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Continued uncertainty about employee rights when an employer enters administration.

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Two recent Employment Tribunal cases (Coombs & Anor v Redweb Security & Others and Nortel) continue to cause uncertainty about employees’ rights when an employer enters administration.

It is now fairly well established that where a company enters into liquidation that an employee’s accrued employment rights will not be transferred under the TUPE Regulations even where substantially all of the liquidated company’s business and assets are acquired and traded with on the other side of liquidation.

However, the situation is uncertain where a company enters into administration and there is an onward sale of the business and assets. The Employment Tribunal in Coombs followed the decision of the High Court in Oakland v Wellswood (Yorkshire) Limited where the Court had held that as with a liquidation TUPE did not apply in an administration scenario.

Many commentators, including myself, are of the view that the decision in Oakland was wrong and that TUPE can apply in an administration with employees being able to pass claims across to the purchaser.

Unfortunately until such time as the appeal of the Oakland judgment is determined by the Court of Appeal the Employment Tribunals are obliged to follow the decision in that case. For now any purchaser of a business and assets out of administration should be alive to the fact that notwithstanding the current legal precedent established by Oakland and followed by the Employment Tribunal in Coombs that TUPE will not apply that that may not be the case for much longer. 

In the Nortel administration the administrators effectively made employees redundant without complying with the requirements to consult with the employees in accordance with the Trade Union and Labour Relations (Consolidation) Act 1992. It is not unusual for administrators to do so as often the company can only be traded for a short period of time and it simply is not economically viable or practical for a consultation exercise to be undertaken.

Notwithstanding that reality the Employment Tribunal held that there was a breach of the legislation as little or no consultation had taken place and consequently awarded the employees the maximum protective award for redundancy.

Administrators will now find themselves in the unenviable position of trying to balance their conflicting duty to maximise the return to creditors versus their statutory obligation to consult even if that means a potential worsening of position for the general body of creditors.

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