Kavanagh and others v Crystal Palace FC (2000) Ltd and others was recently heard in the Employment Appeal Tribunal (EAT).  The football club went into administration in January 2010 and G, the administrator, sought to sell the club as a going concern.  A couple of months later a consortium was set up and given preferred bidder status. When G later discovered that the club was suffering from significant cashflow problems he ‘mothballed’ it and told the consortium that most of the administrative staff would be made redundant.  The consortium withdrew its bid and the claimants were made redundant on 28 May.  Eventually a sale was completed in August 2010.

The claimants complained to the tribunal that they had been automatically unfairly dismissed.  The tribunal disagreed, finding that G had to mothball the club to prevent it from collapsing, with the intention of agreeing a sale afterwards.  Also, G was unable to pay for all the club employees and needed to reduce wage payments in order to keep the business going.  This was said to be an economic or organisational reason (the “ETO defence”) within the meaning of the TUPE Regulations making the dismissals fair.

When the claimants appealed the decision the EAT decided that:

  • The ETO defence used by the administrators cannot be used if a dismissal is “part and parcel of a process, with the purpose of selling the business”
  • G`s intention was to preserve the business for a sale rather than carry it on; the claimants were dismissed so that the club could be mothballed and ultimately sold
  • The tribunal could only have decided that the dismissals were for the purpose of selling the business.  For an ETO reason to exist the reason for the dismissal must be to change the workforce and continue to run the business. 

As a result the EAT upheld the claimants’ appeal, finding that the dismissals were automatically unfair and liability for the dismissals passed to the transferee, the consortium. 

This paints a restrictive picture of the ETO reason confirming that if redundancies are made in order to keep a company afloat prior to a sale, this will not be an ETO reason and the dismissals will be unfair.