Since the Transfer of Undertakings (Protection of Employment) Regulations 2006 were made in order to implement the European Union’s Council Directive 80/987/EEC, there has been an ongoing debate on how regulation 8 (7) (the bankruptcy proceedings exception) should be interpreted. Fortunately, a recent decision by the Employment Appeals Tribunal has gone some way towards clarifying the issue.
Regulation 4 of TUPE provides that, where there is a “relevant transfer”, the contracts of employment of employees assigned to the transferor automatically transfer to the transferee on their existing terms. However, reg. 4 is disapplied by reg. 8(7) in circumstances where there are “bankruptcy proceedings” or any “analogous insolvency proceedings which are instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner“. But, asked insolvency practitioners across the land, are administration proceedings initiated under Schedule B1 of the Insolvency Act 1986 considered to be analogous to bankruptcy proceedings?
For the last couple of years, the case of Oakland v Wellswood (Yorkshire) Limited has been the leading authority on that point. In Oakland, the EAT held that reg. 8(7) applied because the administrator had clearly been appointed with a view to the liquidation of the insolvent company’s assets. This surprised many insolvency practitioners, not least because it appeared to fly in the face of guidance published by the Department of Business, Innovation and Skills which stated that:
“The Secretary of State takes the view that regulations 4 and 7 will always apply in relation to a relevant transfer that is made in the context of an administration…. Administration is not in the view of the Secretary of State analogous to bankruptcy proceedings.”
The Oakland approach had far greater appeal to insolvency practitioners as it could be used by administrators to make a sale look far more attractive to a buyer; transferees would be persuaded that they could avoid TUPE liability for the insolvent company’s transferring employees.
However, in the very recent case of OTG Limited v Barke & Others, the EAT chose not to follow Oakland, deciding that administrations (including pre-pack administrations) are not capable of falling within the definition of “bankruptcy” or “analogous insolvency proceedings”.
The employment tribunal system appears to be wrestling with the conflict between the idea of protecting transferring employees and promoting the so-called “rescue culture”. The leading judgment in OTG states that:
“Promoting a rescue culture may favour the interests of the workers generally (though no doubt there are benefits to the wider economy too), but the Directive plainly proceeds on the basis that a balance requires to be struck between those interests and the rights of individuals prejudiced by a transfer by an insolvent transferor.”
It is likely that a Court of Appeal (or higher) decision will be required to settle this debate once and for all. However, for now, insolvency practitioners need to be aware that the employment tribunal approach, at least for the time being, will be to interpret the provisions of TUPE in such a way so as to safeguard the rights of employees. As such, reliance upon the decision in Oakland can no longer be advised.