the particular transfer or purchaser was not known, identified or contemplated at the date of dismissal. The Court of Appeal also held that there could be an ETO reason if the administrators intend to change the workforce and to continue to conduct the business, but not where they wish to make the business more attractive to prospective purchasers. In this case, Mr Baillavoine was dismissed for a transfer-related reason. His dismissal was automatically unfair and the purchaser was liable for that dismissal.