The Court of Appeal's decision in Oakland v Wellswood (Yorkshire) Ltd has finally been released after much anticipation from insolvency practitioners and businesses alike. The Court has held that Mr Oakland's continuity of employment is preserved by virtue of Section 218 of the Employment Rights Act 1996. Therefore any employee of a company in administration employed by the buyer after a pre-pack sale will be able to rely on this same provision to maintain continuity of service.
This ruling will no doubt be unfavourable to buyers who up to this appeal decision may have felt comfortable dismissing such employees on the basis of the Employment Tribunal and EAT decisions in the same case. Those courts stated that Regulation 8(7) of TUPE would apply to similar administration situations instead of Regulation 8(6) and continuity of service would not carry across in the transfer. It is now clear that regardless of the position under TUPE, existing employees who are transferred from the seller to the buyer in a transfer of business (whether pre-pack or other insolvency proceedings) will have continuity of service.
Background
The original argument put forward by Mr Oakland at the Employment Tribunal and the Employment Appeal Tribunal, was based on the application of regulation 8(6) of TUPE. Regulation 8(6) relates to relevant insolvency proceedings which have been opened but not with a view to the liquidation of the assets of the seller. Mr Oakland was a director, shareholder and employee of Wellswood Ltd (oldco) which ran into financial difficulties. He consulted an insolvency practitioner and sought out a buyer for his company but the buyer was only willing to purchase the assets of the company not the book debts. This deal was agreed and the buyer created a new company called Wellswood (Yorkshire) Ltd (newco). Oldco was put into administration. On the same day the sale of assets to Newco took place and the employees of oldco including Mr Oakland were taken on by newco.
Shortly after the transfer Mr Oakland was dismissed by newco and he proceeded to pursue a claim for unfair dismissal on the basis that his continuity of employment was preserved by Regulation 8(6) of TUPE. Although not set down specifically in law it was always thought that administrations would be covered by 8(6) as the purpose of an administration is to rescue the company as a going concern not liquidate the assets. Therefore his argument was theoretically sound as he had been transferred as part of a pre-pack administration.
Original Decision
The Employment Tribunal and the EAT dismissed his claim arguing that in fact regulation 8(7), which applies to bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the seller's assets, applied to the facts not 8(6) because the eventual purpose of the insolvency procedure was to liquidate the assets not preserve the business as a going concern. Regulation 8(7) has the effect of circumventing the normal TUPE principles of automatic transfer of employment on a transfer of business. Therefore under this regulation Mr Oakland's employment rights had not been preserved under TUPE and he did not have enough continuity of service to continue with his claim.
Mr Oakland sought to appeal the two previous decisions on the same argument and included a new ground of appeal based on section 218 of the Employment Rights Act 1996, which states that continuity of service is preserved in any transfer of business or undertaking.
Court of Appeal Outcome
The Court of Appeal held that under section 218(2) Mr Oakland's continuity of employment had been preserved and the Tribunal could therefore hear his unfair dismissal claim.
As for the grounds relating to the application of Regulations 8(6) and 8(7), unfortunately the court declined to clearly and finally address the points raised and simply stated that there were strong grounds for thinking the Employment Tribunal and the EAT took the wrong approach. This seems to indicate that Mr Oakland's argument in favour of regulation 8(6) should have been accepted. However without proper consideration and judgment from the court of appeal, the decisions of the previous courts still stand and there is still a question mark over whether 8(6) or 8(7) applies to pre-pack administrations.
Conclusion
The arguments relating to TUPE will have to be dealt with in a new case and it would appear that any future case on the same points will easily progress to appeal, given the comments made by the court.
The real impact of this case now relates to the transfer of continuity of service principle under section 218 of the ERA 1996, which previously had not been argued as an alternative to TUPE in any case. It is now clear that this section dampens the effect of regulation 8(7) on any existing employees transferred to a buyer and opens the door for them to claim unfair dismissal and/or redundancy payments against the buyer using the service argument. This is clearly a blow to buyers and will need to be factored into any advice provided to them, particularly where the buyer is considering possible redundancies or changes to employment and terms after the sale.
For further information on any of the details mentioned in this update please contact the Employment Team at Sydney Mitchell Solicitors on 0121 698 2200, who will be happy to assist.
 |
 |
 |
 |
 |
 |
|
