Labour & European Law Review Weekly Issue 257 23 February 2012
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) states that employees are not protected in certain insolvency situations. The Court of Appeal has held in Key2law (Surrey) LLP v Gaynor De’Antiquis that, as a general rule, companies that have gone into administration are still subject to TUPE.
Ms De'Antiquis worked as an assistant solicitor for Drummonds Kirkwook (DK) LLP at its Epsom office. A few days after being made redundant on 21 July 2008, the firm went into administration.
On 28 July the administrators entered into a year’s management contract with Key2 for the Epsom and Ewell offices to complete any work in progress, so that DK’s clients were not inconvenienced.
In October 2008, Ms De'Antiquis brought a number of claims on the grounds that as a transferee of a part of the undertaking, Key2 was liable to her under Regulations 4 and 7 of TUPE, with the result that she transferred over to their employment.
Key2 argued that, as DK was in administration, it fell within the meaning of Regulation 8(7) of TUPE which meant she was not protected.
Regulation 4 states that in the event of a transfer, it will not operate so as to terminate the contract of employment, unless Regulation 7 applies.
Regulation 7 states that if an employee is dismissed, the dismissal will be automatically unfair if it was connected to the transfer itself, or a reason connected with the transfer that was not an economic, technical or organisational reason entailing changes in the workforce.
Regulation 8(7) states that Regulations 4 and 7 do not apply if “the 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".
Tribunal and EAT decisions
Adopting a “fact-based” approach, the Tribunal judge held that, for the purposes of TUPE, there was both a transfer to Key2 of part of DK's undertaking and a service provision change. He also held that Regulations 4 and 7 of TUPE were not disapplied by Regulation 8(7)
The EAT rejected the company’s appeal. Taking an “absolute” (as opposed to fact-based) approach to the proceedings, it held that administration proceedings under Schedule B1 of the Insolvency Act 1986 were never covered by Regulation 8(7) as they did not constitute insolvency proceedings "instituted with a view to the liquidation of the assets" of the transferor.
Court of Appeal decision
And the Court of Appeal agreed. It said that the decision of the EAT in OTG v Barke was correct to conclude that all administration proceedings fall under the definition of “relevant insolvency proceedings” with the result that employees transfer to the new employer.
After a detailed look at the European Acquired Rights Directive (the basis of TUPE), it also agreed with the "absolute" approach which, it said, was most consistent with the directive. It had “the merit of achieving legal certainty”, allowing everyone to know where they stood during administration proceedings.
Conversely, it criticised the fallacy of the "fact-based" approach followed by the Tribunal which, the Court said, depended on looking at the evidence leading up to an administrator being appointed. This could produce an uncertain picture about the objective to be achieved by an appointment, as happened in this case.
Although the main objective of appointing an administrator is to rescue the company as a going concern, that won’t always be possible. As there are usually a number of possibilities open to administrators, it did not follow that their appointment was necessarily "with a view" to the liquidation of the company’s assets.