Crystal Palace FC Ltd & Anor v Kavanagh & Ors

The Court of Appeal held that the dismissals effected by the administrator were for an economic, technical or organisational reason entailing changes in the workforce (an ETO) within the meaning of regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The court accepted the Employment Tribunal’s distinction between the administrator’s immediate reason for the dismissals (to reduce the wage bill so that the business could continue to trade) and his ultimate objective (to secure a sale), and concluded that the immediate reason was an ETO. The Employment Appeal Tribunal’s contrary conclusion was rejected as an error of law because it failed to give proper weight to the fact-sensitive inquiry required by regulation 7 and to the particular insolvency context of a football club.

Background and parties:

Crystal Palace FC (2000) Limited went into administration in January 2010; the administrators sought to sell the club as a going concern. By late May 2010 administrators dismissed a number of employees (including the four respondents) as part of cost reductions while seeking a sale. The purchasers eventually acquired the club in August 2010.

Nature of the claim and relief sought:

• The employees claimed unfair dismissal under Part X of the Employment Rights Act 1996, relying on regulation 7 TUPE that treats dismissals as unfair where the sole or principal reason is the transfer itself or a reason connected with the transfer that is not an ETO reason.

Procedural history:

• The Employment Tribunal found the dismissals were connected with the transfer but were for an ETO reason, so liability remained with the transferor.
• The Employment Appeal Tribunal (EAT) allowed the employees’ appeal, concluding the dismissals were not for an ETO reason and that liability passed to the transferee (EAT ref UKEAT035412SM).
• The transferees appealed to the Court of Appeal.

Issues framed:

• Whether the sole or principal reason for the dismissals was a reason connected with the transfer that was not an ETO, so that regulation 7(1) would render the dismissals unfair and liability would pass to the transferee.
• How to characterise an administrator’s subjective reason in the context of an administration aimed at selling a business as a going concern, particularly in the seasonal and asset-specific context of a football club.

Court’s reasoning:

• The Court emphasised that regulation 7 requires a fact-sensitive, subjective inquiry into the employer’s sole or principal reason for dismissal and warned against treating an administrator’s ultimate objective (effecting a sale) as automatically displacing the immediate economic reason for dismissals.
• The Employment Tribunal was entitled to distinguish between the administrator’s immediate reason (to reduce the wage bill to keep the club trading pending a sale) and his longer-term objective to sell; that immediate reason constituted an ETO because it entailed workforce changes motivated by continuing the business.
• The Court considered the decision in Spaceright and other authorities in context and found the present facts materially different: the dismissals here were driven by lack of funds and by the need to continue trading with a reduced workforce rather than solely to make the business more attractive to a purchaser.
• The Court allowed the appeal, restored the Employment Tribunal’s decision and held that liability for the dismissals did not pass to the transferee.

Wider context: The judgment highlights the tension between TUPE’s protective purpose and insolvency policy favouring rescue and sale, and confirms that reg. 7 analysis in administration cases is intensely fact-sensitive; administrators’ actions cannot be characterised uniformly as non-ETO simply because a sale is the ultimate objective.

This was an appeal and the Court of Appeal allowed the appeal, restoring the Employment Tribunal’s decision. The court held that the administrator’s immediate reason for dismissal—to reduce the wage bill so the club could continue to trade pending a sale—was an ETO within regulation 7 TUPE, so liability for unfair dismissal remained with the transferor rather than passing to the transferee.

Employment Tribunal (first instance): found dismissals were connected with the transfer but were for an ETO reason so liability remained with the transferor. Employment Appeal Tribunal (UKEAT035412SM): allowed employees' appeal, holding dismissals were not for an ETO reason and liability passed to the transferee. Court of Appeal: [2013] EWCA Civ 1410, allowed the appellants' appeal and restored the Employment Tribunal decision.