The Employment Appeal Tribunal has held in Kavanagh v Crystal Palace Football Club that for an ETO defence to succeed there must be an intention to change the workforce and to continue to conduct the business, as opposed to dismissing the employees with the aim of making the sale more attractive to a potential buyer.
It seems therefore that the ETO defence will rarely be available on an administration unless it is clear that at the time the dismissals were made, improving the chances of a sale was not a factor in the dismissal. This is obviously going to act as a barrier to achieving a business sale as purchasers will inherit the liability for pre-transfer dismissals made by an Administrator, unless an ETO defence can be made.
It is difficult to see how in the vast majority of administrations an ETO defence will be available. Administrators will have to be able to show that at the time they made the redundancies, they did so to avoid liquidation and that they intended to carry on the business.
On January 2013, the Government issued a consultation paper in relation to proposed amendments to TUPE. There is no intention currently to change the position on insolvency however one of the proposals under consideration is extending the scope of the ETO defence, to allow a transferor to rely upon the transferee’s reasons when carrying out pre-transfer redundancies to reduce the scope those redundancies amounting to unfair dismissals. The government has acknowledged that its ability to change TUPE is limited by the Acquired Rights Directive (from which TUPE is derived), so it remains to be seen whether or not any significant changes will be made.
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