2nd March 2011

Administrations: TUPE or not to pay?

The TUPE Regulations 2006 provide certain protections to employees whose employer transfers its business or undertaking to another party.

In an attempt to encourage the rescue of failing businesses, the regulations offer certain protections to the acquiring party where the transferor employer is subject to relevant insolvency proceedings.  This means insolvency proceedings which are commenced not with a view to liquidation of the transferor’s assets.  This includes administration.

Certain debts which the transferor employer owes to employees do not transfer to the new employer (transferee).  These are the redundancy payments, arrears of pay, notice pay and holiday pay which employees can recover from the National Insurance Fund i.e. up to the maximum of £400 per week.  Liability for amounts due to employees in excess of £400 per week (or greater than 13 weeks’ arrears of pay) will potentially pass to the acquiring party.  The regulations provide greater scope in relevant insolvency situations for the acquiring party to vary an employee’s terms and conditions of employment.

The regulations also provide that some of the protections offered to employees in ordinary circumstances do not apply where the transferor is subject to insolvency proceedings which have been instituted with a view to liquidation of the transferor’s assets.  Thus, if the transferor employer is in liquidation, its employees will not automatically transfer to the transferee and will not benefit from protection against dismissal in connection with the transfer (i.e. a dismissal in connection with the transfer will not be automatically unfair).

The Employment Appeal Tribunal recently issued its decision in OTG Limited v Barke, where it confirmed that a pre-pack administration can never qualify as “insolvency proceedings with a view to the liquidation of the transferor’s assets”.  A pre-pack administration is one where the deal to sell on the business is agreed before the transferor company enters administration, and takes effect immediately following the administrator’s appointment.  Accordingly, on the sale by the administrator, regulations 4 and 7 of TUPE will apply.

Essentially this means that employees who are employed by the company in administration immediately before the transfer will automatically become the employees of the acquiring party on the same terms and conditions of employment as before. They will also have the benefit of protection from dismissal in connection with the transfer.

Jack Boyle
Trainee Solicitor

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