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TUPE damages employees’ and the UK’s interests

The Transfer of Undertakings (Protection of Employees) legislation is so restrictive that business value (and hence employees' interests as creditors), businesses' ability to continue (ie jobs) and opportunities to undertake international restructurings in the UK using administration are all suffering.

I am writing from an AIJA (International Association of Young Lawyers) conference in Prague, where I have been speaking and am representing INSOL Europe. Discussions over the last 24 hours both on and off the platform have highlighted to me that the UK's implementation of the EC Acquired Rights Directive is so flawed as to not only render the UK uncompetitive for restructuring, but also to fail properly to protect employees' interests.

It is now impossible in the UK to sell any part of a business as an administrator (including in a pre-pack) without the purchaser becoming liable for the termination and other employment related costs of the whole business, including those arising from recent pre-insolvency redundancies. Businesses that are over staffed in the run-up to insolvency (ie most of them) can only be sold at a price that is discounted to reflect those liabilities. Part sales (which may well otherwise be sensible) will now almost never happen.

Other jurisdictions avoid this problem through not applying their equivalent of TUPE to some insolvency procedures (eg The Netherlands). Switzerland is changing its law to disapply its equivalent of TUPE in insolvency at the moment.

Transactions have been considered where a COMI shift from Germany to the UK would have taken place and parts of the businesses sold out of administration. The plans were stymied by the risk of much wider employment liabilities attaching to the purchasers. Even though German labour law provides some similar challenges, they seem to be insufficient to overcome the costs and risks associated with the a COMI shift. This is not good for UK exports of professional services.

 

 

Date: 13th April, 2012
Author: Chris Laughton

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