TUPE Transfers: The Dismissal of Employees by an Administrator with the Intention to Save the Business Could be Fair

TUPE transfers: the dismissal of employees by an administrator with the intention to save the business could be fair

Following the recently financial difficulties faced by Crystal Palace Football Club the administrator of the company dismissed some of the staff and then sold the business on without passing any liability under TUPE legislation to the purchaser.
In Crystal Palace FC Ltd v Kavanagh and others the employees claimed that they had been unfairly dismissed by the company; however it was argued that the administrator dismissed the employees for economic technical or organisational reasons (ETO) and that the dismissals were therefore fair.
The Employment Tribunal found in favour of the company and agreed that the reason for the dismissals was to enable the business to continue trading with the ultimate plan to sell it to a purchaser who was waiting for the administration to end. It was considered that this amounted to an ETO reason and this meant that liability for these employees would not pass to the purchaser of the club.
This decision was appealed by the employees and the Employment Appeals Tribunal (EAT) rejected the approach adopted by the Tribunal. They found that the Tribunal should have applied the previous case of Spaceright Europe Ltd v Baillavoine. The EAT therefore held that the administrator’s intention of selling the club on meant that the dismissals could not have been for an ETO reason and liability under TUPE legislation should have passed to the club’s purchaser.
On further appeal the Court of Appeal considered that the EAT was wrong to reverse the Tribunal’s decision. They consider that administrators will always the ultimate objective to transfer an undertaking once the administration is complete but that does not mean that the reason for any dismissals by them will be simply to make the business look more attractive to a purchaser. Dismissals could also be made in order to ensure the business continues to trade as was argued by Crystal Palace FC Ltd. On the facts the dismissals that had been made in this case were made for exactly that reason and liability should not have passed to the purchaser.
As well as being an interesting point in employment law this decision may be of significant importance to insolvency practitioners. It also demonstrates that the wider policy objective of corporate rescue is very important in these situations.
This case also demonstrates the limits of the TUPE legislation. It is often difficult to determine whether during a TUPE transfer employees are dismissed for an ETO reason or for some other reason. It is likely that each case would come down to its own facts but at least this case clarifies the general approach that should be taken by businesses and administrators in this position. However it clearly does not give free reign to administrators who might claim that saving the business is their intention when actually there is some hidden agenda.
If you have recently been dismissed due to the transfer of your employment to a new employer or you believe that you have been unfairly dismissed for any other reason and you are looking to speak to a specialist in employment law based in Leeds please contact the dedicated employment team at Michael Lewin Solicitors and we will be happy to discuss this with you.
Written by
Anthony Fox

 

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