FAQ/redundancy and insolvency – does TUPE apply?

UK companies are failing at the fastest rate since financial crisis with insolvencies reaching their highest level since 2009. As the FT reported last week, more UK companies went bust last year than at any point since the financial crisis as soaring inflation, rising interest rates and the stalling economy hit businesses. So what about the employees and does TUPE apply in this situation? It’s a question we are often asked these days so we have added to our FAQs series. On the line with the answer, Ed Goodwyn:

Ed Goodwyn: “The law recognises in an insolvency situation that there's a benefit of keeping the business alive and as a result of that policy the law of TUPE has a variation within it as to whether or not the insolvency proceedings are of a liquidation type or an administration type. So, in other words, if the business is looking to carry on as a ‘going concern’ and is being sold on, often by way of what's called a pre-pack administration, then the main parts of TUPE continue to apply whereby the employee won't be made redundant, they will TUPE across to the new entity broadly with most of their rights intact, particularly their rights in relation to continuity of employment, and if they are dismissed in that situation because of the transfer they will have automatic, unfair dismissal rights so that they're protected. Conversely, in a liquidation situation, TUPE provides that there isn't so much protection for the employee, they will not TUPE transfer across, so they can be dismissed and they will be left in the cold, if you like, they won't go across, their employment will come to an end, and their rights will not be with the businesses, but their rights will reflect back to the Insolvency Fund and, basically, they'll be looking to get some money off the government for the losses they've suffered.”

This programme has been added to our FAQs series of programmes on redundancy issues, both individual redundancies and collective. The programmes are badged as ‘Analysis’ and you can find them using the search engine on the Out-Law website.