RECENT COURT OF APPEALJUDGMENT ON TRANSFER OF UNDERTAKINGS REGULATIONS 2006 –
SPACERIGHT EUROPE LTD V BAILLAVOINE
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) afford protection to employees when there is a transfer of an undertaking or a service provision change from one employer (the transferor) to another (the transferee). In these circumstances dismissal of an employee assigned to the undertaking being transferred by reason of the transfer or for a reason connected with the transfer will be automatically unfair (Regulation 7, TUPE). The only exception to this will be if the dismissal is for an economic, technical or organisational reason entailing changes in the workforce (“an ETO reason”).
In the recent case of Spaceright Europe Ltd v Baiillavoine  IRLR 111 the Court of Appeal considered whether it was necessary for an actual transferee or transfer to be in existence or even contemplation at the time of what is alleged to be an automatically unfair transfer related dismissal. This may often be the case where a company is in administration and a decision is made to sell it to a buyer as a going concern. In such a situation there may not be an actual buyer identified at the time the decision is made, or there may be a number of potential buyers, only one of which may eventually purchase the undertaking. Such was the case in Spaceright.
The Claimant in Spaceright, Mr Baillavoine, was employed as the managing director of a company (“Ultralon”). Ultralon and its subsidiary went into administration. The administrators decided to attempt to sell the business as a going concern, and continued to trade while seeking offers from interested parties. They decided that his role as Managing Director would be redundant on a transfer as any purchasing company was likely to have their own MD who they would wish to appoint to the post. Furthermore Mr Baillavoine’s relatively high salary meant that his dismissal would lead to a significant cost saving. Accordingly Mr Baillavoine was dismissed by the administrators. A month later the administrators sold the business and assets of the Ultralon group to Spaceright Europe Ltd. Mr Baillavoine claimed unfair dismissal, arguing that his dismissal was automatically unfair as the reason for it was the transfer or a reason connected with the transfer which was not an ETO reason. Furthermore, under TUPE liability for any unfair dismissal carried out by the administrators would transfer to Spaceright Limited on the transfer of the undertaking concerned to Spaceright.
An Employment Tribunal upheld the unfair dismissal claim and Spaceright appealed. The Employment Appeal Tribunal dismissed the appeal and Spaceright appealed to the Court of Appeal. It argued that liability for any dismissal prior to the transfer could not transfer if at the date of dismissal there was no actual or contemplated transfer or transferee and that the Tribunal erred in finding that the reason for the dismissal was the transfer or a reason connected with it.
The Court of Appeal dismissed the appeal. It considered earlier conflicting Employment Appeal Tribunal authorities on whether it was necessary for there to be an actual or contemplated transferee at the date of dismissal for TUPE to apply. It held that that the natural and ordinary meaning of Regulation 7 did not require a particular transfer or transferee to be in existence or even in contemplation at the time of the dismissal. Furthermore the Tribunal had not erred in finding on the evidence that the dismissal was for a reason connected with the dismissal. It had been carried out so that the purchaser of Ultralon did not purchase a group of companies with a Managing Director in place. This was not an ETO reason entailing changes to the workforce so the dismissal was automatically unfair.
The judgment in Spaceright is a reminder that the effect of TUPE is that purchasers of a business in administration may inherit unexpected liabilities in the form of employees dismissed before the transfer. It is now clear that a transferee employer in these circumstances cannot rely on the fact that the transfer of the undertaking which eventually took place was only known about after the dismissals had been carried out.