In Graysons Restaurants Limited v Jones UKEAT/0277/16 the facts were that Duchy Catering Limited went into administration. Administrators were appointed who sold its assets to Graysons Restaurants Limited. TUPE applied because case law has established that a transfer from a company in administration is a process which is not for the purpose of liquidating the assets of a company but rescuing its business (see Key2Law (Surrey) LLP v De’Antiquis [2012] ICR 881).

The general principle under TUPE is that a transferee is liable for all of the transferor’s obligations including its debts owed to employees. However, since 2006, there has been a relaxation of this rule, by virtue of Regulation 8 (5) of TUPE, which prevents the operation of Regulation 4 (transfer of liabilities). Regulation 8 (5) stops the transfer of liability for unpaid sums to transferring employees, provided that the sums are reimbursable by the Secretary of State from the National Insurance Fund under the “relevant statutory schemes” (i.e. chapter VI of part XI of the ERA 1996 and XII of the ERA 1996 and the equivalent Northern Ireland legislation). Classic examples of these are unpaid wages and holiday pay within the statutory limit of 8 weeks of arrears. However, debts that fall outside the above category (e.g. debts that fall beyond 8 weeks of arrears) will still pass to the transferee.

In Graysons it was common ground that there was an equal pay claim, although the precise quantification of that equal pay claim had not yet occurred. The question was whether a claim for equal pay arrears is a claim for “arrears of pay” under the scheme of reimbursement (part XII or the ERA 1996) in circumstances where the claim has not yet been determined and whether it gives rise to a debt under the relevant provisions. In this case, an employment judge doubted that equal pay arrears are a debt payable at the time of the transfer and therefore reimbursable by the Secretary of State. The EAT disagreed. It held that equal pay arrears can be “arrears of pay” within the meaning of section 184 (1) of the ERA 1996 and therefore a debt within section 182 of the ERA. The employment judge was in error in concluding that arrears of pay arising from an equal pay claim that is yet undetermined cannot be a claim for “arrears of pay” within section 184 (1) of the ERA 1996.

The EAT’s reasoning was that there is a presumption that equality clauses operated in the Claimant’s employment contracts, since their work had been rated as equivalent to their comparators. If that presumption were not rebutted by a genuine material factor defence, the Claimants had a legal entitlement to be paid in accordance with the equality clauses for work they performed before the appropriate date. To the extent that they were not so paid, they were entitled to arrears of pay on the appropriate date. They were in no different position to suppliers of goods who were unpaid on the appropriate date, or employees who did not receive pay under implied or disputed oral agreements for work done for the appropriate date.

Therefore, liabilities for up to 8 weeks of arrears of equal pay do not transfer to the transferee in insolvency cases if they constitute sums payable under part XII of the ERA by the Secretary of State. But to the extent that the liabilities exceed the statutory limits in part XII of the ERA (i.e. – 7 – arrears beyond 8 weeks) liability transfers to the transferee.