Employment: Continuity of employment preserved in pre-pack sales
Regulation 8 of the Transfer (Protection of Employment) Regulations 2006 (“TUPE”) provides that if an insolvency is with a view to the liquidation of the assets of the transferor then its provisions do not apply. If, on the other hand the insolvency is not with a view to the liquidation of the assets of the transferor then TUPE does apply to automatically transfer the employees of the relevant business to the buyer and preserve their employment right (including continuity of employment). However there is greater scope than in most business transfer scenarios for employment changes to be made and the state will become responsible for certain debts owed to the transferred employees.
Quite when insolvency is “with a view to the liquidation of the assets” is unclear.
In this case, the employee wanted to bring a case for unfair dismissal against his new employer, the buyer of a business in financial difficulties by which he had previously been employed. In order to do so he needed to show that the period of his previous employment counted towards his continuity of employment with the buyer.
He raised arguments in the Employment Tribunal and the Employment Appeal Tribunal based ("EAT") based on TUPE. Both courts rejected his claim based on their interpretation of the meaning of the when insolvency is “a view to the liquidation of [the insolvent employer’s] assets”.
On appeal the employee argued (for the first time) that even if TUPE did not apply then he could rely on section 218 of the Employment Rights Act ("ERA 1996") to protect his continuity of employment.
Section 218(2) of the ERA 1996 provides that: "if a trade or business, or an undertaking...is transferred from one person to another..the period of employment of an employee in the trade or business or undertaking at the time of the transfer counts as a period of employment with the transferee".
The Court of Appeal had no difficulty in finding that the employee could rely on section 218 (2) of ERA 1996 to preserve his employment rights.
We are no nearer to obtaining clarity on when potential buyers in a “pre-pack” sale by a company in administration can avoid the automatic transfer of employees under TUPE. The EAT held that the administrators had been appointed with a view to the eventual liquidation of the assets of the previous employer by way of a creditor’s voluntary liquidation and that this was enough to prevent TUPE applying under Regulation 8. However, the Court of Appeal raised doubts on this interpretation, although declined to decide the point.
It is now clear that continuity of employment of transferred employees (which determines entitlement to bring unfair dismissal proceedings and entitlement to redundancy payments) will be preserved for those employees taken on by a buyer in pre-pack sale situations and other types of insolvency.
For further information or to discuss the issues raised, please contact Colina Greenway (firstname.lastname@example.org) on +44 (0) 203 051 5711
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