Court Of Appeal Rules On Case Related To Club’s Administration In 2010

Crystal Palace FC has won a legal case at the Court of Appeal in relation to the dismissal of a number of employees in May 2010 when the club was in administration.

Crystal Palace FC has won a legal case at the Court of Appeal in relation to the dismissal of a number of employees in May 2010 when the club was in administration.

At the time of the dismissals, administrators were looking to sell the business but with the threat of liquidation chose to run the club with a skeleton staff and therefore dismissed 29 employees in total.

This case related to whether four of those employees were dismissed in a manner which meant that the Transfer of Undertaking Regulations 2006 (TUPE 2006) applied and the few individuals were transferred to the purchaser or whether this was not the case because of economic, technical or organisational (ETO) reasons at the time.

The Court of Appeal ruling reinforced the original decision of an employment tribunal by stating that the dismissals were due to ETO reasons, specifically as the club did not have the funds to pay the employees.

Under Regulation 7(1) of TUPE 2006, dismissal of an employee is automatically unfair where the sole or principal reason for the dismissal is the relevant transfer, or a reason connected with the relevant transfer that is not an ETO organisational reason.

In such circumstances the liability passes to the Transferee (i.e. the purchaser of the business) under Regulation 4.

In Crystal Palace FC Limited and Another v Kavanagh and Others [2013], the Court of Appeal has given judgment that employees of the insolvent football club, dismissed by the club’s administrator shortly before the business was sold, were not automatically and unfairly dismissed under TUPE 2006.

Previously, in the case of Spaceright Europe Limited v Baillavoine and Another [2012], the Court of Appeal held that dismissals carried out to make a business more attractive to potential purchasers could not be an ETO reason under TUPE 2006.

However in contrast, in the Crystal Palace judgment , the employees’ dismissals were designed to ensure that costs were reduced to enable the club to continue to trade – and not therefore simply to make it a more attractive proposition for a purchaser. This was an ETO reason that could be distinguished from the administrator’s ultimate objective of selling the club as a going concern.

It is interesting to note that the Court of Appeal stated that the application of Regulation 7 of TUPE 2006 is ‘an intensively fact sensitive process’. This coupled with the policy of encouraging ‘corporate rescue’ means that detailed advice and care should be taken before characterising dismissals by an administrator as legitimate manipulation of the TUPE regime.

This should be welcome news for administrators, as well as for potential purchasers of distressed businesses. In the majority of cases for administrators, the transfer of the business will be the ultimate aim.

However it does not follow that the reasons for dismissals will always be to make the business more attractive to a purchaser as this case has shown, and evidentially this was the position here.

In the Crystal Palace case, it was to allow the business to carry on trading – a ETO reason – and as a consequence of which liability did not pass to the purchaser.