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Dismissal “for a reason connected with the transfer”
[ch 6: pages 71-72]Under TUPE before it was amended by the 2014 Regulations, a dismissal was automatically unfair if it took place either:
• because of the transfer itself; or
• for a reason connected with the transfer which was not an economic, technical or organisational reason (ETO) entailing changes to the workforce.
Under Regulation 7 of TUPE as amended, only dismissals by reason of the transfer are outlawed. The reference to dismissals “for a reason connected with the transfer” has been removed.
One specific result of this change is that employers and administrators are likely to argue that only dismissals that take place after a particular transferee has been identified are protected by TUPE.
A line of past cases, starting with CAB Automotive Limited v Blake [2008] UKEAT 0298/07/1202 and followed in the Court of Appeal in Spaceright Europe Limited v Baillavoine [2011] EWCA Civ 1565, established that TUPE can apply where a transferor, typically an administrator, is slimming down a business with a view to sale, even if there is no potential purchaser on the scene. Similarly, TUPE can apply where a number of transferees are interested in acquiring a business, but at the time of the dismissal, the actual purchaser has not yet been identified. The change to Regulation 7, eliminating the category of dismissals “for a reason connected with the transfer” may make it harder to succeed with this kind of claim in the future.
The potential impact of the change is illustrated by the following case:
In 2009-10, Crystal Palace football club faced the threat of liquidation due to lack of funds. Administrators hoped to sell the club as a going concern to a consortium but negotiations had stalled.
Relying on the seasonal nature of football, the administrator decided to “mothball” the club over the “closed” season, in the hope that it might be easier to sell later. He dismissed 25 administrative employees, keeping only a skeleton staff. He argued that the staff were dismissed to cut costs, and that this was an ETO reason justifying the dismissals. The dismissed staff claimed that their dismissals were automatically unfair. They argued that the dismissals were for a reason “connected with” the transfer because the reason for sacking them was to make the club more attractive to a prospective purchaser, although no buyer had been formally identified at the time of the dismissals. They conceded that the dismissals could not be because of the transfer itself because no purchaser had been formally identified at that stage of the negotiations.
The Court of Appeal (CA) decided against the employees. The CA said that although the administrator’s “ultimate objective” was (and nearly always will be) a sale of the business as a going concern, its aim in dismissing these employees was to cut the wage bill, to keep the club alive until the next season and to avoid an insolvent liquidation. This was a valid ETO reason and the dismissals were not automatically unfair.
Crystal Palace FC Limited and others v Kavanagh [2013] EWCA 1410
The Court of Appeal’s approach in this case suggests that in future, it may be difficult to succeed in a claim that dismissals are automatically unfair in breach of TUPE where no purchaser has been identified at the time of the dismissal, but the transferor is readying the business for sale although the Court did not rule on the issue.