TUPE and Making a Business More Attractive

The Court of Appeal has held in Spaceright Europe Ltd v Baillavoine 2012 ICR 520 that where an administrator's reason for a dismissal is to make a business more attractive to a potential purchaser, the dismissal will be automatically unfair under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and liability will consequently pass to the buyer.

Spaceright Europe bought the assets of a company in administration, Utralon Holdings Ltd. This constituted a transfer of an undertaking under TUPE.  The CEO of Utralon Holdings Ltd, Mr Baillavoine, was dismissed by its administrators prior to the sale.  He claimed that his dismissal was automatically unfair under TUPE because he was dismissed for a reason connected with the transfer and no economic, technical or organisation (ETO) reason entailing changes to the workforce existed to justify his dismissal. The ET and EAT agreed with Mr Baillavoine.  They held that an administrator's desire to make a business more attractive to a potential purchaser cannot amount to an ETO reason (see our previous update).  The dismissal was therefore automatically unfair and liability passed to Spaceright Europe.

On appeal, the Court of Appeal upheld this decision.  It held that the CEO was not dismissed in order to save costs and enable the continued running of the business (which might qualify as an ETO reason), but because the CEO was not considered important to a prospective buyer.  The dismissal was therefore connected to the transfer and automatically unfair.  Had the administrator not intended to sell, the outcome may have been different.  Prospective buyers must therefore be particularly vigilant in their due diligence to determine whether there have been any recent dismissals within the business and (where appropriate) to include suitable indemnities in the purchase agreement and/or to reflect the potential liability in the purchase price.