In Crystal Palace FC Ltd v Kavanagh & Ors [2013] EWCA Civ 1410, the Court of Appeal considered whether dismissals made by an administrator to keep a business alive with the ultimate aim of selling it were automatically unfair under TUPE, in which case liability would pass to the buyer. 

Crystal Palace Football Club ("the Club") went into administration in early 2010.  The administrator's ultimate aim was to sell the Club as a going concern but this would not be possible if he had to continue paying all the employees' salaries.  He therefore dismissed most of the employees, including Ms Kavanagh, for redundancy.  Shortly afterwards, the business was sold under a TUPE transfer.  Ms Kavanagh and a number of former employees claimed that their dismissals were automatically unfair under TUPE, for which the Club's buyer was liable, because they were dismissed for a reason connected with the transfer which was not an economic, technical or organisational reason entailing changes in the workforce ("an ETO reason") which could justify their dismissals. 

The Court of Appeal said that the correct approach was to consider whether the immediate reason for the dismissals (i.e. to keep the business alive) was an ETO reason.  The Court found that it was, so the dismissals were not automatically unfair and no liability passed to the buyer.  The Court distinguished this decision from its recent decision in Spaceright Europe Ltd v Baillavoine [2012] ICR 520 (see our April 2013 update: in which it had held that a dismissal by an administrator was automatically unfair under TUPE, because the reason for the dismissal had been to make the business more attractive to potential buyers, which was not an ETO reason.

This decision is good news for potential buyers of insolvent companies and provides welcome judicial recognition of the importance of corporate rescue, particularly in the current difficult economic climate.  It does, however, highlight the importance of considering the real reason for a particular dismissal and whether it would be viewed as an ETO reason in light of recent case law.