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TUPE: has the Court of Appeal played pre-transfer dismissals onside?

I did not expect to be able to mention football and TUPE in the same sentence.  However, as a keen follower of both (and I promise that I will write a non-football related piece at some point), I read the Court of Appeal's decision in Crystal Palace FC Limited and another –v- Kavanagh and others [2013] EWCA Civ 1410 with some interest.

The facts of the case followed on from the Club's appointment of an administrator in 2010 (the Club then taking the form of CPFC 2010 Limited (the second respondent in the case)).  The administrator planned to sell the Club as a going concern and did manage to find a potential buyer for both the Club and its stadium (the stadium being owned by another company (which incidentally was also in administration)).  The sale of the stadium was then delayed, which in turn delayed the sale of the Club.  In light of this delay, the administrator decided to make some 29 employees redundant, on the grounds that he did not have sufficient funds to continue to pay them.  After making these redundancies, the stadium was finally sold in July 2010, with the Club then being sold in August 2010 shortly thereafter.

The employees who had been dismissed sought to argue that their dismissals were automatically unfair under TUPE, on the grounds that they were connected to the subsequent transfer.  In doing so, they were aware that, if the dismissals were found to be automatically unfair, the related liabilities would transfer to the purchaser of the Club, who would then have the funds available to meet those liabilities. 

The Club (which, following the transfer, had taken the form of Crystal Palace FC Limited) sought to defend the employees' claims on the grounds that the reason for the dismissals was an economic, technical or organisational reason entailing changes in the functions or numbers of the workforce (an "ETO"), which, as readers will be aware, is a specific defence available under TUPE.

It has traditionally been extremely rare for an ETO to be found to apply to pre-transfer dismissals on the basis that the transferee will not, should the relevant entity be sold, be responsible for running the entity as a going concern moving forward.  As a result, the transferee's motive behind any pre-transfer dismissals will normally be found to be to make the relevant entity more saleable, rather than for a genuine ETO.  However, on the specific facts of this case, the Employment Tribunal found, in the first instance, that the employees had been dismissed not to make the Club more saleable but instead because there was not sufficient money available to pay them and the administrator wanted to avoid the closure of the Club.  The Tribunal accordingly held that the reason for the dismissals was a genuine ETO reason.

The employees appealed and on appeal the Employment Appeal Tribunal disagreed with the Employment Tribunal's decision, going as far to comment that the decision was "surprising".  The Employment Appeal Tribunal held that, given it was always the administrator's intention to sell the Club, the redundancies were made to make the Club more saleable and that it could not therefore rely on the ETO defence.

The Club then appealed to the Court of Appeal, which upheld the appeal and supported the Employment Tribunal's original finding.  It held that the lack of funds and the need to cut the wage bill in order to allow the Club to continue to trade was, in fact, an ETO reason and the dismissals were accordingly not automatically unfair.  The Court of Appeal did, however, also state that a close eye should be kept on ensuring that transferees did not try and artificially manipulate the facts in an attempt to create an ETO reason.  However, in the case in question, it was clear that this was not what had happened.

The Court of Appeal's decision is clearly helpful to the extent that it suggests that it will, dependent on the relevant facts of the case, be possible to rebut the presumption that the reason for pre-transfer dismissals will normally be to make the relevant entity more saleable.  However, it should also be kept in mind that it will be for the respondent to the proceedings to establish the reason for the dismissals and that any attempt to argue that the reason was an ETO will be very closely scrutinised.

Finally, it is worth saying that there would almost certainly have been a very different result had the case been decided under TUPE as now amended.  Under TUPE now, a dismissal will only be automatically unfair where it is by reason of the transfer, rather than, as was previously the case, where it was either by reason of the transfer or for a reason connected to a transfer.  In Kavanagh it was accepted that the principal reason for the dismissals was not the transfer itself as no agreement was in place in relation to the transfer at the time the dismissals were made.  This made little difference as the employees could argue instead that the dismissals were connected to a transfer.  However, under TUPE as now amended, the claims would have fallen at the first hurdle as the dismissals would not have been by reason of the transfer and any debate around the applicability or otherwise of an ETO defence would, as a result, have been entirely academic.

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