20th January, 2012
There have been conflicting decisions made at the Employment Appeal Tribunal (EAT) level as to whether dismissals which are connected with a subsequent TUPE transfer can be automatically unfair under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the Regulations) even where no specific transfer or purchaser is contemplated at the time of dismissal.
The Court of Appeal has resolved the issue and confirmed that such dismissals can be automatically unfair. In Spaceright Europe Ltd v Bruno Baillavoine and another  EWCA Civ 1565, it was held that a dismissal implemented at an early stage by administrators in order to make the business attractive to potential buyers will be a dismissal connected to the transfer. Further, the administrators’ desire to make the business attractive did not amount to an economic, technical or organisational reason (ETO reason) for dismissal.
Under the Regulations, the dismissal of an employee (with 11 months and 3 weeks continuous service) before or after a relevant transfer will be automatically unfair if it is for a reason connected with the transfer that is not an ETO reason entailing changes in the workforce.
Mr Baillavoine was the Chief Executive of Ultralon Holdings Ltd (Ultralon). He was dismissed by the administrators on the same day as Ultralon went into administration. At that time, the administrators were contemplating a sale of the business, but no sale had been agreed. No purchaser was even identified at that time. One month later, Ultralon was sold to Spaceright Europe Ltd (Spaceright). Mr Baillavoine claimed that his dismissal was automatically unfair under the Regulations.
The Employment Tribunal found that Mr Baillavoine was dismissed to enable a purchaser to acquire the business without a CEO. This was a reason connected to the transfer and the ETO defence was not available. Therefore Mr Baillavoine’s claim succeeded. Spaceright appealed to the EAT and then to the Court of Appeal arguing that the wording of the Regulations requires there to be a particular transfer in mind at the time of the dismissal.
The Court of Appeal dismissed the appeal. It held that the Regulations must be given their natural and ordinary meaning which does not require a particular transfer or purchaser to be in contemplation at the time of dismissal. The Court of Appeal also agreed with the Tribunal that there was no ETO reason available where an employee is dismissed to enable administrators to make the business more attractive to potential buyers.
Buyers in these situations can therefore be liable for pre-transfer dismissals which are connected to the sale despite the fact that no specific purchaser was in the mind of the seller at the time of the dismissal. It is therefore important to carry out appropriate due diligence and ensure that you have adequate protection, for example by way of purchase price adjustment or indemnity.
If you are involved in or simply considering selling or purchasing a business involving the transfer of employees, please contact Helen Kidd from the Employment Team with any queries or for more information.
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