TUPE Dismissals Can Be Automatically Unfair Even Before a Transferee Has Been Identified

In Spaceright Europe Ltd v Baillavoine UKEAT/0039/10, the EAT held that a buyer – or transferee – does not need to have been identified for a dismissal to be automatically unfair under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

The claimant was the CEO of a company that was put into administration. No buyer for the business had been identified but the administrators took the view that the business could function without a CEO and dismissed him by reason of redundancy. The business was then sold as a going concern to Spaceright and the claimant brought a claim against Spaceright for automatically unfair dismissal.

The EAT held that, despite the fact that there was no specific buyer, the dismissal was still connected to the proposed transfer and therefore contravened TUPE and was automatically unfair.  The CEO's position continued to be necessary post-transfer and the EAT held there was therefore no "economic, technical or organisational" reason which could have justified the dismissal.  It further held that the sole reason behind the dismissal was to allow the transferee to acquire the business and assets without the continued employment of the CEO.  Liability for the dismissal therefore passed to Spaceright under Regulation 4 of TUPE.

This case highlights the importance for prospective purchasers of businesses of understanding whether there have been any recent dismissals within the business and, where commercially possible, the importance of getting suitable indemnities from the seller in the asset purchase agreement.