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Insolvency v TUPE – Court of Appeal Judgment

30th January, 2014

In the recent case of Crystal Palace FC Limited and Another v Kavanagh and Others, the Court of Appeal has issued guidance on the relationship between insolvency and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).

The 2009/2010 season saw the football club, owned by Crystal Palace FC (2000) Limited, towards the bottom of the Championship league and under heavy financial pressures, taking it into administration. The administrator for Crystal Palace FC (2000) Limited dismissed four employees prior to the sale to Crystal Palace FC Limited (the “Club”).

The four dismissed employees made claims to the tribunal against the Club on the basis that their dismissals had been unfair and that they were owed compensation as a result of the TUPE transfer. Whilst it was agreed that the TUPE transfer itself was not the principal reason for their dismissals (as at the time of the dismissals, no agreement had been reached between the administrator and the Club), the employees claimed that their dismissals were unfair pursuant to Regulation 7 of TUPE in that the dismissals were for a reason connected to the transfer which was not an economical, technical or organisational reason entailing changes to the workforce.

At first instance, the Employment Tribunal dismissed the employees’ claims which were subsequently appealed and upheld by the Employment Appeal Tribunal. The Club appealed to the Court of Appeal, which was upheld. It was confirmed that although the dismissals had been connected to the transfer, the administrator had a genuine economic reason for the dismissals which was not related to the sale of the Club. The Court noted that, as with many football clubs, the Club had few assets; it’s stadium was owned by a separate company (which also happened to be in administration) and therefore the Club’s most valuable asset was it’s players. The Court held that the administrator’s reason for dismissing the employees was to reduce the overall wage bill, without having to sell the Club’s only and most valuable asset – the players.

Although the Club were hoping to make a sale at the time of the dismissals, this was a mere hope. The dismissals did not make the club any more attractive to potential purchasers, but only meant that it could save the cost of the dismissed employees’ salaries, in an effort to avoid liquidation whilst lengthy negotiations were taking place.

The Court further noted that the case had raised fundamental issues on the relationship between insolvency rules and TUPE. The decision meant that any liability for the dismissals did not pass to the Club following the transfer and therefore if this had been a case of unfair dismissal, the claim should have been against Crystal Palace FC (2000) Limited.

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