It is an unfortunate fact of modern life that it seems that new administrations for high street retailers and other businesses seem to be announced almost every working day. A key concern in the context of employment law and, more importantly, for the employees concerned, is whether their employment automatically transfers to the new employer under TUPE or whether the new employer can "cherry pick" or perhaps even select none of the existing employees for the new business.
There has been conflicting case law in the last few years but it seems that we now have a clear statement from the Court of Appeal.
So-called pre-pack administrations have been controversial since they came into fashion a number of years ago. As I discussed in a blog post last February administrations are intended as a way for an insolvent company to secure some breathing space, shielded from the claims of creditors, so that it can be reorganised and secure its survival as a going concern. However, pre-packs are a significant variation from this objective because although the business survives, that is because it is bought by another company and the original company invariably goes into insolvent liquidation leaving its creditors unpaid. The name "pre-pack" applies because all of this is agreed in advance and the business is usually sold on the same day as the commencement of the administration so that others do not get a look in.
After the decision of the Employment Appeal Tribunal in 2008 in the case of Oakland v Wellswood, it appeared that employees as well as creditors would be left high and dry because there is an exemption to the TUPE Regulations do not apply if there insolvency proceedings with a view to liquidating the business. In my February 2011 article I pointed out that there was an indication in OTG v Burke (also a case in the Employment Appeal Tribunal) that the decision in Oakland was wrong so we were left with conflicting authorities.
However, the issue is now resolved as the result of a decision of the Court of Appeal which is binding on the Employment Appeal Tribunal and therefore takes precedence. The case is Key2Law (Surrey) LLP v De Antiquis (Secretary of State Intervening). The facts are not important and the judgment contains a very detailed analysis of the relevant law. What is important is that TUPE protection is available to employees in these circumstances so that the contracts of employment of the workforce do transfer to the company buying the business. In preferring what has been described as "the absolute approach" so that, regardless of any particular facts, all administration proceedings fall within the definition of insolvency proceedings so that employees do transfer, the judgment seems to have removed, at least for the moment, the uncertainty which was previously present in such cases. Whether it will lead to a reduction in the number of pre-pack administrations remains to be seen.