Crystal Palace FC and TUPE

Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) is “the tie-breaker which must be applied to resolve the potential conflict between the insolvency code and the TUPE regime for the protection of employees” according to Lord Justice Briggs’ concurring judgement in the recent Court of Appeal decision in Crystal Palace FC Ltd v Kavanagh http://www.bailii.org/ew/cases/EWCA/Civ/2013/1410.html

Reg. 7 provides:

"(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the [Employment Rights Act 1996] (Unfair Dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is –

(a) the transfer itself; or

(b) a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (an “ETO” reason)".

The Court of Appeal warned the Employment Appeal Tribunal with this decision not to lean too far in the direction of employees’ TUPE rights at the expense of an administrator’s interests in pursuing the purpose of administration. At the same time it made clear that administrators should not be tempted “to dress up a dismissal as being for an ETO reason, where in truth it has not been”.

In the context of an administration sale the significance of a dismissal not being for an ETO reason is that it would be unfair and the liability for unfair dismissal would pass to the purchaser.

Clarifying, as the Court of Appeal did, that administrators working toward the objective of selling the business and assets often effect dismissals principally because the company does not have the funds to maintain the workforce – an ETO reason – is helpful for insolvency professionals, but we should remember also that the application of reg. 7 “is an intensely fact-sensitive process”.