FAQ/redundancy and insolvency – does TUPE apply?

Company insolvencies have soared in the last year as businesses struggled with inflation and the long-term impact of the Covid pandemic. That is the headline in Guardian which highlights the latest data showing a total of 30,199 UK businesses were involved in some kind of insolvency action in 2023 – 52% higher than in 2021. The research is by the credit checking agency, Creditsafe.

So, what about the employees of those businesses and, if the business is able to carry on trading in some form, does TUPE apply? It’s a question we are increasingly being asked so we have added it 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.