Oakland v Wellswood
In OTG Ltd v Barke and others UKEAT 0320/09 the Employment Appeal Tribunal (EAT) declined to follow its earlier decision in Oakland, preferring an "absolute approach" that administration proceedings will not attract regulation 8(7), even in a pre-pack situation. Effectively this means that where a sale of the business or assets of a company in administration amounts to a "relevant transfer" for the purposes of TUPE, the employees assigned to the undertaking will transfer to the buyer under regulation 4 and be protected against transfer-related dismissal by regulation 7.
The EAT decided that the "fact-based" approach adopted in Oakland could lead to legal uncertainty and would increase the likelihood of disputes, as evidence of the administrator's intentions would be required. Furthermore, both regulations 8(6) and 8(7) concern the object of the insolvency proceedings when they are opened or instituted. Under paragraph 3 of Schedule B1 of the Insolvency Act 1986, when the Administrator's appointment takes effect they are obliged to consider whether the primary objective of administration of rescuing the company as a going concern is overridden by other considerations. Consequently, it cannot be said that at the moment of the institution of administration proceedings that their object is to liquidate the assets and thus the test set out in regulation 8(7) will not be met.
In Barke a number of cases were listed together so that there could be an "authoritative decision" as to whether regulation 8(7) of TUPE 2006 could apply to administration.
Technically there are now two conflicting decisions on this topic but it is anticipated that the Tribunals will follow the position set out by the President of the EAT in Barke and no longer follow Oakland (particularly as the President of the EAT gave the Barke decision in full knowledge of what had been decided in Oakland and the Court of Appeal were themselves critical of the decision on pre–packs in Oakland when considering that case on appeal but deciding it on grounds which did not require a decision on the pre–pack point).
Consequently, putting an insolvent company into liquidation (rather than a pre-pack administration) would be more likely to attract regulation 8(7), leaving the buyer with more freedom in relation to the transferor's staff.
As well as resolving the "Oakland issue" of the application of regulation 8(7), the EAT made some useful observations on the workings of the regulation 8(1)-(6) regime, which will now again apply to relevant transfers from companies in administration. It clarified that the Secretary of State will not have to meet statutory redundancy payments under that regime where the employees have been taken on by the transferee. However, the Secretary of State will be liable to make a redundancy payment (or a basic award payment if the dismissal is unfair) where an employee is dismissed pre-transfer.
For further information about the implications of TUPE on insolvent businesses and about potential variations to employee contracts where there are relevant insolvency proceedings under Regulation 9 please contact our Employment Team on 020 7822 4000 or our Insolvency Team on 01273 685888.
