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2 -1 to Crystal Palace FC

22/11/2013
The Court of Appeal has given its Judgment in the case of Crystal Palace FC Limited & Anor -v- Kavanagh & Ors, a case concerning whether the dismissals of four employees by Crystal Palace Football The Court of Appeal has given its Judgment in the case of Crystal Palace FC Limited & Anor -v- Kavanagh & Ors, a case concerning whether the dismissals of four employees by Crystal Palace Football Club, whilst it was in administration and shortly before its sale to a new owner, were unfair by reason of TUPE.  The key issue in this decision centred on whether the reason for the dismissals was an economic, technical or organisational reason entailing changes in the workforce ("ETO reason").    

The company that owned Crystal Palace FC had gone into administration.  The administrator, wishing to obtain the best possible value for the business, tried to sell it as a going concern.  Negotiations commenced with an interested party, but were prolonged due to complications with the separate sale of the stadium.  These negotiations occurred during the off-season, when no matches were played.  This set of events allowed the administrator to avoid putting the company into liquidation by dismissing a number of non-playing staff, whilst retaining the key playing staff.  The administrator's intention was therefore to continue to conduct the business of the club with a skeleton staff in the hope that it might be sold in the future.  

It was generally accepted that the employees' dismissals were "connected with the transfer" as negotiations regarding the sale of the club were ongoing at the time.   Therefore, the question was whether the dismissals were for an ETO reason.   If they were for an ETO reason, then liability for the dismissals would remain with the company in administration and would not transfer to the new owner of the club.

The EAT found that, on the facts, the only possible conclusion was that the principal reason for the dismissals was not an ETO reason, and therefore automatically unfair, because the dismissals were not for the purpose of continuing the business but were ultimately with a view to a sale.  The EAT were critical of the ET's decision, labelling it "perverse".  On the same set of facts, the ET found the reason was an ETO reason.  

The Court of Appeal restored the ET decision, holding that it was important to determine each case in the context of its facts and found that the ET was justified in distinguishing between the administrator's reason for implementing the dismissals and his ultimate objective.  Although the administrator's ultimate aim was the sale of the business, the principal reason for the dismissals at the time was to allow the business to continue running and avoid liquidation.  This was particularly important to a football club,  where its most valuable assets are its contracted players, and therefore any liquidation will often leave few or no assets to be realised for the benefit of creditors.  The dismissals were not to make the business more attractive to a purchaser, they were simply necessary to avoid the threat of liquidation after the parallel negotiations for the sale of the stadium dragged on beyond the time during which the administrator could continue to pay all the club's staff.   

This case will give potential buyers of insolvent businesses some comfort, because if there is an ETO reason for the pre-transfer dismissal, then liability for the dismissal will not transfer.   However, liability will almost certainly transfer if the principal reason for the dismissal is to make the business more attractive to the buyer.

The Government's proposals to make TUPE more business-friendly in its practical application may also have an impact in this area.  In this case the dismissals were accepted to be "connected with the transfer".  However, the Amendment Regulations confine the automatic unfair dismissal protection to dismissals "by reason of the transfer".   This will potentially allow parties to point to other reasons than the transfer for dismissing employees, even if that reason is in some way linked to, or connected with, the transfer itself.

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