Dismissals By Company Administrators – TUPE Or Not TUPE?

Crystal Palace FC Ltd v Kavanagh and others [2013] EWCA Civ 1410

Facts

In January 2010, Crystal Palace FC were near the bottom of the Championship league and facing financial difficulties. The company which owned Crystal Palace FC, Crystal Palace FC (2000) Limited ("the Company"), subsequently entered into administration on 26 January 2010.

The Company's administrator entered into negotiations for the sale of the business and terms were agreed in principle in May 2010, however complications arose delaying the sale and the Company suffered severe issues with its liquidity. As a result, and in view of the potential sale of the business, the administrator undertook to save costs whilst allowing the Company to continue trading which would preserve the value of the business pending a future sale. Accordingly, the administrator dismissed a number of administrative staff and retained only those who would be necessary to the core operations of the club in order to keep the business running. The dismissed employees brought a claim in the Employment Tribunal for unfair dismissal.

Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE")

Under regulation 7 of TUPE, an employee is unfairly dismissed "if the sole or principal reason for his dismissal is (a) the transfer itself; or (b) a reason connected with the transfer that is not an economic, technical or organisational ("ETO") reason entailing changes in the workforce".

As no agreement had been reached in relation to the transfer at the effective date of the dismissals, the principal reason for the dismissals could not be the transfer itself. However, it was argued on behalf of the former employees that their dismissals were for a reason connected with the transfer and there was no ETO reason entailing changes in the workforce. It was argued that they were simply dismissed to make the sale of the business more attractive for the purchaser.

Employment Tribunal

At the ET it was held that the dismissal of the employees was connected with the transfer as the decision to reduce the workforce was taken with a view to keeping the business running, which would increase the possibility of a sale in future. However, a distinction was drawn between the reason for the dismissals (reducing salary costs) and the ultimate objective (sale of the business). If the administrator's reason for dismissal was that a smaller workforce would make the business more attractive to prospective purchasers...