TUPE after Key2 Law
The vexed question of TUPE and Administrations has again come into the spotlight in the Court of Appeal in Key2Law v De'Antiquis.
When a Liquidator sells a business, neither he nor the purchaser have to worry about TUPE because Regulation 8(7) dis-applies TUPE. The contentious issue is whether or not a business sold by an Administrator is also exempt in the same way. Case law suggested that if the ultimate objective of the Administrator was to liquidate the business following a brief period of trading, then TUPE would not apply because the Administration was "analogous" to insolvency proceedings (Oakland v Wellswood (Yorkshire) Ltd). That has now been disproved by the Court of Appeal in Key2Law which says that Regulation 8(7) of TUPE does apply in an Administration, so employees will be transferred to the purchaser under TUPE when the seller is in Administration.
The first practical implication is that if you purchase from an Administrator, then you can expect any employees to come with the terms and conditions of employment protected under TUPE. Those employees would have had the right to be consulted prior to the transfer and if this did not take place they will be able to claim 90 day Protective Awards. So at least the position is certain, for the time being.
The real problem is that purchases from Administrators are often "shotgun fashion", with the Administrator anxious to achieve a quick sale and the purchaser just as eager to pick up a cheap asset. There is not usually the time or the inclination for the purchaser or seller to undertake the usual TUPE consultations. Administrators are often "trigger happy" when it comes to dismissals (their objective is to shed liabilities and to sell any assets or business as quickly as possible0, so the scope for claims of unfair dismissal for reasons connected with the transfer and protective awards, is hugely enhanced. This is unlikely to change in the recession. The danger to purchasers from Administrators is therefore very high; even more so as a result of the Key2Law decision as the previous "escape route" provided by Oakland is no longer available.
Short of going through the full and proper TUPE consultations, there is no remedy for this. The result is increased protection for employees and discouragement to buyers who will now be less willing to purchase assets from a company in Administration.
So the focus must be on carrying out the usual full TUPE consultations (if possible) when purchasing from an Administrator. Outside of this there is really very little protection against TUPE unless it is possible to argue that TUPE does not apply on some other ground. These other grounds could be to argue that no actual undertaking has been transferred - obviously this is a fact sensitive defence and depends on analysis of what has actually transferred to the purchaser. Any redundancies might also be justifiable if it can be shown they were made on economic, technical or organisational grounds, and therefore not connected with the transfer.
You could also look for indemnities from the Administrator but if the company represented by him is going into liquidation, then there will be no-one to enforce these against, so they will not be worth much. The only other "protection" is to ensure that the assets are purchased as cheaply as possible so as to factor in the potential cost of any TUPE claims.
When connected with the recent decision in Spaceright Europe Limited v Baillavoine (that dismissals can be in connection with the transfer even where no prospective transferor has been identified), it is going to be far more difficult for Administrators to sell the assets of a company in Administration and prospective purchasers/employers are going to be more cautious. That is not good in the context of a severe recession.
But the story is not over. We are aware that permission is being sought to appeal Key2Law to the House of Lords or the European Court of Justice. So the law is settled - but only for the time being!
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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Author: David Malamatenios
Date published: 1st February 2012