Employees and pre-pack sales17.12.2009
In the case of Oakland v Wellswood (Yorkshire) Limited the Court of Appeal held that an employee’s continuity of employment was preserved by s218 of the Employment Rights Act 1996 when an employee of a company in administration was employed by the buyer following a pre-pack sale and the transcript of that decision has just been published.
It had been hoped that the court would provide a definitive answer to the question of whether a pre-pack sale by administrators was to be treated within Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) regulations 2006 (TUPE), which meant that employees would not automatically transfer, or within Regulation 8 (6 and 9), in which case employees would automatically transfer to the buyer.
Unfortunately the court has not answered this question, but in giving their judgment they gave a fairly strong indication that, if the question came before them for consideration in the future, they might well find that a pre-pack sale by administrators fell within Reg 8 (6 and 9) non terminal proceedings and that an employee of the company in administration will transfer automatically (and on their current terms and conditions) to the buyer.
Buyers need to be aware of this potential liability when considering a pre-pack acquisition, and in any event Buyers need to be aware that if they take on any employees of the company in administration the previous periods of continuous employment will count, and those employees will potentially immediately have the benefit of protection against unfair dismissals, redundancy protection and, of course, enhanced rights to redundancy payments and basic awards.