This case concerns the application of ETO reasons when the transferor is in administration.
CP FC was put into administration in January 2010. The objective of the administrator was to sell the club as a going concern. A potential buyer was identified in February 2010 but negotiations stalled because the stadium was owned by another party and the potential buyer wanted to both the club and the stadium. Because of serious cash flow difficulties, the administrator decided to mothball the club over the close season with the intention to revive negotiations later. The club’s administrative staff, which included the Claimants, were made redundant in May 2010.
The ET held that there was an economic, technical or organisational (“ETO”) reason entailing changes in the workforce and therefore the dismissals were not unfair (Reg 7(1)(b)). The ETO reason was that the the Administrator “could no longer afford to pay all the Club’s employees and he had to reduce the workforce and wage bill in order to mothball the Club in the hope that a purchaser would be found”.
The EAT decision
The EAT considered Spaceright Europe Ltd v Baillavoine  EWCA Civ 1565 and judgment of Mummery LJ at paragraph 47:
“For an ETO reason to be available, there must be an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it. It is not available in the case of dismissing an employee to enable the administrators to make the business of the company a more attractive proposition to prospective transferees of a going concern.”
The EAT held that this paragraph posits two alternative positions: first, where the reason for a dismissal was the intention to change the workforce and to continue to conduct the business; second, and distinguished from that position, was where the dismissal was part and parcel of a process, with the purpose of selling the business. In the former case, there could be a dismissal for an ETO reason, but in the latter case there could not.
Here the ET had erred in deciding that the reason for the dismissals was that the administrator could no longer afford to pay the employees. The EAT agreed that the administrator wanted to save costs by making redundancies, but this was to preserve the business so that it could be sold in the future. In light of Spaceright this was not an ETO reason and, as such, the dismissals were automatically unfair and liability for those dismissals passed to the purchaser under TUPE.
In order for Administrators to rely on an ETO reason they will essentially have to establish that dismissals were necessary to avoid liquidation rather than to make the business more attractive to sell.