Secretary of State of Business Innovation & Skills v Dobrucki & Ors (Transfer of Undertakings: Insolvency)

Under Regulation 8 of the Transfer of Undertakings (Protection of Employment) Regulations 2006, the state guarantee for employees transferred during a qualifying administration applies only to debts accrued before, or at, the transfer. Regulation 8(3) deems termination on the transfer date only to adapt the statutory insolvency scheme. It does not deem a later dismissal or later-accruing debt to have occurred at transfer, and does not bring forward the appropriate date under Part XII of the Employment Rights Act 1996.

Accordingly, post-transfer arrears, notice pay and redundancy payments remain liabilities of the transferee. The Secretary of State is liable only for qualifying pre-transfer debts.

Response FM entered administration and, two hours later, transferred its business as a going concern to its former principal shareholder. The business ceased trading three days later. Employees claimed arrears, notice pay, redundancy pay and holiday pay from the Secretary of State under Part XII of the Employment Rights Act 1996.

Employment Judge Goodman held that the transfer fell within Regulation 8(1)–(6) of the Transfer of Undertakings (Protection of Employment) Regulations 2006. Treating the transfer date as the termination date under Regulation 8(3), she held the Secretary of State liable for debts including sums arising after transfer.

The Secretary of State appealed. The central issue was whether Regulation 8(3) made post-transfer employment debts payable under the statutory insolvency scheme.

1. Appeal allowed. The Employment Judge erred by treating Regulation 8(3) as bringing post-transfer debts within the Secretary of State’s liability under Part XII of the Employment Rights Act 1996.

2. Administration was an insolvency proceeding within Regulation 8(6), rather than a liquidation proceeding within Regulation 8(7). Regulations 8(1)–(5) therefore applied to the transfer. Those provisions preserve the state guarantee for qualifying debts and prevent their liability transferring under Regulation 4.

3. Following Pressure Coolers v Molloy [2012] ICR 51, Regulation 8(3) does not alter when a debt arises. Its deeming provision adapts Part XII for the limited purpose of applying the insolvency scheme where the employee’s employment had not ended by transfer. It does not treat a later dismissal as having occurred at transfer, nor advance the appropriate date under section 185.

4. Only debts accrued before or coincident with transfer remained liabilities of the insolvent transferor and could therefore fall to the Secretary of State under sections 182 and following. The Secretary of State remained liable for arrears only up to 14 June. The awards for post-transfer arrears required recalculation.

5. The notice-pay and redundancy-payment awards against the Secretary of State were set aside. Any liability for those sums was that of the transferee. The possible treatment of accrued holiday pay where employment continues under Regulation 4 was expressly left open as it did not arise for decision.

6. The Secretary of State was directed to provide calculations. Any dispute about the resulting pre-transfer arrears was remitted to the same Employment Judge.

• Employment Appeal Tribunal: Allowed the Secretary of State’s appeal and varied the Employment Tribunal’s awards.
• Employment Tribunal, London (Central): On 13 November 2012, Employment Judge Goodman held the Secretary of State liable under Regulation 8(3) for sums arising up to the actual cessation of employment after transfer.