The Court of Appeal has clarified the case law relating to when a dismissal is automatically unfair under TUPE.
When there is a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), affected employees are protected against dismissal.
Regulation 7 says that if any employee of either the transferor or transferee is dismissed before or after the relevant transfer they shall be regarded as automatically unfairly dismissed if the sole or principal reason for the dismissal is:
- the transfer itself; or
- a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce (an ETO reason).
Previously, in the case of Ibex Trading v Walton  ICR 907 the Employment Appeal Tribunal (EAT) held that dismissal of employees by the administrator of a business, in order to make it more attractive to potential buyers, could not be said to be "connected with the transfer" because no transfer was in contemplation at the time of the dismissals and the assets were not in fact sold until some months afterwards.
Subsequently, the EAT gave conflicting rulings in the cases of Harrison Bowden v Bowden  ICR 186 and Morris v John Grose  ICR 655.
In Spaceright Europe Limited v Baillavine the claimant had been chief executive of Ultralon Holdings Limited, a company which went into administration on 23 May 2008. Mr Baillavine was dismissed along with 43 other employees of the company on that day. On 25 June the administrators sold the business and assets of Ultralon to Spaceright Europe Limited.
The Employment Tribunal found that the claimant's dismissal was connected to the transfer and was not for an ETO reason.
Consequently, Mr Baillavine had been automatically unfairly dismissed and liability for that dismissal passed to Spaceright. The Employment Appeal Tribunal turned down an appeal and Spaceright appealed to the Court of Appeal.
The Court of Appeal decision
The Court of Appeal rejected Spaceright's appeal. It held:
- there was nothing in TUPE which required a particular transfer or transferee to be in existence or contemplation at the time of the dismissal for that dismissal to be "connected to the transfer".
- For an ETO reason to exist there must be "an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it". Furthermore, the ETO reason defence is not available to enable administrators to make businesses more attractive to prospective buyers.
- In future, tribunals and the EAT should follow the approach in the Harrison Bowden and Morris cases rather than Ibex.
It is helpful to have the conflict of decisions at EAT level resolved by the Court of Appeal. It is now quite clear that the ETO reason defence will only be available in limited circumstances, and it will not assist administrators in making a business more attractive. Those who buy businesses from administrators will need to be alive to the risk that they could inherit liability for pre-sale dismissals.