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Legislation update: Continuity of employment with a company in administration

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Richard White considers a recent appeal in which an employee challenged the decision not to allow him to claim for unfair dismissal after his employer went into administration.

In recent months, there have been many reports of companies going into administration. Employees can suddenly find themselves unemployed with no comeback, as they are deemed not to have sufficient continuity of service to bring a claim.
 

Oakland v Wellswoord (Yorkshire) Ltd: The facts

 
Mr Oakland was employed by Wellswood Ltd, a company who were in financial difficulties and about to go into administration. A purchaser for Wellswood Ltd was identified and it was agreed that this purchaser would buy the company assets as well as taking on a few of the employees from the administrator as a pre-pack sale.
 
On the same day that the administrators were appointed the sale took place. The administrators confirmed that the company could not be rescued as a going concern and that it was likely the company would soon enter into a creditors’ voluntary liquidation.
 
Mr Oakland was amongst the employees who transferred to the new company. However shortly after the acquisition he was dismissed by the purchaser without any redundancy pay as it was suggested that he did not have sufficient continuity of service with the new company to qualify.
 

The claim

 
Mr Oakland claimed unfair dismissal. He argued that he was entitled to make this claim as he had transferred to the purchaser under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and consequently had more than the one year’s service required to claim unfair dismissal.
 
TUPE provides that where there is a ‘relevant transfer’ of a business undertaking, the employees employed in that undertaking will automatically transfer to the purchaser provided the company is not the subject of ‘terminal’ insolvency proceedings. 
 

The decision

 
Initially the employment appeal tribunal (EAT) held that the transfer provisions of TUPE did not apply in Mr Oakland’s case. This meant that he would not be deemed to have sufficient continuity of service in order to bring a claim for unfair dismissal.
 
The EAT relied on the exclusion set out in regulation 8(7) of TUPE which provides that where insolvency proceedings are in line with bankruptcy proceedings, and have been commenced with a view to a liquidation of the assets of the business (‘terminal’ proceedings), there will be no transfer of staff to the  purchaser and no claim for unfair dismissal against them.
 
However, the Court of Appeal took a different view. They decided that section 218 (2) of the Employment Rights Act 1996 should be applied. This section preserves continuity of employment on the transfer of a business, meaning that if this were to be applied, Mr Oakland would be able to bring a claim for unfair dismissal.
 
The Court of Appeal however did not hear the full argument for the TUPE point and therefore made no ruling on the application of the transfer provisions to pre-pack administrations.
 

Comment

 
This case suggests a need for caution when it comes to acquiring businesses from an administrator. Whilst the Court of Appeal may not have given any definitive view on the issue of the application of TUPE in pre-pack administrations, it seems that any employees taken on will have continuity of service under section 218(2) of the Employment Rights Act 1996.
 
Anyone looking at acquiring a business from an administrator should seek legal advice on the application of TUPE.
 
 
For further advice, please contact Richard White, specialist employment solicitor at Withy King, 01865 268636 or email [email protected]
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