The Court of Appeal has expressed regret that it has been unable to provide much needed clarification of the extent of employee rights on the transfer of businesses in administration. Last year, in the case of Oakland v Wellswood (Yorkshire) Ltd, an Employment Tribunal ruled that buyers of a business in administration under a "pre-pack" sale did not have to take on the failed company's employees.
That decision was upheld by the Employment Appeal Tribunal. But in the Court of Appeal Lord Justice Moses said: "There are strong grounds for thinking that both the Employment Tribunal and the Employment Appeal Tribunal took the wrong approach".
The Court of Appeal felt unable to give a formal ruling on the point as the case was fully disposed of on other grounds and not all the interested parties were represented at the hearing. Lord Justice Moses' comments have emphasised the continuing widespread uncertainty about the application of TUPE to companies in administration, and the need for clarification of ambiguous "Eurospeak" drafting of the Regulations, and the BERR guidance on their meaning.
Paul Cotton, partner at Eversheds, said: "Given the dramatic rise in corporate insolvencies, it is imperative that the law is clear in its application to failing companies. Without such clarity, potential buyers of insolvent businesses must act as if they will be acquiring employees, which will depress the price they might pay or, more significantly, may deter buyers from bidding at all, to the obvious detriment of the insolvent company's creditors and employees.
"There is real confusion about whether buyers of businesses in administration, including so-called ‘pre-pack' sales, have to take on the failing company's employees. The result is that some buyers are refusing to take on employees, while others are walking away from deals due to the potential costs and liabilities inherent in taking them on. The issues raised underline the tension between, on the one hand, a ‘rescue culture', where buyers are encouraged to take on failing businesses, and on the other, the desire to protect employee jobs and welfare when businesses transfer, including when companies fail.The paradox is that a measure whose title declares it to protect employment can have exactly the opposite effect if buyers are hesitant to step forward for fear of inheriting liabilities.
"These issues play a significant role in what happens to failing companies, and their employees, during the current recession. Insolvencies are characterised by urgency, where time is of the essence if buyers are to be found and the business rescued before it is too late. The current confusion sustains uncertainty at a time it can least be afforded; a point which was not lost on the Court of Appeal which regretted that it could not provide the clarification needed."
