Saving Business Must Be Prime Reason to Avoid Liability Under TUPE

February 13, 2014

Saving Business Must Be Prime Reason to Avoid Liability Under TUPE

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) exist to protect the rights of employees when their employer changes. However, when a business transfers from one owner to another, dismissals that are made for an economic, technical or organisational (ETO) reason are not automatically unfair under TUPE.

Crystal Palace FC entered administration in January 2010. Because the club did not own its ground, Selhurst Park, negotiations with a prospective purchaser were protracted and when the football season ended without a deal having been struck, the administrator made 29 employees of the club redundant.

Soon after the redundancies had been made, the deal was done with the club’s new owners. Four of the employees brought claims for unfair dismissal, arguing that their dismissals were for a reason connected with the transfer that was not an ETO reason entailing changes in the workforce.

The argument went all the way to the Court of Appeal, which agreed that whilst the role of an administrator is to keep a business going until a purchaser can be found, at the point at which the employees were dismissed the sale to the new owners was merely hoped for.

The Court ruled that the decision hinged on whether the dismissals were made in order to make the club more attractive to the purchaser (in which case they were not for an ETO reason and liability under TUPE would pass to the purchaser) or in order to enable it to continue trading. In the latter case, this would be an ETO reason and liability would not pass.

The Court concluded that it was the latter circumstance which applied and the dismissals were not, therefore, unfair.