TUPE in insolvency — buyer and employee impact

Outside insolvency, TUPE 2006 applies to:

• ›Business transfers — sale of a business or part of a business as a going concern.
• ›Service provision changes — first-generation outsourcing, re-tenders, in-sourcing.

When TUPE applies, employees of the transferor business transfer automatically to the transferee on the same terms and conditions. The transferee inherits all rights, powers, duties and liabilities under the contracts of employment, continuity of employment for statutory purposes, liabilities arising from pre-transfer events (personal injury, discrimination, wage arrears), and trade union recognition. Dismissals ‘connected with the transfer’ are automatically unfair under regulation 7 unless they are for an Economic, Technical or Organisational reason entailing changes in the workforce (‘ETO reason’).

Regulation 8(7) — the liquidation exception

Where the transferor is subject to ‘relevant insolvency proceedings... instituted with a view to the liquidation of the assets of the transferor’ (i.e. insolvent liquidation aimed purely at winding down), regulations 4 and 7 do NOT apply. Employees do not transfer automatically; the buyer can selectively employ workers on new terms; pre-transfer liabilities do not transfer. The qualifying language catches compulsory liquidation and CVL where the company is being wound up. It does NOT catch administration aimed at rescue or sale as going concern.

Regulation 8(2) — pre-transfer liabilities not transferred to buyer

Where the transferor is subject to ‘relevant insolvency proceedings’ more broadly (including administration), pre-transfer wage arrears, holiday pay and certain other liabilities do not transfer to the buyer. The Redundancy Payments Service (RPS) covers these for employees (capped). The buyer takes the contracts but not the pre-transfer arrears liabilities.

• ›Buyer takes on employees — all assigned to the transferring business transfer on existing terms (subject to ETO dismissals).
• ›Buyer takes on contracts — subject to permitted changes for ETO reasons.
• ›Buyer does NOT take on pre-transfer wage arrears — RPS covers (capped).
• ›Buyer does NOT take on pre-transfer accrued holiday pay — RPS covers (capped).
• ›Buyer takes on personal injury claims and other pre-transfer liabilities — reg.8(2) does not exclude these.
• ›Information and consultation obligations apply — the buyer and administrator must consult employee representatives where reasonably practicable.

Pre-pack administrations are still administrations — TUPE applies fully. The compressed timeline doesn’t change the legal framework.

• ›Buyer takes the employees — effectively from the moment of appointment, since the sale completes on appointment.
• ›Information and consultation are practically difficult given the speed — but the obligation still applies. SIP 16 requires the administrator to address consultation efforts in the post-appointment disclosure.
• ›Selective non-transfer — the buyer cannot lawfully decide not to take specific employees unless there’s an ETO reason. Selective non-transfer is automatically unfair under reg.7.
• ›Redundancies — if the buyer plans redundancies post-completion, the buyer (not the administrator) is responsible for consultation and redundancy payments.

Regulation 8(7) excludes employee transfer in CVL where the procedure is ‘instituted with a view to the liquidation of the assets’. Most CVLs are exactly that. Typical CVL pattern:

• ›Employees are dismissed by the liquidator (or before liquidation by directors with proper notice).
• ›Statutory redundancy and arrears claims to RPS.
• ›Any sale of business assets does NOT transfer employees — the buyer can recruit on new terms.

However, some CVL sales include business asset sales structured as going concern. Where the sale is genuinely of a going concern (with customer relationships, contracts, key personnel) rather than just disposing of assets, there is some risk the transaction could be re-characterised as a transfer to which TUPE applies despite the CVL setting. The leading authority remains Oakland v Wellswood [2009] EWCA Civ 1094.

Regulation 7 makes transfer-connected dismissals automatically unfair — unless the reason is an ETO reason entailing changes in the workforce:

• ›Economic — the business cannot afford to retain the employee (e.g. cost reduction needed for viability).
• ›Technical — changes in technical or operational requirements (e.g. automation, equipment changes).
• ›Organisational — changes in organisational structure (e.g. delayering, departmental restructure).

‘Entailing changes in the workforce’ is key — must involve a change in either numbers or job functions. A pure ETO reason that doesn’t change the workforce isn’t sufficient (e.g. ‘we can’t afford this employee at their current salary’ — if no job function change, not an ETO defence for dismissal).

• ›Employee headcount and cost — all employees transfer on existing terms; the buyer’s operating cost base is fixed by the seller’s employment profile.
• ›Redundancy cost — post-completion redundancies are the buyer’s cost (not the administration estate, not RPS). Statutory redundancy plus any contractual entitlement plus notice.
• ›Contractual harmonisation — the buyer cannot unilaterally vary employees’ terms. Variations ‘because of the transfer’ are void under reg.4(4).
• ›Information and consultation costs — failure to consult exposes the buyer to protective awards of up to 13 weeks’ pay per affected employee.
• ›Continuity exposure — unfair dismissal qualifying periods, statutory redundancy multipliers, and other rights survive the transfer.

For the broader Administration framework, see Administration pillar. For pre-pack administration where TUPE issues are particularly compressed, see Pre-pack administration explained. For trading through administration generally, see Trading through Administration. TUPE in insolvency is specialist employment law work — we refer to employment solicitors with insolvency expertise where needed.