Crystal Palace FC Ltd & Anor v Kavanagh & Ors

The ETO exception under Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 7 requires an intensely fact-sensitive and subjective inquiry into the employer’s genuine sole or principal reason for dismissal. An administrator’s immediate need to reduce wage costs so an insolvent business can continue trading and avoid liquidation may be an economic reason entailing changes in the workforce, even where the ultimate objective is a sale. The tribunal must distinguish that immediate reason from the longer-term objective and guard against artificial attempts to avoid TUPE. A dismissal made solely to improve the business’s attractiveness to a prospective purchaser may fall outside the ETO exception.

Crystal Palace FC (2000) Limited entered administration. Its administrator dismissed four employees while attempting to preserve the club’s business and secure a future sale. The Employment Tribunal found that the dismissals were connected with a possible transfer but were made for an economic reason entailing changes in the workforce. Liability therefore remained with the transferor.

The Employment Appeal Tribunal, under reference UKEAT035412SM, allowed the employees’ appeal. It held that the dismissals were intended to place the club in mothballs pending sale or liquidation and were not for an ETO reason. The purchasers appealed to the Court of Appeal. The central issue was whether the administrator’s genuine reason was an ETO reason or was instead a transfer-connected reason falling within regulation 7.

The Court of Appeal unanimously allowed the appeal and restored the Employment Tribunal’s decision. The Employment Appeal Tribunal had treated the administrator’s ultimate objective of selling the club, and the description of the club as being mothballed, as determinative.

1. Regulation 7 inquiry. The question is subjective and intensely fact-sensitive. The tribunal must identify the genuine sole or principal reason for dismissal by examining the facts known to, or beliefs held by, the employer which caused the dismissal. It must remain alert to attempts to dress up a transfer-related dismissal as an ETO dismissal.
2. Immediate reason and ultimate objective. The administrator’s ultimate objective was an early sale, but the immediate reason for the dismissals was the need to reduce the wage bill so the club could continue trading and avoid liquidation. That reason was connected with the possible transfer, but was also an economic reason entailing changes in the workforce. It therefore satisfied the ETO exception. The word mothballing was not a term of art and did not alter the factual analysis.
3. Spaceright. The passage in Spaceright Europe Limited v Baillavoine [2012] ICR 520 had to be read in its factual context. There, the chief executive was dismissed because a purchaser would not require that role, and the continuing business was not intended to have a reduced workforce. Spaceright did not establish a rigid rule excluding an ETO reason whenever an administrator ultimately hoped to sell the business.
4. Wider statutory context. Briggs LJ explained that the purposes of administration and the employee-protection policy underlying Council Directive 2001/23 provide a reality check, but do not replace the required fact-sensitive analysis. Genuine corporate-rescue measures should not be treated as manipulation of TUPE, while artificial ETO reasons must not defeat employee protection. Beatson LJ agreed with both judgments.

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 1410, the appeal was allowed and the Employment Tribunal’s decision was restored.
2. Employment Appeal Tribunal: Under reference UKEAT035412SM, the employees’ appeal was allowed. The EAT held that the dismissals were not for an ETO reason and that liability had passed to the transferee.
3. Employment Tribunal: The Tribunal found that the dismissals were connected with the possible transfer but were for an economic reason entailing changes in the workforce. Liability remained with the transferor.