Factual and Procedural Background
Appellant brought a claim for damages arising from a four-month placement at a privately operated psychiatric hospital in 2018–2019. Appellant alleges mental and verbal abuse by staff and more than 200 restraints. All relevant events occurred before the undertaking transferred from Company A to Company B in approximately March 2021. Respondent 3 and Respondent 4 were employed first by Company A and subsequently by Company B. [1][2][3]
Appellant initially sued Company A alone. After Company A entered liquidation and insurance limitations became relevant, Appellant joined Company B, Respondent 3 and Respondent 4, arguing that Company B had acquired Company A’s vicarious liability through the transfer. [4]
The lower court rejected that argument on preliminary issues concerning vicarious liability and alleged human-rights breaches. The appeal was heard in the Court of Appeal, which considered whether those liabilities transferred under Regulation 4(2)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 2006. [5][6][7][8]
Legal Issues Presented
- Whether Regulation 4(2)(a) transferred Company A’s alleged vicarious liability to Company B for torts committed by employees before the transfer. [6][9]
- Whether the same provision transferred liability for alleged breaches of Appellant’s human rights. [10][7]
- If either liability transferred, whether related insurance rights also transferred. [7]
Arguments of the Parties
Appellant’s Arguments
- The court should begin with the ordinary meaning of “liability … in connection with” the employment contract. Vicarious liability arises from acts or omissions closely connected with employment and therefore falls within that phrase. [11]
- Because an employer’s direct liability to an employee for matters such as failing to provide a safe system of work transfers, its vicarious liability for employees’ acts should also transfer. [12]
- The proposed construction was said to be consistent with, and more compatible with, the relevant Directive than Company B’s interpretation. [13]
- Appellant also relied on the practical protection that an employee may obtain when an employer assumes responsibility for defending and satisfying a claim. [14][15]
Company B’s Arguments
- The analysis should begin with the purpose of the Directive, which safeguards employees’ rights on a transfer, rather than with the literal wording of Regulation 4(2)(a). [16][17]
- The Directive concerns obligations owed by the transferor to employees and enforceable by them; it does not address third-party claims against an employer. [18][19]
- Accordingly, the provision could not transfer Company A’s vicarious liability to Appellant for pre-transfer conduct. [19]
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Doane v Wimbledon FC [2007] 12 WL UK 2 | Whether vicarious liability transfers to a new employer. | The court rejected its reasoning because it did not address the absence of an employee right concerning the employer’s vicarious liability. [20][15] |
| Schulte Deutsche Bausparkasse Badenia AG [Case C-0350/03) [2003] All ER (EC) 420 | Domestic legislation derived from a Directive must, so far as possible, be interpreted consistently with the Directive’s wording and purpose. | Supported starting with the Directive before construing the Regulations. [21] |
| Swift (Trading as AS Swift Move) v Robertson [2014] UK SC 50 | Purposive construction of legislation implementing a Directive. | Confirmed that the court should identify the Directive’s purpose and then construe the domestic Regulations accordingly. [22][23] |
| Martin v Lancashire County Council & Bernadone v Pall Mall Services Group Limited & Ors [2001] ICR 197 | Rights and liabilities connected with employment may transfer where they are owed directly to employees. | Used to support the distinction between employee claims and third-party claims. [22][24][25] |
| Vodafone 2 v Revenue and Customs Commissioners [2010] Ch 77 | The interpretative obligation arising from Community law was broad and could permit departure from literal wording. | Supported a purposive interpretation limited by the legislation’s underlying thrust. [26][27][23] |
| British Fuels Limited v Baxandale and Wilson v St. Helens Borough Council [1999] 2 A.C.52 | The Directive safeguards existing employee rights so that employees can enforce transferred obligations against the transferee. | Supported the conclusion that the Directive focuses on employee-enforceable rights. [28][29] |
| ISS Facility Services NV v Govaerts and another [2020] I.C.R 115 | The Directive also seeks to strike a fair balance between employee rights and transferee interests. | Accepted as a secondary purpose, reflected in the information protections in the Regulations. [14][30] |
| Ashville Investments Ltd v Elmer Contractors Ltd [1989] 1 QB 488 | “In connection with” may be a phrase of very wide import. | The court accepted the potential breadth but held that context and statutory purpose determine the required connection. [31][32] |
