News from IDS Brief - TUPE transfer of insolvent company: liability payable by transferee, not by the NI Fund
In Pressure Coolers Ltd v Molloy and ors EAT 0272/10 the EAT held that liability for a basic award and notice pay owed to a transferring employee of an insolvent business did not pass to the Secretary of State under Reg 8(3) of the TUPE Regulations where the employee had been dismissed after the transfer. While Reg 8(3) provides that certain liabilities owed towards transferring employees pass to the Secretary of State rather than the purchaser on the transfer of an insolvent business, it only applies to liabilities incurred before the transfer. The EAT (presided over by Mrs Justice Cox) ruled that since the relevant liabilities had not arisen by the date of the transfer, they were not liabilities falling within the scope of the guarantee provided by S.184 ERA 1996, and so it was the transferee – not the Secretary of State – who was liable to meet them.
M had been employed by M Ltd as a bench fitter for 20 years. As a result of financial difficulties, that company was put into administration at 11 am on 13 January 2009. As a result of pre-negotiations with the administrator, M Ltd’s business was simultaneously transferred to PC Ltd – a transfer to which the TUPE Regulations 2006 applied. In consequence, M’s employment was transferred from M Ltd to PC Ltd. At 3pm on the same day the administrator dismissed M for redundancy without any prior warning or consultation.
M commenced employment tribunal proceedings for, among other things, unfair dismissal, notice pay, unpaid holiday entitlement and arrears of pay. The tribunal upheld these complaints and initially ruled that the Secretary of State was liable to make payment out of the NI Fund in respect of them, including the basic award for unfair dismissal. Following a review of its decision, however, the tribunal back-tracked: it accepted the argument, based on Reg 8(3) of the TUPE Regulations, that the Secretary of State was only liable to meet those claims that were specifically due on or before the date M was transferred to PC Ltd. As M Ltd’s liability for the pay arrears and unpaid holiday had crystallised by the date, those payments were payable out of the NI Fund – a finding that the Secretary of State accepted. However, the liabilities for notice pay and the basic unfair dismissal – being liabilities that arose on dismissal – had not so crystallised, and it followed that it was PC Ltd as the transferee, not the Secretary of State, that was liable for them.
PC Ltd’s contentions on appeal to the EAT focused on the proper interpretation of Reg 8(3) and S.182 ERA. Normally, outside a TUPE context, in order for an insolvent employer’s liability for a basic award and notice pay to be met by a payment out the NI Fund, the conditions set out in S.182 have to be satisfied, which include proof that that the employee’s employment has been terminated. However, in the context of a TUPE transfer of a company in administration, Reg 8(3) modifies S.182 by stipulating that ‘the relevant statutory scheme [i.e. the NI Fund] shall apply in the case of a relevant employee irrespective of the fact that the qualifying requirement that the employee’s employment has been terminated is not met and for those purposes the date of the transfer shall be treated as the date of the termination and the transferor shall be treated as the employer.’ PC Ltd contended that the effect of this was that all relevant liabilities belonging to the insolvent company – in so far as they are liabilities covered by the NI Fund guarantee – had to be met by the Secretary of State, whether or not they arose or ‘crystallised’ after the transfer had occurred.
Rejecting this contention, the EAT examined the relevant provisions in the EU Acquired Rights Directive 2001/23 and other recent case law to reach the clear conclusion that the relevant debts have to arise before the transfer to come within the State guarantee provided for by S.184 . Cox J reasoned that, without the modification to S.182 ERA made by Reg 8(3), transferring employees would be unable to avail themselves of the guarantee provided by that provision because, at the date of the transfer, there would have been no termination of their employment. This difficulty is resolved by means of Reg 8(3), which treats the date of transfer as the date of termination and treats the transferor as continuing to be employer notwithstanding the transfer. The effect of this deeming provision is – for this purpose only – to ensure that relevant liabilities crystallising on or before the time of the transfer do not get transferred to the transferee but rather are treated as continuing liabilities of the transferor in respect of which the Secretary of State picks up the tab. However, where, as in the instant case, the employee was unfairly dismissed by the transferee after the transfer, liability to pay the basic awarded and notice pay cannot sensibly be said to constitute a liability in respect of the transferring employee, since, at the time he is transferred, there is no such liability.
This case will be reported in full in a future edition of IDS Employment Law Brief.
Further information:
Source: EAT 10/06/2011
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