Vol 8 (2011) - Issue 5

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The ‘Absolute Approach’ in Relation to Administration Proceedings and Regulation 8(7) of TUPE: OTG Ltd v Barke and Others

The recent case of OTG Ltd v Barke and Others in the Employment Appeal Tribunal (the 'EAT') considered the key issue of whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 ('TUPE') applied to the transfer of all or part of an undertaking of a company in administration, pursuant to Schedule B1 of the Insolvency Act 1986 (as amended) (the 'Act'), and in particular, the application of Regulation 8(7) of TUPE in the instance of a transfer made by a company in administration. Regulation 8(7) of TUPE arises in instances where the transferor is the subject of ‘bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor’. The effect of Regulation 8(7) of TUPE is that the protection afforded to employees under Regulations 4 and 7 of TUPE is disapplied, both of which are discussed in detail below.

The EAT held, with the honorable Mr Justice Underhill presiding, that an administration proceeding under the Act did not fall within Regulation 8(7) of TUPE and that Regulations 4 and 7 of TUPE applied. In reaching its judgment, the EAT disagreed with the earlier decision of Oakland v Wellswood (Yorkshire) Ltd (the ‘Oakland Case’), where the EAT held that the question of the application of Regulation 8(7) of TUPE was a question of fact. In this case, the EAT had on the facts of the case held that Regulation 8(7) of TUPE did apply where the transfer was part of a pre-packaged administration.

The judgment in OTG Ltd v Barke and Others represents an important decision and provides a degree of certainty in an area of law that has been affected by conflicting cases in the past. In the current economic climate, pre-packaged sales are frequently the preferred option for companies placed into administration as it provides for business continuity and enables the employees to be transferred across. The operation of TUPE has presented an issue in these instances, with little guidance offered from the differing case law. The judgment by the EAT in OTG Ltd v Barke and Others has helped rectify this by being an authoritative decision as to when Regulation 8(7) should apply.


TUPE

TUPE implements the provisions of the Acquired Rights Directive (2001/23/EC) (the 'Directive') and gives effect to the Directive in the UK. Regulation 3 of TUPE states that TUPE applies to the transfer of the whole or part of a business or undertaking situated in the UK, or a change of service provider, and this is deemed to be a 'relevant transfer' subject to certain exceptions. In the event that there is a relevant transfer, Regulation 4 of TUPE provides that such transfer does not operate to terminate the contract of employment of any employee of the transferor, but instead transfers their contract of employment to the transferee. Under Regulation 7 of TUPE, any dismissal of an employee arising from a relevant transfer, where the sole or principal reason for the dismissal is either the transfer itself, or for a reason connected with it that is not an economic, technical or organisational one, will be deemed to be an automatically unfair dismissal.