Vol 7 (2010) - Issue 3

Article preview

Protection for Employees under TUPE in an Insolvency Situation Re-visited: Court of Appeal decision in Oakland v Wellswood

The first instance decision in Oakland v Wellswood (Yorkshire) Ltd (2009) All ER (D) raised concerns over the treatment of employees in a pre-packaged administration. Arguably, the government’s implementation of the 'rescue culture' for insolvent companies had gone too far, allowing a purchaser of a business out of a formal insolvency process to acquire the business free and clear of existing liabilities effectively 'cherry picking' the assets (including staff) which it wished to acquire while leaving the debt with the old company. The first instance decision seemed to suggest at both Employment Tribunal and Employment Appeal Tribunal (EAT) level, that employees did not automatically transfer to a purchaser under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) on a pre-packaged administration sale. In this case the employee in question did not have sufficient continuity of service to bring a claim of unfair dismissal. This decision has been overturned by the Court of Appeal. However, the decision failed to clarify the position with respect to the treatment of employees under TUPE in a pre-packaged administration situation. The Court of Appeal upheld a new submission by the claimant that continuity of employment was preserved by section 218 of the Employment Rights Act 1996 (the 'Act').
This case review examines the recent Court of Appeal decision in Oakland v Wellswood (Yorkshire) Ltd1 and updates the case review set out in Volume 6, Issue 3: ‘Casting Doubt on the Protection for Employees under TUPE in an Insolvency Situation: Oakland v Wellswood [2009] All ER (D)'.

Background facts
Mr Oakwood (the 'Claimant') was the general manager of Wellswood Limited (the 'Company'), a fruit and vegetable wholesaler, between 2003 and December 2006. The Company went into administration in December 2006. Prior to going into administration there had been discussions about the Company's financial problems with a customer. As a result of these discussions the customer set up a new company as its wholly owned subsidiary 'Newco' which would acquire the assets of the Company as well as take over a tenancy of the Company's premises. A number of employees from the Company (including the Claimant) also became employees of Newco. Shortly before the expiry of one year of what the Claimant contended was his employment with Newco he was dismissed without notice. The Claimant brought proceedings before the Employment Tribunal contending that he had been unfairly dismissed (in breach of section 94 of the Act).
The Employment Tribunal found that the Company was the subject of insolvency proceedings (the administration) which had been initiated with a view to the liquidation of the Company’s assets. Consequently the tribunal stated that by virtue of the exception set out in Regulation 8(7) of TUPE the Claimant was precluded from relying on the transfer provisions under TUPE to establish the necessary continuity of employment. The EAT upheld this finding. The Claimant appealed against this decision.
On appeal a new argument was put forward on behalf of the Claimant. He argued that his previous period of employment with the Company could be taken into account by virtue of section 218 of the Act with the result that he satisfied the requirement of having continuous employment for a period not less than one year (section 108(1) of the Act).