When the 2013 football season began Crystal Palace had just rejoined the elite of the Premier League. However, at the end of the 2009-2010 season they were near the bottom of the Championship and were in dire financial straits. The company which then owned them Crystal Palace FC (2000) Limited was faced with the serious prospect of liquidation. It had been put into administration on 26 January 2010.The administrator was Mr Brendan Guilfoyle.
Mindful of the fact that the liquidation of a football club will often leave few or no assets to be realised for the benefit of its creditors, Mr Guilfoyle sought to sell the Club as a going concern.
Eventually, following complex negotiations, agreements were reached for the sale to a consortium by 19 August 2010 CPFC Limited.
Lisa Kavanagh , Kevin Watts, Elizabeth Roake and David Moss were employees of Crystal Palace (2000) when it went into administration. They and some 25 others were given letters of dismissal by the administrator Mr Guilfoyle on 28 May 2010.Some were dismissed with immediate effect, the remainder with effect from 31 May.
This case is concerned with the question whether the dismissals of these four named employees were unfair by reason of the operation of Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Regulation 7 of TUPE is headed “Dismissal of employee because of relevant transfer”. It provides:
“(1) Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part X of the [Employment Rights Act 1996] (Unfair Dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is –
- the transfer itself; or
- a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.”
It was agreed by all parties that the principal reason for the dismissals was not “the transfer itself” because, at the effective date of termination, no agreement had been reached in relation to the transfer. The issue is whether the principal reason for the dismissals was a reason “connected with the transfer” that was not an ETO. When the unfair dismissal claims came before the ET, it concluded that the reason for the dismissals was connected with the transfer and that it was an ETO reason.
The Employment Tribunal concluded that that the Administrators ostensible reason for dismissing the claimants was the genuine reason. That is, he dismissed the claimants in order to keep the Club alive as a going concern, in the hope that there would be a sale in the future. When he dismissed the claimants a transfer of the Club to CPFC (2010) remained a possibility, but it was no more than that.
This meant that the reason was not ‘the transfer itself’ … but it was ‘connected with the transfer’. The connection is Mr Guilfoyle’s decision to reduce the workforce in order to maintain the Club as a going concern, with a view to a future sale.
The ET next considered whether that reason connected with the transfer was an ETO reason struck to the guidelines ‘A reason for the dismissal of an employee is a set of facts known to the employer, or it may be of beliefs held by him which cause him to dismiss the employee’ – Cairns LJ in Abernethy v Mork Hay and Anderson  IRLR 213. This led to two questions:
- If the administrator’s reason is the necessity of reducing the wage bill in order to continue the business, in our view that is an ETO reason. That reason is separate from the longer term objective of being able to sell the business in due course.
- If the administrator’s reason for dismissal is that a smaller workforce will make the business more attractive to a prospective purchaser (who may not yet have been identified), that is not an ETO reason.
Accepting Mr Guilfoyle’s evidence that the reason for the dismissals was that the administrators had run out of money, and unless the staff costs were reduced, the Club would have to be liquidated. That is an economic reason entailing changes in the workforce. Mr Guilfoyle’s intention was 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 is worth noting that the ET also said it “was not in Mr Guilfoyle’s contemplation that the very fact of making the redundancies and the subsequent publicity about the likelihood of the Club being liquidated, would very quickly result in sufficient pressure on [the bank] to agree to sell the stadium, the step which enabled the sale of the Club.
The judgment read then that the reason for the dismissals was that an ETO reason, so that liability for the dismissals rests with CPFC (2000), and does not pass to CPFC or CPFC (2010).”
This case was appealed the the Employment Appeal Tribunal and then to the Court of Appeal who largely agreed with the findings of the Employment Tribunal.
Citation: Kavanagh and others v Crystal Palace FC Ltd and another  1 ICR 251