ABC v Huntercombe (No.12) Limited & Ors

The court was asked to determine preliminary issues about the effect of regulation 4(2) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The central questions were whether a transfer under regulation 4(2) transfers (i) a transferor's alleged vicarious liability to third parties for torts committed by employees, and (ii) any alleged breaches of the claimant's human rights said to arise from those employees, and (iii) any right of the transferor to an indemnity from its insurers in respect of such liabilities. The judge held that the wording "in connection with" in regulation 4(2)(a) must be given a purposive interpretation aligned with the Directive: only liabilities which have a direct and sufficiently close connection to the contract of employment — typically "fundamental" obligations owed by an employer to its employees — transfer. Vicarious (secondary) liability to third parties and primary liability for breaches of the claimant's human rights by employees were not sufficiently directly connected to the employment contract and therefore did not transfer. The judge further held that, had such liabilities transferred, any vested or contingent right of the transferor to an indemnity from insurers in respect of those liabilities would also transfer; however, because the substantive liabilities did not transfer, no corresponding insurer indemnity transferred.

Background and parties: The claimant sued for damages for wrongs suffered while an in-patient at a hospital owned and operated by the first defendant. The first defendant sold the business to the second defendant on or about 5 March 2021. It was common ground that TUPE applied to the transfer. The claimant alleged the first defendant was responsible for wrongs of employees (the third and fourth defendants) and also asserted human rights breaches.

Nature of the application: This was a first-instance trial of preliminary issues directed to construction of regulation 4(2) of the 2006 Regulations: (i) whether regulation 4(2) transfers any alleged vicarious liability of the transferor to the transferee for torts of employees; (ii) whether regulation 4(2) transfers any alleged breaches of the claimant's human rights by such employees; and (iii) if either answer is yes, whether regulation 4(2) also transfers the transferor's rights to indemnity from its public liability insurers in respect of those claims.

Issues framed by the court:

• What is the scope of "rights, powers, duties and liabilities under or in connection with" contracts of employment in regulation 4(2)?
• Does vicarious liability to third parties or liability for alleged human rights breaches arise "in connection with" the employment contract such that it transfers?
• If such liability transfers, does any right to recover from an insurer in respect of that liability transfer also?

Reasoning and authorities: The judge applied the Swift Trading v Robertson interpretative approach, construing domestic law in light of the Directive and purposive aims of protecting employee rights. The authorities considered included Martin/Bernadone (Court of Appeal) which supported transfer of employer liabilities that are closely connected or "fundamental" to the employment contract (for example employer duties to keep employees safe and related statutory duties, and consequential insurer indemnities), Baker v British Gas which illustrated fundamental employer duties, and Doane and Sean Pong Tyres which addressed transfer of vicarious liability in different ways. The judge distinguished Doane and Sean Pong Tyres, concluding they should not be followed as establishing a broad "but for" or purely causal test. The court concluded that the connection required by "in connection with" must be direct and sufficiently close — typically liabilities the transferor owes to its employees — and that vicarious liability to third parties and alleged human rights breaches by employees are secondary, not "fundamental" employer obligations arising directly from the contract of employment.

Disposition: The court answered preliminary issues 1 and 2 in the negative: the alleged vicarious liability and the claimed human rights liabilities did not transfer to the transferee under regulation 4(2). The judge added that, were that conclusion wrong, the transferor's vested or contingent right to an indemnity from insurers in respect of such liabilities would transfer; but on the proper construction nothing of that kind transferred.

Procedural note: The judgment sets out the purposive interpretative approach, emphasises the need for a direct connection between the liability and the employment contract, and cautions against a wide construction that would transfer secondary no-fault employer liabilities to protect non-employee third parties.

First instance: the preliminary issues were determined. The court answered Preliminary Issues 1 and 2 in the negative: the transfer under regulation 4(2) of the 2006 Regulations does not transfer the transferor’s alleged vicarious liability to third parties for torts of its employees, nor does it transfer alleged breaches of the claimant’s human rights said to arise from those employees. The rationale was that only liabilities having a direct and sufficiently close connection to the contract of employment — typically "fundamental" employer obligations owed to employees — transfer under regulation 4(2); vicarious liability to third parties and the alleged human rights liabilities are secondary and too remote. The court further held, by way of alternative and only if the negative answers were wrong, that any vested or contingent right of the transferor to an indemnity from insurers in respect of such transferred liabilities would transfer, but on the correct construction no such insurer right transferred because the substantive liabilities did not transfer.