who took the decision?

The Court of Appeal has recently passed judgment on the case of Dynamex Friction Limited (“Dynamex”) v Amicus. The case related to a transfer of a business subject to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). The Business of Turner and Newall Plc was the manufacture of friction car brakes and clutches and at the peak of its success the company employed approximately 1,000 staff. This level of success was not maintained however and even following a takeover by an American businessman and his family via a holding company, Ferotec Limited (“Ferotec”) the company continued to struggle financially and an administrator was appointed.

The administrator, Mr Rutherford, dismissed all of the employees with effect from 7th August 2003 because there were no assets to pay them their wages at that time and he had little option but to dismiss them. At that stage, the possibility of sale of the business existed and interested parties had been approached, including Dynamex, but it was not until 15th August 2003 that the subscribers to Dynamex came up with a definite offer which was accepted. On the facts, it was clear that no purchaser had been identified at or before the date of dismissal of the employees and that the administrator dismissed the employees for economic reasons on 7th August 2003, a point in time where there was no certainty of the sale of the business taking place. The Shrewsbury Employment Tribunal therefore found that there was no evidence that he had dismissed the employees in order to facilitate a sale, as there was no prospect of a sale at that time.

The allegation was made however, that the administrator's decision was influenced by the American managing director of Ferotec. This was reinforced by the fact that the subscribers to Dynamex were the directors of the previous company. Furthermore, the allegation extended to the accusation that the administration had been managed, and that the administrator had been used as an "unwitting tool" for the business to be reacquired without its existing liabilities. The decision was therefore reversed by the Employment Appeals Tribunal.

The majority of the Court of Appeal disagreed with the findings of the Employment Appeals Tribunal and held that decision of the Employment Tribunal should be restored. The Court of Appeal’s reasoning was that the finding of the Employment Tribunal that there was no collusion between the administrator and the director was a matter of fact and should therefore not impact upon the decision. Once it was established that it was the administrator's independent decision, nothing else could be said to have any bearing on why he did what he did and the key question was therefore who it was that ultimately made the decision.

Protecting your business – how this affects you

This case illustrates the careful analysis of the Courts and Tribunals when looking at TUPE transfers and how ultimately different Courts and Tribunals (and as in the case of the Court of Appeal, different members of the same Court) can reach different conclusions on the application of the principles set out in TUPE.

Purchasers of insolvent businesses should seek details of dismissals made prior to the purchase, whether they are made by an insolvency practitioner or the company itself, in order to assess potential future exposure to claims of this type.