An Employment Appeal Tribunal has ruled that employees are fully protected under TUPE when the business in which they work is purchased from a company in administration.
In the case of AE Olds v Late Editions, the EAT held that Transfer of Undertakings for the Protection of Employment (TUPE) applies in full to transactions out of administration. This judgment contrasts with an EAT decision in 2009 in the case of Oakland v Wellswood, which concluded that an administration could fall outside the protective scope of TUPE but only if the objective of the administration was the liquidation of the insolvent company’s assets.
The new judgment, made on Wednesday last week (16 February), holds that administrations do not constitute insolvency proceedings with a view to the liquidation of the assets of the transferor. Therefore TUPE will operate in the usual way to acquisitions of business out of administration.
The consequence of this ruling is that purchasers of insolvent businesses need to factor the transfer of staff who are ‘in scope’ and their accrued liabilities into their commercial considerations, negotiations and deal strategy. They also need to factor in potential claims from those dismissed pre-transfer in circumstances where the administrator may well be unable and unwilling to indemnify the acquirer against the relevant liabilities adequately or at all.
Charlie Wynn-Evans, partner and head of the London employment law unit at Dechert, said the decision was important because purchasers of businesses that are in administration need to be confident of what employment liabilities they are inheriting.
“How TUPE works in relation to administration and whether it is disapplied has been uncertain for a while. The AE Olds case makes it clear that TUPE will apply in full to acquisitions of businesses and parts of businesses from administrators. Those structuring such transactions will not be able to avoid employment liabilities just because the purchase is out of administration; they will need therefore to focus on who is truly ‘in scope’ to identify the employees and associated liabilities which the acquirer will inherit,” he said.
“This is an important decision as it probably closes the door on arguments that TUPE does not apply to sales of insolvent businesses by administrators. Employees employed in such businesses will therefore be protected on a sale of the business they work in unless there is a genuine redundancy or other fair reason for dismissal.”