Supreme Court update—end of the road for the employees in Crystal Palace FC (2000) Limited v Kavanagh

The Supreme Court has refused former employees of Crystal Palace FC (2000) Limited  (CPFC) permission to appeal the Court of Appeal’s decision that their unfair dismissal claims had not transferred to the purchaser of CPFC under the Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246, reg 7 (TUPE). The Supreme Court refused the employees permission to appeal the Court of Appeal's decision as their appeal did not raise an arguable point of law of general public importance. Therefore, the decision of the Court of Appeal, which upheld the original Employment Tribunal's (ET's) decision, stands.

What has happened in this case?

CPFC went into administration. The administrator sought to sell the club as a going concern as it had few assets that could be realised for the benefit of its creditors.

An agreement was reached for sale of the company to the purchaser (the second respondent in the Court of Appeal), with a copy of the agreement being held in escrow. As CPFC had severe cash-flow difficulties, its administrator decided to 'mothball' the club at the end of the football season as no matches were being played. A decision was taken to make the majority of the administrative staff redundant and to proceed with the sale of the more valuable players.

The employees’ claims and the ET

Following the redundancies four of the administrative employees brought proceedings for unfair dismissal. They submitted that the effect of TUPE, regs 4 and 7 was that their dismissals had been for a reason connected with the sale of the club and therefore had been automatically unfair because they were for a reason that was not an economic, technical or organisational reason entailing changes in the workforce, and, by reason of that, the liability of the employer in respect of their unfair dismissal had transferred.

The ET found that the employees had not transferred under TUPE. It determined that the reason for dismissing the employees had not been the transfer itself, but a reason connected with the transfer. The ET accepted the administrator's evidence that the reason for the dismissals had been that he had run out of money, and unless staff costs were reduced the company would go into liquidation. As a consequence, the reason for the dismissals had been an economic, technical or organisational reason entailing changes in the workforce in accordance with TUPE, reg 7, therefore, liability for the dismissals rested with the employer (CPFC) and had not passed to the purchaser.

The Employment Appeal Tribunal (EAT)

The employees appealed the decision of the ET at the EAT. The EAT allowed the appeal and found that the only possible conclusion had been that the dismissal of the employees had not been for an economic, technical or organisational reason because the dismissals had not been for the purpose of continuing the business but had been with a view to sale or acquisition. On that basis, the liability for the various claims had passed to the purchaser.

The Court of Appeal

CPFC and the purchaser appealed the EAT's decision. The Court of Appeal allowed the appeal and found that the decision reached by the EAT was wrong.

The Court of Appeal found that the ET had been justified in distinguishing between the administrator's reason for having implemented the dismissals and his ultimate objective, being the early sale of the club which had to be achieved in time for the commencement of the following season.

The administrator needed to reduce the wage bill in order to continue running the business and to avoid liquidation. The ET's conclusion on that had not been surprising. While the non-playing staff were being reduced so as to enable the club to carry on, the players had been retained, as had sufficient other staff to enable the club to remain in business rather than enter liquidation.

What does this mean for practitioners?

For practitioners this means the Court of Appeal's decision in November 2013 stands and that there is scope to say TUPE does not apply where employees are dismissed for a reason connected with the transfer but not as part of the transfer. This point will need detailed consideration on a case by case basis.

Further reading

If you are a LexisPSL Subscriber, click the links below for further information on employees, transfers and insolvency:

How a company's insolvency affects its employees (Subscriber access only)

Insolvency and transfers (Subscriber access only)

Not a subscriber? Find out more about how LexisPSL can help you

Benn Richards, solicitor in the Lexis®PSL Restructuring & Insolvency team.

Relevant Articles
Area of Interest