Ruling could prove costly for buyers of companies in administration as they will now inherit employee contracts
The Employment Appeal Tribunal (EAT) has handed down its decision in OTG Ltd vs Barke which will ring alarm bells for purchasers of companies in administration. Given recent experience of Connaught and Rok it is a case that is likely to have a significant impact in the construction industry.
The ruling means that any employees who are employed by the seller immediately before the transfer will have their contracts transferred under TUPE.
Until this recent case it was assumed, following previous EAT authority in a case called Oakland vs Wellswood, that when you bought a company out of administration you could leave behind the employment liability risks. In other words, the employees would be left behind making the potential purchase more attractive.
The EAT, however, has chosen to depart from its previous ruling with the result that purchasers buying in a pre-pack context from any form of administration will, if TUPE applies, inherit those employees.
Edward Goodwyn is an employment lawyer and partner at law firm Pinsent Masons