TUPE and corporate insolvency

Posted: 3rd March 2016

EATWhen one company transfers its workforce to another, employees generally have a right to be redeployed on the same pay and conditions as before. However, in a guideline case, the Employment Appeal Tribunal (EAT) has considered the special rules which apply in cases of corporate insolvency.

Company A had encountered financial difficulties and had informed its workers that it was to cease trading. The workforce was transferred to company B the day after joint provisional liquidators were appointed. Company A was wound up about three weeks later and formally went into liquidation a few months after that.

In those circumstances, an issue arose as to whether company B was liable to make redundancy and other payments to workers that it had inherited from company A by operation of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). An Employment Tribunal (ET) found that there had been a relevant transfer of a service provision and that such liability therefore did arise.

In challenging that decision, company B argued that it was not liable because, as at the date of the transfer, company A was the subject of bankruptcy proceedings, or analogous insolvency proceedings, within the meaning of Regulation 8(7) of TUPE. The appointment of provisional liquidators was said to have been sufficient to bring that Regulation into play.

In allowing the appeal, the EAT found that the ET had erred in law in failing to give adequate reasons for its decision. It was not clear that the ET had appreciated that administration proceedings and the appointment of provisional liquidators are not analogous. The matter was sent back to the same ET for reconsideration of the legal issues.