This case concerns the construction of a TUPE indemnity.
The transferor operated a hairdressing and beauty salon in Harrods pursuant to a licence agreement. The licence terminated in disputed circumstances and a settlement agreement was executed which resulted in the employees of the transferee transferring to Harrods, the transferor. Under the agreement Harrods were required to make payments to the transfer and in doing so it withheld a substantial sum in respect of payments for salaries and commission owed to employees. It claimed to be entitled to do s under the terms of an indemnity in the licence agreement, which both parties agreed was unaffected by the settlement agreement.
The indemnity provided that the transferor would indemnify the transferee against all employment liabilities, as defined, in connection with:
“(a) all salaries, emoluments or other sums payable … to or in respect of any member of staff … which fall due … prior to the date of termination … (b) any liability or obligation arising under or in connection with any member of staff … prior to the date of termination … (e) any other claim by a member of staff the responsibility for which passes to [the transferee] … and which has its cause … prior to the date of termination of this agreement.”
The salaries and commission payments were paid to employees in arrears. The transferee argued that this meant that as at the date of the transfer they were not due. Harrods, the transferee, argued that the commercial purpose of the clause was for the transferor to bear the employment costs of the staff up to the date of transfer, pointing out that it had the benefit of the employees up to that point and therefore should bear the costs.
The Judgment of the High Court
The transferee’s argument was preferred. The payments came within sub paragraphs (a), (b) and (e) of the indemnity. As for (a), the expression “that which fall due” had to be interpreted as including where the obligation to pay had arisen even though the date for payment had not yet arrived. Furthermore, the sums were within (b) because the employee costs were also “any liability“, even if not yet payable. There was nothing to support the transferor’s argument that “any liability” meant “any other liability“. Finally the sums withheld would also be within (e), so that everything prior to the termination date was the transfer’s obligation through the indemnity even if not yet paid.
Link to Judgment: Urban Retreats v Harrods