Regulation 8 TUPE Exceptions in Insolvency: Secretary of State v. Slater & Ors

Introduction

The case of Secretary of State for Trade & Industry v. Slater & Ors ([2007] UKEAT 0119_07_2706) addresses the application of Regulation 8 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) in the context of insolvency. The dispute involves 20 former employees of CFG Site Services Limited, who contended that their new employer, CFG Nationwide Site Services Ltd, inherited certain liabilities following the transfer of the business as a going concern. The Secretary of State challenged the Employment Appeal Tribunal's (EAT) acceptance that Regulation 8 relieved the transferee of these liabilities, prompting this comprehensive analysis of the Judgment.

Summary of the Judgment

The EAT initially ruled in favor of CFG Nationwide, determining that Regulation 8 of the TUPE Regulations 2006 applied, thereby absolving the transferee of liability for outstanding claims related to back pay and holiday pay of the transferred employees. The Secretary of State appealed this decision, arguing that the insolvency proceedings were not appropriately commenced or supervised per the requirements of Regulation 8. Upon review, the Appeal Tribunal concluded that insolvency proceedings had not been properly initiated nor under the supervision of an insolvency practitioner at the time of the business transfer. Consequently, the appeal succeeded, upholding the Secretary of State's position that liability did not lie with them.

Analysis

Precedents Cited

The Judgment extensively references the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006), particularly focusing on Regulations 4, 7, 8, and 9. These regulations implement Council Directive 2001/23/EC and aim to protect employees' rights during business transfers. Additionally, the Judgment examines provisions of the Insolvency Act 1986, specifically sections related to creditors' voluntary liquidation (s98) and the definition of an insolvency practitioner (s388). The interplay between TUPE 2006 and the Insolvency Act is critical in discerning the extent of transferee liability under insolvency conditions.

Legal Reasoning

The core legal issue centered on whether Regulation 8 applied, which offers exceptions to TUPE's standard rules in insolvency scenarios. Regulation 8 distinguishes between insolvency proceedings aimed at liquidation (Regulation 8(7)) and those not primarily focused on asset liquidation (Regulation 8(6)). The EAT concluded that Regulation 8(6) applied, relieving CFG Nationwide of liabilities. However, upon appeal, the Tribunal scrutinized the commencement of insolvency proceedings and their supervision by an insolvency practitioner. It was determined that the necessary conditions under Regulation 8 were not met at the time of the transfer, thereby reinstating the Secretary of State's obligation. The Judgment emphasizes the importance of precise adherence to regulatory definitions and procedural commencement criteria.

Impact

This Judgment clarifies the application of TUPE Regulations in insolvency contexts, particularly highlighting the stringent requirements for Regulation 8 exceptions to be valid. It underscores that for transferees to be absolved of liabilities, insolvency proceedings must not only have commenced but also be under the supervision of a duly appointed insolvency practitioner at the time of transfer. This sets a precedent that reinforces the accountability of transferees in business transfers from insolvent entities, potentially affecting future transactions and the assessment of liability in similar cases.

Complex Concepts Simplified

Regulation 8 of TUPE 2006

Regulation 8 provides exceptions to the standard TUPE protections when a business transfer involves a transferor in insolvency. It differentiates between types of insolvency proceedings:

Regulation 8(6): Applies to insolvency proceedings not aimed at liquidating assets. It modifies the transfer of liabilities, making the Secretary of State liable for certain obligations.
Regulation 8(7): Applies when insolvency proceedings are akin to bankruptcy and focused on asset liquidation. It excludes the applicability of standard TUPE regulations, meaning no transfer of employees or related liabilities occurs.

Insolvency Practitioner

An insolvency practitioner is a licensed professional authorized to manage the insolvency process of a company. Under the Insolvency Act 1986, roles include liquidators, provisional liquidators, administrators, or administrative receivers. For Regulation 8 to apply, insolvency proceedings must be under the supervision of such a practitioner.

Creditors' Voluntary Winding Up

This is a process where a solvent company voluntarily enters winding up initiated by its directors and shareholders. It involves resolving to liquidate the company and appointing a liquidator to manage the process, including settling debts with creditors.

Conclusion

The Judgment in Secretary of State for Trade & Industry v. Slater & Ors underscores the critical importance of correctly identifying and adhering to the procedural requirements stipulated in Regulation 8 of TUPE 2006 during insolvency-related business transfers. By ruling that the insolvency proceedings were neither properly commenced nor supervised by an insolvency practitioner at the time of the transfer, the Appeal Tribunal effectively removed the exemption for CFG Nationwide, emphasizing the transferee's responsibility in assuming employment liabilities. This decision not only reinforces the protective framework for employees under TUPE but also serves as a precedent for future cases involving the intersection of employment law and insolvency.