When deciding whether a dismissal is unfair following a TUPE transfer, tribunals have to consider whether the reason was connected with the transfer and whether it was for an ETO reason. In Crystal Palace FC Ltd and anor v Kavanagh and ors, the Court of Appeal held that liability for dismissals does not pass to the purchaser if the administrator’s objective is to make the business more saleable. 

Basic facts

After Crystal Palace FC (2000) Limited went into administration in January 2010, the administrator, Mr Guilfoyle, put it up for sale. He agreed terms of sale with a consortium called CPFC (2010) in May, but due to a shortfall in funds and problems over the stadium which was owned by a separate company, he decided to sell the club’s playing assets and “mothball” the club’s trading operations at the end of May in the hope of selling it at a future date.

On 28 May, dismissal letters were given to 29 members of staff, including the four claimants, terminating their contracts of employment either summarily or with effect from 31 May. They argued that their dismissals were automatically unfair under regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) as the sole or principal reason for the dismissal was a reason connected with the transfer that was not an economic technical or organisational (ETO) reason entailing changes in the workforce.

When news of the dismissals was picked up by the media, the bank agreed to extend the necessary funds and the sale of the club to CPFC Ltd (not CPFC 2010 as originally envisaged) was completed in August.

Tribunal and EAT decisions

The tribunal held that as Mr Guilfoyle dismissed the claimants in the hope of keeping the club alive as a going concern, his reason for doing so was “connected with the transfer”. In order to decide if it was for an ETO reason or not, it distinguished between his reason for the dismissal and his ultimate objective (to sell the business). As his reason was to reduce staff costs, that was an economic reason entailing changes in the workforce. Liability for the dismissals therefore rested with CPFC (2000).

The EAT, however, disagreed, saying that it found the tribunal’s conclusion “wholly surprising”. Relying on Spaceright Europe Limited v Baillavoine (which ruled out an ETO reason when employees are dismissed to enable administrators to make a business more attractive to prospective transferees), it held that as the dismissals were carried out with a view to selling the business or putting it into liquidation, they could not be for an ETO reason. Liability therefore passed to CPFC (2010) or CPFC.

Decision of Court of Appeal

The Court of Appeal, however, disagreed with the EAT, holding that the tribunal was right to distinguish between Mr Guilfoyle's reason for the dismissals and his ultimate objective. This was because administrators “will almost always have a transfer of the undertaking as their ultimate objective”. If that was applied as the sole or principal reason for the dismissal then the ETO exception would hardly ever apply in these types of insolvencies.

In any event the facts in Spaceright were different. In that case, the CEO was dismissed not because the money to pay him had run out, but because it would make the business more attractive to a purchaser if they could choose the person for the top job. “In the present case by contrast, these dismissals made the business of the club not a whit more attractive to a purchaser. It was only because negotiations for the parallel sale of the stadium dragged on beyond the time during which the administrators could continue to pay all the staff that these employees had, most unfortunately, to be dismissed”.