TUPE & Unfair Dismissal of Chief Exec fired by administrator pre-transfer to make business sale more attractive4 January 2012
Spaceright Europe Limited v (1) Mr Baillavoine (2) Sec. of State for Business, Innovation & Skills
Where a dismissal is for a reason connected with a Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) transfer it will be automatically unfair unless it can be shown to be for an Economic, Technical or Organisational (“ETO”) reason that entails changes in the workforce. When a company acquires the business of another under TUPE e.g. where the transferor has gone in to administration liability for unfair dismissal passes to the transferee/new business owner. The purpose of the legislation implementing this position is to protect employees where a business is transferred as a going concern.
Over the years cases have considered what it means to say that dismissal is for a reason ‘connected with’ a transfer for example: does a particular transferee have to have been identified when the dismissal occurs; and what if there is a significant time lag between the dismissal and the transfer? This case draws a line under the conflicting case law and offers clearer guidance.
Here, the Court of Appeal unanimously agreed that the pre-transfer dismissal of the Chief Executive (Mr Baillavoine) of a company (Ultralon Holdings Ltd) that had gone in to administration was automatically unfair even though at the time of his dismissal no particular buyer/transferee had been identified. Administrators came in to Ultralon and one of their first measures was to dismiss Baillavoine; their idea was that this would make the business ‘more attractive’ to potential buyers. Around one month later the business and assets of Ultralon were sold to Spaceright Europe Ltd.
Baillavoine brought a claim for automatically unfair dismissal against Spaceright. He won at the Tribunal. Spaceright appealed to the EAT and lost. Spaceright then went on to appeal to the Court of Appeal; again they lost.
The Court of Appeal upheld that Baillavoine’s dismissal was automatically unfair because it was for a reason connected with the TUPE transfer. Furthermore, the reasoning behind Ballavoine’s dismissal to make the business sale more attractive did not amount to an ETO reason. Neither the one month gap between his dismissal and the eventual transfer, nor the fact that Spaceright was not identified as the transferee at the time of Baillavoine’s termination prevented the dismissal from being automatically unfair.
The Court of Appeal looked at the purpose of the legislation and confirmed that a particular transfer does not need to be in mind for this protection to apply if a transfer is contemplated it does not matter if it is not thetransfer.
This case has therefore confirmed that when a business in administration is being prepared for sale the administrators need to be cautious about dismissing employees and the reason(s) for doing so. Potential buyers conducting due diligence also need to be aware of the potential liability(ies) that can pass to them and calculate the risk.
To read the full case, please click here.