Application of TUPE to Employers and Companies in Administration
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25.2.2011 In the recent case of OTG Ltd v Barke and others UKEAT 0320/09, the EAT held that an administration will not constitute "insolvency proceedings… with a view to the liquidation of the assets of the company" under Regulation 8(7) of The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). This means that any employees who are employed by the transferor immediately before the transfer takes place (and whilst in administration) will be transferred under TUPE. Regulation 4 of TUPE confirms that where there is a "relevant transfer" of an undertaking (as defined under TUPE), the employees of that undertaking will automatically transfer from the transferor (the Seller) to the transferee (the Buyer) along with all rights and liabilities connected with their employment. This means that if the new employer then chose to dismiss one of the employees as a result of the transfer this would likely be deemed unfair under employment law (the transfer itself would not constitute a fair reason under the Employment Rights Act 1996). When a company enters into administration (a procedure under the Insolvency Act 1986), an administrator is appointed to deal with the company’s assets with a view to rescuing the struggling company or realising its assets to achieve a better result for the company's creditors. Regulation 8(7) provides that where the transferor is the subject of "bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to liquidation of the assets of the transferor", the employees will not automatically transfer to the transferee. The EAT reversed its previous decision in Oakland v Wellswood (Yorkshire) Limited UKEAT/0395/08 and held that administration would not constitute insolvency proceedings for the purposes of Regulation 8(7). The decision of the EAT means that where there is a “relevant transfer” under TUPE, employees of the transferor will automatically transfer to the transferee and retain any rights that they may have to bring proceedings against their employer for unfair dismissal.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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