| Coventry Waste Limited v Russell [1999] 1 WLR 2093 | The surrounding words and legislative context determine the meaning of “in connection with”. | Supported limiting the phrase in light of the Directive and TUPE scheme. [33][34] |
| Re Nanaimo Community Hotel Limited [1944] 4 D.L.R. 638 | “In connection with” may mean “having to do with”. | Considered as part of the authorities explaining the phrase’s contextual meaning. [35] |
| Johnson v. Johnson [1952] P. 47 | Adopted the “having to do with” explanation of “in connection with”. | Considered but subordinated to the wider statutory context. [35] |
| Barclays Bank PLC v HMRC [2007] EWCA Civ 442 | The surrounding legislative scheme determines the extent of the required link. | Supported the contextual construction of Regulation 4(2)(a). [34][36] |
| Majrowski v Guy’s and St Thomas’s NHS Trust | Vicarious liability arises where the wrong is committed in the course of employment. | That employment connection was insufficient because the liability remained a liability to a third party, not an employee right. [37] |
| Lister v Romford Ice and Cold Storage Co. Limited [1957] A.C. 555 | An employer may recover an indemnity from an employee for sums paid because of the employee’s negligence. | Undermined the argument that vicarious liability provides substantive protection to employees. [38][39] |
| Lifestyle Equities CV v Ahmed (SC) [2025] A.C. 1 | Restated the indemnity principle identified in Lister. | Confirmed that the employee may remain ultimately responsible for the loss. [38] |
| Baker v British Gas Services (Commercial) Limited [2017] EWHC 2302 (QB); [2018] P.I.Q.R. P3 | An employer’s vicarious liability for injury to another employee may transfer. | Distinguished because the injured employee had an enforceable employment-related right, covered by the employee-liability information regime. [40][24] |
| Alamo Group (Europe) Ltd v Tucker (EAT) [2003] ICR | Transfer provisions may cover obligations connected with employment even if not arising directly from the contract. | Confirmed that the Regulations primarily protect employee rights. [41][42] |
| Beckmann v Dynamco Whicheloe Macfarlane Ltd (ECJ) [2003] ICR 50 | Supported the focus of TUPE provisions on employee rights, including pensions. | Consistent with the court’s overall interpretation. [43] |
Court’s Reasoning and Analysis
The court held that the Regulations had to be interpreted in light of the Directive. The Directive’s primary objective was safeguarding employees’ rights when an undertaking changes hands, while also maintaining a fair balance with the transferee’s interests. [21][44][45][30]
Although “all liabilities” and “in connection with” are potentially broad expressions, they must be read in their legislative context. The relevant connection is one that serves the Directive’s purpose. [46][31][33][34][47]
Vicarious liability is a secondary liability owed to a third-party claimant and is parasitic on the employee’s primary liability. It does not give the employee a right against the employer and does not provide the employee with legal protection under the Directive. [48][49][38]
The court rejected the argument that practical protection or employer-funded defence changed the result. An employer may seek an indemnity from the negligent employee, meaning that the employee’s ultimate position is not materially altered by the employer’s vicarious liability. [39][50][15]
The wider TUPE scheme reinforced that conclusion. Regulations 11 and 12 require information about employee claims and impose sanctions for non-compliance, but contain no equivalent mechanism for unknown third-party claims. The court considered that absence deliberate and inconsistent with imposing potentially substantial liabilities on a transferee without notice. [51][52][53]
The court distinguished cases involving employee claims, including direct negligence claims and claims by an injured employee, because those liabilities were owed to employees and therefore fell within the Directive’s protective purpose. [40][24][25][54][55]
The court also noted that, apart from Doane, no authority over more than forty years had supported using TUPE to extend liability to a transferee for a third-party claim. [56][57]
Holding and Implications
The appeal was dismissed. Regulation 4(2)(a) does not transfer an employer’s vicarious liability to a third party for employees’ acts or omissions occurring before the transfer. The lower court’s answers to the first two preliminary issues were therefore upheld. [58][59][60][61][62]
Company B was not liable under TUPE for the alleged pre-transfer conduct. The judgment confirms the distinction between liabilities owed directly to employees, which may transfer, and vicarious liabilities owed to third parties, which do not. No broader implication beyond that direct effect is stated in the opinion.