Transferring Employees (TUPE)

The Employment Appeals Tribunal recently considered whether the Transfer of undertakings (Protection of employment) Regulations 2006 applied in an administration with a pre-packaged sale. The judge held that a ‘pre-pack' administration did not result in automatic transfer of employees where the facts indicated that insolvency proceedings had been instituted with a view to the liquidation of assets. This is very interesting and certainly seems to play into the the Directors hands should they be considering a 'pre-pack'.

Oakland v Wellswood (Yorkshire) Limited [2008] EAT, Judge Peter Clark, 5/11/08

The administrators concluded that it was not possible for the old company ("OldCo") to be rescued as a going concern and that any further period to allow the business and assets to be marketed for sale would have further reduced the funds available for distribution to creditors. It was anticipated that OldCo would later move from administration into creditors' voluntary liquidation.

Mr Oakland brought a claim for unfair dismissal after he was dismissed by Newco, but it was rejected on the grounds that he had been employed by them for less than a year. The employment tribunal found that OldCo was the subject of insolvency proceedings which had been initiated with a view to the liquidation of OldCo's assets. Therefore, the tribunal stated that by virtue of reg 8(7), Mr Oakland was precluded from relying on the transfer provisions under the Regulations to establish the necessary continuity of service.

Mr Oakland appealed on the basis that as a matter of domestic insolvency law, the appointment of joint administrators could not by definition constitute the institution of insolvency proceedings with a view to the liquidation of a company's assets, and as the business continued to trade this showed a different purpose to that of liquidation.

The EAT held that whether proceedings had been instituted with a view to liquidation was a question of fact for the employment tribunal and could not be answered solely by domestic insolvency law. Parliament had failed to specify which particular insolvency proceedings were to be characterised as having been instituted with a view to the liquidation of the transferor's assets.

Where joint administrators continued to trade a business with a view to its sale as a going concern, any relevant transfer would attract TUPE protection for employees. However, the EAT found that this had not happened in this case as it quickly became apparent that it was not possible for the administrators to continue to trade and the best course of action for creditors was to sell OldCo's assets. Following this, the tribunal had been entitled to conclude that the administration was with a view to the eventual liquidation of OldCo's assets. Mr Oakland's appeal was dismissed.

This case will be welcomed by practitioners for setting out the EAT's view that a pre-pack administration is a form of terminal insolvency, which is contrary to previous government guidance over what constitutes "bankruptcy proceedings or any analogous insolvency proceedings". However, caution should be exercised in relying on the decision, which appeared to turn on the fact that the administrators did not trade at all and proceeded to an immediate pre-pack.

Mr Oakland had been employed as the general manager of a fruit and vegetable wholesaler Wellswood Limited ("Oldco") which entered into administration three years after it had commenced trading. Following the appointment of joint administrators, the company's assets were sold to Wellswood (Yorkshire) Limited ("Newco"), who also took on some of Oldco's employees, including Mr Oakland.