TUPE: Business Rescue v Employee Protection, which is the Greater Priority?
Pre-pack administrations have always been controversial. They give directors the ability to acquire valuable assets from a debt ridden company, with the bonus of ditching the liabilities. This leaves unsecured creditors, such as employees, with little warning of the sale and they may end up losing out on various entitlements.
On the other hand, employees can benefit where a business is bought out quickly, ensuring continuing employment – this is most prevalent in the retail sector.
In line with the UK’s rescue culture in insolvency law and business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) provides that employees will not automatically transfer to a new employer (the buyer) where the transferring business (the seller) is “the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferring business” (Regulation 8 (7)).
This provision has caused headaches for employees, insolvency practitioners, Employment Tribunals and the Employment Appeal Tribunal (EAT).
In Oakland v Wellswood, the EAT held the Regulation did apply on the facts holding that the purpose of that particular administration was the inevitable liquidation of the seller’s assets. This is seen as a “facts based approach”, taking into account the specific circumstances in the case.
Conversely, in OTG Ltd v Barke, the EAT declined to follow Oakland and adopted an “absolute approach” to the interpretation of the Regulation in that administration, whether pre-pack or not, can not fall within the definition of the Regulation and therefore, employees will transfer to the buyer.
These cases highlight the conflict between the UK’s insolvency rescue culture and TUPE’s ethos of giving wider and clearer protection to employees.
The interpretation of the Regulation and whether Administration falls within the definition has been appealed to the Court of Appeal in Key2Law (Surrey) LLP v DE’Antiquis & others and will be heard on 17 October 2011. Hopefully the appellate judges (Longmore LJ, Rimer LJ and Warren J) can provide much needed guidance. However, the problem may not be resolved there; we could see this issue carrying forward to the Supreme Court and eventually the European Court of Justice.
For more information on the above or for advice on any other employment issue please contact our employment department on 020 7354 3000 or e-mail employment@colmancoyle.com
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