Employment Update: TUPE

26 January 2009

Employment Group

Administrator may not be bound by TUPE

Where a transferor employer is the subject of insolvency proceedings ‘instituted with a view to the liquidation of its assets’, by virtue of an exception created by Reg 8(7), the key provisions of TUPE – that there will be automatic transfer of employment of the employees to the transferee and that any dismissal will be automatically unfair – do not apply.

In other insolvency proceedings, defined in TUPE merely as ‘relevant insolvency proceedings’, TUPE applies but in a relaxed form. Variation of contract terms may be possible and liability for certain statutory payments (notably redundancy payments) will not pass to the transferee but will be taken on by the state.

BERR guidance states that ‘relevant insolvency proceedings’ means any collective insolvency proceedings in which the business is transferred to another entity as a going concern’ i.e. that only winding-up by creditors or members should be totally excluded from the automatic application of TUPE.

Now, in the case of Oakland v Wellswood (Yorkshire) Ltd the EAT suggests that this may not be so.

An administrator was appointed, whose first statutory aim under the Insolvency Act is to rescue the company as a going concern. He saw no prospect of this so moved to his second statutory aim - to get a better result for creditors than they would get on a winding-up. He asserted that, so far as employees were concerned, he did not need to consider TUPE because his case fell within the Reg 8(7) exception – these were now insolvency proceedings with a view to liquidation - so TUPE did not apply. The tribunal and now the EAT agree and say that, if an administrator has been appointed with a view to liquidating the transferor company, the Reg 8(7) exception should apply.

Points to note –

  • This case arose because the administrator sold some of the transferor company’s assets to another company which also took on 5 of the employees. Less than a year later one of those employees was dismissed and the issue was whether there had been a TUPE transfer at the time when the administrator was in charge. If so, the claimant employee would have the necessary one year’s service to bring an unfair dismissal claim. If not, he could not. The tribunal appears to have been influenced in dismissing the claim by the fact that the claimant was a director and 50% shareholder of the company that went into administration and so, to some extent at least, was responsible for the position in which he found himself.

  • However, employers in financial difficulties should seek expert advice on the employment law implications before considering any ‘hiving down’ or restructuring. They will need to know whether the TUPE regulations going to apply without modification or whether any rescue package involves ‘relevant insolvency proceedings’ where the full force of TUPE is modified.

Duty to consult affected by employer’s genuine belief that TUPE did not apply?

In an unusual decision, the EAT has suggested that compliance with the TUPE regulations may depend to some extent on whether the employer thinks that TUPE applies or not.

In the case of Royal Mail Group v Communication Workers Union the Royal Mail wanted to dispose of a large number of loss-making post offices as franchises to WHSmith. Post Office employees all had mobility clauses in their contracts and so were offered redeployment or voluntary redundancy. For this reason Royal Mail thought TUPE Reg 4 - automatic transfer of employment - did not apply and consulted with the union on that basis.

The employment tribunal considered that Reg 4 did apply and so Royal Mail was automatically in breach of Reg 13 for failure to consult.

The EAT has now allowed the employer's appeal in part. Reg 4 did apply but because the employer genuinely thought it did not, it should not be penalised for consulting on that basis. The case was remitted to the employment tribunal to consider whether the consultation had been adequate on the basis that the employer genuinely thought that no employees would transfer.

Points to note –

  • We understand that the union in this case is considering an appeal to the Court of Appeal. It certainly seems strange that the duty to consult should be limited in this way, if TUPE is meant to apply to a relevant transfer regardless of the intention of the parties involved. We shall keep you informed of developments.

  • One interesting issue discussed by the EAT was whether the fact that the employees had mobility clauses in their contract made any difference as to whether TUPE applied. On this issue, the EAT’s decision was less unexpected: If the employee is employed in the undertaking at the time of a TUPE transfer then his/her employment will automatically transfer to the transferee. This is so even if there is a mobility clause in his/her contract. If the employer has not actually activated the mobility clause pre-transfer (and then not with a view to avoiding TUPE) then TUPE will take effect in relation to that employee and his/her contract.