The DTI has published Guidance setting out its interpretation of the application of the insolvency provisions of the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006.
The Guidance is not legally binding but does indicate the approach that the Secretary of State will take when deciding whether the Redundancy Payments Office (RPO) should meet certain insolvency debts.
Under TUPE, where there is a relevant business transfer or service provision change, the contracts of employment of the employees working in the business or service transfer automatically to the new employer. Any dismissals connected to a relevant transfer will be unfair, unless they are for an economic, technical or organisational reason.
However, the automatic transfer / unfair dismissal rules do not apply where the transferor is the subject of, “bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to liquidation of the assets of the transferor and which are under the supervision of the insolvency practitioner”. The DTI's view as set out in the Guidance is that covers the following situations:
- Compulsory liquidation and
- Creditors’ voluntary liquidation.
As, in these situations, the employees will probably not transfer but will be made redundant, the RPO will be liable for arrears of wages, holiday pay and redundancy and notice payments, subject to statutory limits. However, if the employees do in fact transfer, then it is likely (but untested) that the rules will apply.
Where the transferor is the subject of insolvency proceedings “which have been opened in relation to the transferor not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner”, the employees will transfer to the new employer, but the RPO will be liable for unpaid wages and holiday prior to the insolvency, subject to statutory limits (the transferee will be liable for all other payments). In the DTI's view this will apply in the following situations:
- Voluntary arrangements and
- Administrative receivership.
The current statutory limits on amounts paid by the RPO are:
- Unpaid wages for up to 8 weeks up to a maximum weekly limit of £290
- Holiday pay for up to 6 weeks up to a weekly limit of £290
- Statutory redundancy pay (no payment towards contractually enhanced payments)
- Basic award only for unfair dismissal.