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TUPE: ETO Reason

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Thanks to James Bickford Smith of Littleton Chambers for preparing this case summary

Is a company administrator able to make dismissals for economic, technical or organisational reasons (ETO) and then sell the business on without passing TUPE liability for them to the purchaser?
Yes, if the reason for the dismissals was to enable the company in administration to continue to trade, holds the Court of Appeal in Crystal Palace FC Ltd v Kavanagh and others.
The employment tribunal had found that the reason dismissals were made by the football club’s administrator was to continue trading the business, with an ultimate objective of selling it on to a purchaser waiting in the wings. It followed that the dismissals were made for ETO reasons so that liability did not pass to the club’s purchaser. The EAT rejected that approach as contrary to Spaceright Europe Ltd v Baillavoine. It held that the administrator's admitted intention of selling the club on meant that the dismissals could not be made for ETO reasons. That meant that liability passed to the Club’s purchaser.
The Court of Appeal finds that the EAT had been wrong to reverse the tribunal. Administrators “will almost always have a transfer of the undertaking as their ultimate objective” but that does not mean that the reason for dismissals made by them will always be to make the business more attractive to a purchaser. They can also be made to allow the business to carrying on trading. On the facts the dismissals at the Club had been made for that reason, so liability did not pass to the purchaser.
The case will be of considerable importance to insolvency professionals. It marks a partial retreat from Spaceright and a recognition (notably in the firm concurring judgment of Briggs LJ) of the importance of the wider policy objective of corporate rescue.