Workers are fully protected under TUPE regulations if their employer comes out of administration and is purchased by another company, an employment tribunal has ruled.
Bruce Caldow and Paula Skinner, lawyers with commercial law firm Harper Macleod, welcomed the findings in the case of AE Olds versus Late Editions as much needed clarification of the scope of the Transfer of Undertakings (Protection of Employment) rules.
New provisions were included in the 1981 legislation in 2006, with the aim of helping failing or failed businesses to recover. But the open language used in the regulations meant that the industry had “struggled” to understand what constituted ‘relevant insolvency procedure’. This had led to debate over whether TUPE applied to the sale of insolvent businesses by administrators or not.
But the Tribunal ruling, which was made last week, indicates that administration does not equate to insolvency in relation to liquidating the assets of the transferor. As a result, TUPE will not apply if the aim of going into administration was to liquidate the insolvent company’s assets. TUPE will operate in the usual way if a third party acquires a business coming out of administration, however.
This means that potential purchasers of insolvent businesses will now need to factor in accrued liabilities and the transfer of staff who are ‘in scope’ into their negotiations and acquisition strategy. They will also need to take the risk of potential claims by personnel who were dismissed prior to the transfer into account if the administrator is unable or unwilling to adequately indemnify the purchaser against pertinent liabilities.
Nonetheless, the lawyers said in a statement: “If there is no money to pay salaries, expressing the same may help guard against the possibility of a successful claim of automatic unfair dismissal.”
They added: “Anyone looking at acquiring assets from the failed business, or starting a new business from the ashes of the failed business, will need to be very careful about any planning or actions taken in relation to the same.”
