The Facts

Mrs Kavanagh and the other claimants worked for Crystal Palace Football Club (2000) Ltd (‘the Club’). The Club went into administration in January 2010 and Mr Guilfoyle was appointed as the administrator.

In March 2010, negotiations began regarding the sale of the Club as a going concern and in May 2010, an agreement was held in escrow (pending the sale of the stadium which was not owned by the Club). Around this time, it became apparent to Mr Guilfoyle that the Club had severe cash flow problems, so he decided to “mothball” the Club over the close season, hoping that a sale would take place at a later date.

On 28 May, the majority of administration staff were made redundant – 29 people in total. It was Mr Guilfoyle’s position that these 29 individuals were not required for the Club’s “core operations”. The sale of the Club was agreed on 7 June and completed in August. The employees claimed that they had been automatically unfairly dismissed, because the reason for their dismissal was connected to the sale transfer and liability should be passed to the business which acquired the Club (i.e. the transferee).

The Tribunal and Employment Appeal Tribunal (EAT) decisions

The Tribunal found that there was a difference between the reason for the dismissals and the ultimate objective. Mr Guilfoyle needed to reduce the wage bill in order to continue running the business. This was an economic reason, entirely separate to the long-term ultimate objective of selling the Club.

The claimants appealed to the EAT on the basis that there had been no ETO reason for their dismissal and the EAT allowed the appeal. The EAT found the tribunal’s conclusion “wholly surprising” given the purpose of putting the Club into mothballs was to preserve the business to be sold. The EAT relied upon a Court of Appeal decision in Spaceright Europe Ltd v Baillavoine and another [2012] where a change in the workforce, along with continuing the business, would justify an ETO reason. On this basis, the only possible conclusion was that the dismissals occurred for the purpose of selling the business and the claimants had been automatically unfairly dismissed. Liability for those dismissed would pass to the transferee.

The Court of Appeal decision

The Court of Appeal reinstated the tribunal’s decision that the claimant’s were not automatically unfairly dismissed and thus liability did not transfer to the transferee.

The Court of Appeal highlighted the distinction in facts between Spaceright and the present case. In Spaceright a chief executive was dismissed on day one of the administration “because no purchaser would require his services”. He was not dismissed because of a cash flow problem but rather to make the business more attractive to purchasers and his departure did not entail a change in the workforce. There was no ETO reason for the purposes of TUPE 2006 on those facts.

The Court of Appeal felt that the tribunal were justified to distinguish between Mr Guilfoyle’s reason for the dismissals (i.e. to reduce costs) and his ultimate objective (of selling the Club as a going concern). The claimants dismissals entailed a change in the workforce, which was connected to the transfer, but it was held that there was an economic reason behind this decision.

Guidance for Businesses

The Court of Appeal focused on trying to resolve the tension between the TUPE 2006 regime (designed to protect employees) and insolvency law (to protect a company’s creditor’s) instead of taking such an overly robust approach like the EAT.

The Court has made clear that the application of regulation 7 of TUPE 2006 is “an intensely fact-sensitive process” and the administrator’s motives for any dismissals will be explored in detail. The assertion in Spaceright that an ETO reason is not available where an employee is dismissed to make a business more attractive to prospective transferees, should be used in its context.