Dismissal of employees by Crystal Palace Football Club was for an ETO reason

In Crystal Palace FC Ltd (CPFC) and another v Kavanagh and others, several employees of the insolvent football club were dismissed by the administrators shortly before the business was sold. These employees subsequently brought claims in the Employment Tribunal arguing that their dismissals were automatically unfair under Regulation 7 of TUPE, namely that they were dismissed for a reason connected with the subsequent TUPE transfer.

The Court of Appeal (CA) has upheld the Tribunal’s decision that the dismissals were not automatically unfair, as although they were connected with the TUPE transfer, they were carried out for an “economic, technical or organisational reason entailing changes in the workforce” (ETO reason) within the meaning of Regulation 7 of TUPE.

Facts

Mrs Kavanagh and the other claimants worked for CPFC, which went into administration in January 2010. The administrators sought to sell the club as a going concern.

Negotiations were entered into with a potential buyer, who also wished to buy the stadium as well as the club. The stadium was owned by Selhurst Park Ltd, and at the time, Selhurst Park Ltd were also in administration and had different administrators.

An agreement for sale of the club was signed in May 2010, pending the sale of the stadium. Shortly after it was found that the club had severe cash flow difficulties so it was decided to “mothball” the club, which meant that the use of the club would stop but it would be kept in good condition so that it could readily be used again.

On 28 May 2010 the 29 claimants were dismissed on grounds of redundancy.  The news of the redundancies was picked up by the media and due to media pressure, CPFC’s sale was subsequently agreed and completed in August 2010.

Following completion of the sale the claimants brought claims arguing that their dismissals were automatically unfair under Regulation 7 of TUPE as the sole or principle reason for their dismissals was a reason connected with the transfer that was not an ETO reason.

The Tribunal held that the dismissals were for an ETO reason, namely in circumstances where the club had ceased to run but needed to be kept in good condition, those staff that were no longer needed would be made redundant in order to keep the running costs of the club as low as possible.

The claimants appealed the Tribunal’s decision to the EAT.

The EAT allowed the appeal and held that the dismissals were not for an ETO reason because the reason for the dismissals was to put the club in mothballs pending the possible sale and so the dismissals were for the purpose of selling the business.

The Respondent’s appealed the EAT’s decision to the CA.

The CA upheld the Tribunal’s decision that the dismissals were not automatically unfair as it held that the Claimants were dismissed in order to reduce the costs of the club so that it could continue to trade. Therefore a distinction could be drawn between the administrator’s reason for dismissing the employees and the administrator’s ultimate objective of selling the club as a going concern. It followed that the reason for the dismissal was an ETO reason, which entailed changes in the workforce.

Comment

There will always be tension between TUPE and insolvency law as TUPE is designed to protect employees, whereas insolvency legislation is designed to encourage the best result for a company’s creditors. Regulation 7 of TUPE goes someway to alleviate this tension as it allows administrators to dismiss employees in some circumstances without such dismissals being deemed automatically unfair.

This decision brings welcomed clarity and guidance to this area of the law. It also gives administrators more freedom to make decisions about the conduct of businesses in administration without the fear of employees bringing successful claims for unfair dismissal under TUPE.

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