Liquid losses

Oakland v Wellswood (Yorkshire) Ltd

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) state that employees' contracts transfer automatically to the new employer in the event of a transfer, except in certain insolvency situations. In Oakland v Wellswood (Yorkshire) Ltd, the Employment Appeal Tribunal (EAT) said that it is up to tribunals to decide as a matter of fact whether the insolvency resulted in an employee losing their rights under TUPE.

Basic facts

Wellswood Ltd was a fruit and vegetable wholesaler in which Mr Oakland had a 50 per cent share. After running into financial difficulties he approached a major creditor in September 2006. The creditor did not want to buy Wellswood as a going concern (because of its debt levels), but agreed to set up a new company to acquire its assets and to take on most of its employees, including Mr Oakland.

Insolvency advisors were appointed as joint administrators on 6 December 2006 and the assets of Wellswood were sold to the new company - Wellswood (Yorkshire) Ltd - the same day.

Mr Oakland was dismissed from his job on 23 November 2007 and claimed unfair dismissal. The company argued, among other things, that regulation 8(7) of TUPE meant that his employment had not transferred over.

Relevant law

Article 8(7) of TUPE 2006 states that when a transferor is the “subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner”, regulations 4 and 7 do not apply.

Regulation 4 deals with the transfer of employment liabilities and contracts; regulation 7 with control of the dismissal of employees due to the transfer.

The result is that when regulation 8(7) applies, employees assigned to the undertaking do not transfer over to the new employer nor are they protected by the automatically unfair dismissal provisions.

Tribunal decision

The tribunal decided that there had been a relevant transfer that had been the subject of insolvency proceedings under the supervision of an insolvency practitioner on the date of the transfer with a view to liquidating the assets. Regulation 8(7) of TUPE therefore applied and Mr Oakland’s previous employment with Wellswood did not transfer, with the result that he did not have the necessary one year’s continuous service to claim unfair dismissal.

Argument on appeal

Mr Oakland appealed, arguing that under domestic insolvency law, appointing administrators was not the same as instituting insolvency proceedings with a view to liquidating the company's assets (such as a creditor's voluntary winding-up or compulsory winding-up by the court) as required under regulation 8(7).

EAT decision

But the EAT agreed with the tribunal. It said that this was not an issue to be resolved by domestic insolvency law, but was a question of fact for employment tribunals to decide.

In this case, the administrators had never tried to keep the business going, but had instead sold the assets to Wellswood (Yorkshire) Ltd, which was always seen as the best option for the creditors.

The tribunal judge had therefore been entitled to conclude that the appointment of joint administrators was “with a view to the eventual liquidation of the assets” of the old company, by way of a creditors voluntary winding-up, as required under regulation 8(7).

This, it said, was in line with the policy behind regulation 8(7), “namely the 'rescue culture', whereby a purchaser … is not put off by the effects of TUPE protection. The outcome, as demonstrated in this case, was that some jobs were preserved and the creditors benefited from the best available option.”

The exception in regulation 8(7) therefore applied and Mr Oakland’s employment contract had not transferred over under TUPE.