Background

TUPE

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), where a "relevant transfer" of a business takes place, employees of the transferring company will automatically transfer to the acquiring company on the same terms and conditions of employment.

Where there is a "relevant insolvency proceeding", Regulation 8 of TUPE applies and the normal principle of automatic transfer is varied as follows:

		where proceedings have been opened not with a view to the liquidation of the assets of the transferor company (often referred to as "non-terminal" insolvencies) then under Regulation 8(6), while employees still transfer, there is a relaxation on the restriction on changing terms of employment and automatic transfer of debts.
		where proceedings have been opened with a view to the liquidation of the assets of the transferor company (often referred to as "terminal" insolvencies) then under Regulation 8(7) employees will not automatically transfer and dismissals will not be automatically unfair.

TUPE does not specify which proceedings are intended to fall into which category.  The Department for Business, Innovation and Skills (BIS) issued guidance on the application of Regulation 8 and expressed its view that Regulation 8(6) would apply to administration, administrative receivership and voluntary arrangements whereas Regulation 8(7) would apply to compulsory liquidations and creditors' voluntary liquidations.

Facts

Mr Oakland was employed as the general manager of Wellswood Limited ("Oldco"). In December 2006, Oldco ran into financial difficulties and subsequently went into administration. On the same day as the administrators were appointed, the business of Oldco was sold to Wellswood (Yorkshire) Limited ("Newco"). Newco took on a number of Oldco's members of staff. Shortly before the expiry of one year's service with Newco, Mr Oakland was dismissed.

Mr Oakland brought an action for unfair dismissal against Newco. The Employment Tribunal (ET) and subsequently the Employment Appeal Tribunal (EAT) held that:

		Oldco was the subject of terminal insolvency proceedings;
		Regulation 8(7) of TUPE 2006 applied;
		Mr Oakland had not, therefore, automatically transferred to Newco;
		his period of continuous employment was broken; and
		he was consequently precluded from bringing a claim for unfair dismissal as he did not have one year's service.

The EAT held that whether a particular insolvency proceeding was "with a view to liquidation" would be a question of fact in each case. In this instance, they considered that Oldco's administration was with a view to liquidation of the assets of the transferor on the basis that the administrators had expressed their view that Oldco could not be saved as a going concern and following the sale of the business, it would be placed into creditors' voluntary liquidation.

Court of Appeal decision

On appeal, counsel for Mr Oakland took a different approach. She sought to argue the issue of continuous employment on the basis of section 218(2) of the Employment Rights Act 1996 (ERA 1996) which states that where a trade or business is transferred (a point that was conceded in this case) then continuity of employment is not broken.

s218 ERA 1996 had not been raised in argument at either the ET or the EAT.  Permission was granted to raise it at this stage on the grounds that:

		it was a matter of law and not fact;
		it was a "knock out" provision; and
		no injustice would result as all parties had been aware of the argument through counsel's skeleton argument and the appeal order.

The Court of Appeal allowed Mr Oakland's appeal and held that he had sufficient continuity of service to bring a claim for unfair dismissal. The matter has been remitted back to the ET for further factual consideration.

Comment

Moses LJ, on delivering the judgment, felt that, having found in favour of Mr Oakland on the basis of s218 ERA 1996, it would be unwise to address the issue of the application of Regulation 8(7) as no other parties were represented and the point could not be fully argued. That notwithstanding he intimated that the EAT had incorrectly applied Regulation 8(7) and that there were strong grounds for arguing that it should not automatically apply.

While many in the insolvency profession were hoping that this decision would bring clarity on the application of Regulation 8(7) to administrations, further guidance will be required from the court to resolve the ongoing uncertainty. As it stands, caution should still be exercised when considering the employment aspects of any sale on insolvency. While it may be the case that in an administration, where it is likely that the company cannot be saved as a going concern, employees will not transfer, this will always be judged on a case by case basis. Equally, comments of the Court of Appeal would suggest that an alternative conclusion might be reached if a similar issue were to arise again so insolvency practitioners should still think carefully before relying on Oakland.