Chris Cox, RCN Director of Legal Services

Legal update: Does TUPE apply if your employer is insolvent?

When an employer is insolvent and the business is likely to be sold on to a new employer, do the safeguards of the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply?

At a time when some independent health care organisations are finding it apparently difficult to pay their debts, this becomes a critical question for the staff of those employers.

The problem is that regulation 8(7) says that the automatic transfer of contracts of employment under regulation 4, and the protection in relation to dismissals because of the transfer (regulation 7), do not apply where the current employer (transferor) is the subject of bankruptcy proceedings or ‘analogous insolvency proceedings’, which have been started to liquefy the assets of the organisation.

Maximum protection of employees

In OTG Ltd v Barke and Luke (2011) the Employment Appeal Tribunal held that the appointment of an administrator under the Insolvency Act 1986 (the most common step where the employer is in financial difficulties) is not analogous insolvency proceedings with a view to liquidation of assets. This is an important judgment, ensuring maximum protection for employees.

So TUPE applies if the business is sold on by the administrator. This is good news, providing at least some certainty at a time of anxiety for a lot of employees, although the judgment may be appealed.
More information

RCN Bulletin on 10 August  includes a useful article explaining TUPE which will be helpful for all RCN members.

RCN Direct’s online advice centre contains more advice on TUPE. Visit www.rcn.org.uk/TUPE.