TUPE and Administration – Dismissals Prior to Identification of Buyer

20 September 2011

In a case concerning the sale of a business in administration, which amounted to a ‘relevant transfer’ for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), the Employment Appeal Tribunal (EAT) has ruled that it is not necessary for a specific transferee to have been identified at or before the moment of dismissal for the dismissal to be for a reason connected with the transfer (Spaceright Europe Ltd. v Baillavoine and another).

Bruno Baillavoine was the Chief Executive Officer of, and owner of a 55 per cent shareholding in, Ultralon Holdings Ltd. (UHL). UHL and its subsidiary Ultralon Ltd. (UL) were placed into administration on 23 May 2008 and Mr Baillavoine was dismissed by the administrator on the same day. The administrator arranged funding from the bank to enable the business to continue until such time as it was sold. In the event, UHL and UL were sold as a going concern to Spaceright Europe Ltd. on 25 June 2008. The directors of the new company included two former senior employees of UHL.

Mr Baillavoine had lost his job and his shares were worthless. He was suspicious of the actions of the new owners of the business and the administrator and brought a claim of unfair dismissal. The Employment Tribunal (ET) upheld his claim, finding that the sole or principal reason for his dismissal was a reason connected with the transfer that was not an economic, technical or organisational (ETO) reason entailing changes in the workforce. Under TUPE, UHL’s liability to pay compensation therefore transferred to Spaceright Europe Ltd.

Spaceright challenged the ET’s findings and lost.

The EAT held that the ET had been correct to follow the legal approach in Harrison Bowden v Bowden, in which the EAT held that it was not necessary for an actual prospective transferee to have been identified at the time of dismissal for a dismissal to be for a reason connected with the transfer. In this case, there was no doubt that the administrator was contemplating a transfer of the business at the time of Mr Baillavoine’s dismissal and, indeed, the transfer took place the following month. Furthermore, the ET was entitled to consider why, given that a going concern would need a managing director, the administrator made Mr Baillavoine redundant and was not, as Spaceright contended, bound to find that he was dismissed because the business could not afford his salary, given the evidence that the bank was funding the business while a buyer was sought.

As regards whether or not the dismissal was for an ETO reason entailing changes in the workforce, the EAT clarified that there is no inherent reason why there should not be a workforce of just one person nor why a reason which is otherwise an ETO reason should fail to qualify if it entails changes regarding just one employee. However, in the light of relevant decisions of the Court of Appeal concerning ETO reasons, the EAT held that the dismissal of one employee followed by the engagement of another does not constitute a ‘change in the workforce’. In addition, the reason for the dismissal must be related to the conduct of the business as a going concern. The business was always going to need a managing director and did not contemplate a diminution in the number of employees in the ongoing business. A dismissal made for economic reasons that are purely related to the sale of the business does not qualify as an ETO reason.

For more information on this subject or any other legal matter,
please contact us:

Tonbridge: 01732 770660
Sevenoaks: 01732 747900
Email: marketing@warners-solicitors.co.uk