The EAT has confirmed that it is not necessary for the eventual transferee to have been identified in order for an employee, dismissed in the run up to a transfer, to claim automatic unfair dismissal by reason of a relevant transfer under TUPE (Spaceright Europe Ltd v Baillavoine & another).

The administrators dismissed Mr Baillavoine, the chief executive officer on the same day as Ultralon Holdings Ltd was put into administration.  Ultralon was sold as a going concern to Spaceright just over a month later and that sale amounted to a relevant transfer under TUPE.  The employment tribunal had found that the administrators had dismissed Mr Baillavoine so that a purchaser would be able to acquire the business and assets without the continued employment of its Chief Executive; his salary of £120,000 may have presented a problem for potential purchasers.

The EAT held that the employment tribunal had been right to find that Mr Baillavoine's dismissal was transfer-related even though at the time of his dismissal the sale had not been agreed and no purchaser had yet been identified.  The EAT also held that the dismissal was not for an ETO reason (an economic, technical or organisational reason involving changes in the workforce).  The dismissal did not relate to the continued operation of the business as a going concern.  Nor was his dismissal by reason of redundancy.  The business was always going to need a managing director and it was contemplated that any purchaser would have its own managing director in place and would not want to employ Mr Baillavoine.

Impact on employer

  • There had previously been conflicting EAT decisions on whether a purchaser had to be identified at the time of the dismissal for TUPE to apply.  More recent decisions had adopted the wider approach and confirmed that, in principle, dismissals can be transfer-related where a number of transferees are interested, but discussions are at an early stage.  This decision confirms that the correct approach is that the transferee does not have to be in the picture at all for a dismissal to be connected to the eventual transfer.
  • Conversely, the EAT confirmed recently, in Page v Lakeside, that a dismissal will not necessarily be unfair just because there is a purchaser in the wings at the time of the dismissal.  Having said that, redundancies and other dismissals carried out when negotiations are ongoing are more likely to be found to be automatically unfair under TUPE.
  • If the reason for a dismissal is connected to an actual or potential transfer (for example, is carried out to make the business more attractive to a potential buyer) then it will be automatically unfair unless there is an ETO reason.  It is therefore important, in order to identify the risks, for the seller (whether a company or an administrator) to properly address the true reason for any dismissals and to document the reasons for them.
  • For further discussion of these decisions and other recent cases concerning TUPE in an administration and the potential liability of administrators for discrimination, please see our recent Restructuring and Insolvency E-Bulletin.

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