No service provision change under TUPE where client changes
Transfer of employees of business sold while in administration
Pre-transfer dismissal can be transfer connected where no transferee yet identified
Recent decisions from the Employment Appeal Tribunal (EAT) and the Court of Appeal provide useful guidance on three aspects of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
No service provision change under TUPE where client changes
In Hunter v McCarrick the EAT has ruled for the first time that the service provision change provisions of TUPE cannot apply where the client to whom services are being provided changes at the same time as the change in service provider. This is particularly good news for purchasers of property portfolios. Until now, the cautious approach was to assume that TUPE might well apply where a property portfolio was sold and the new managing agents (or other service providers) were appointed by the new owner. Now it appears that there cannot be a service provision change in this situation, at least until any appeal is heard, although in some cases there might still be a transfer of a business. It will remain best practice to address the risk and potential costs in the contractual documentation.
Transfer of employees of business sold while in administration
In Key2Law (Surrey) v De'Antiquis the Court of Appeal has upheld the EAT's ruling that administrations are never to be viewed as "instituted with a view to liquidation", even if it is immediately clear to the administrator on appointment that there is no real prospect of rescuing the company as a going concern. The legal character of an administration is primarily to rescue the company. As such, it cannot benefit from Regulation 8(7), which disapplies the automatic transfer of employees to liquidation proceedings.
Therefore, employees will be automatically transferred to a purchaser of a business from an administrator, including pre-packs. This will need to be factored into the commercial assessment of the deal and in particular the price, given that administrators will rarely give adequate indemnities for employment claims.
Pre-transfer dismissal can be transfer connected where no transferee yet identified
In Spaceright Europe v Baillavoine the Court of Appeal has resolved conflicting EAT decisions and ruled that a dismissal can be 'transfer connected' even if the transferor has yet to identify a likely or actual transferee. The dismissal by an administrator of a company's chief executive officer in order to facilitate the sale of the business was connected to the transfer, and was not made for an economic, technical or organisational reason entailing changes to the workforce. It was not a redundancy situation, given that the business would clearly continue to need a managing director in future. The dismissal was therefore automatically unfair and liability passed to the transferee that purchased the business one month later.
Transferees in this situation will need to try to assess whether a pre-transfer dismissal of an employee can be shown to relate to the conduct of the business, or whether it may be viewed as intended to facilitate its sale, and should factor this risk into the price offered.
For further information on this topic please contact Andrew Brown at Herbert Smith LLP by telephone (+44 20 7374 8000), fax (+44 20 7374 0888) or email ([email protected]).