No TUPE protection for staff after firm’s owner made bankrupt

Employment contracts: Not severable from firm’s other assets

There was no protection for staff under the TUPE after the sole owner of a law firm was made bankrupt and the practice taken over, the Employment Appeal Tribunal (EAT) has ruled.

His Honour Judge Martyn Barklem said there was an “absence of any proper explanation of the legal basis” for the decision by an employment tribunal that five out of 22 lawyers and staff were protected by the Transfer of Undertakings (Employment Protection) Regulations and so could bring claims based on redundancy.

Paul Stott, senior partner of Ingrams in Hull, was struck off in October 2016, followings findings of dishonesty. He was adjudged bankrupt in April 2017.

HHJ Barklem said the Solicitors Regulation Authority (SRA) granted emergency authorisation for salaried partner Kellie Noble to run Ingrams in his stead.

Ms Noble gave evidence to the employment tribunal that the SRA “began to lose patience with the slow process of the negotiations being conducted by Mr Stott to sell the practice” and set him a deadline of 8 December 2016, or risk intervention.

HHJ Barklem said that just before the deadline, Ms Noble reached agreement with Mr Stott to buy the business.

Ingrams closed in July 2017 and a few days later, on the first day of August, Gold Law opened for business, employing seven out of 22 staff from Ingrams who were offered new contracts.

Gold Law was a brand of Lawyers Inc – an alternative business structure offering a centralised administration to support lawyers, who can operate under a different name. Gold Law closed in May 2018.

However, Mr Stott’s bankruptcy petition was presented in July 2016 and under section 284 of the Insolvency Act 1986, dispositions of property made during the period until the bankruptcy are void without court approval.

This included the December agreement between Mr Stott and Ms Noble, but the original tribunal said the employees were not Mr Stott’s property to dispose of and so the contracts of employment were not the subject matter of the contract.

HHJ Barklem said he found it “impossible to understand” from the tribunal’s reasons “the proper legal basis on which it held that the employment contracts are severable from the other assets of Ingrams, such that Ms Noble was saddled with all of the legal liabilities which TUPE prescribes but with none of the benefits”.

The judge went on: “It seems a strange result that the contracts of employment transferred permanently to her, even though the funds from which the salaries were paid were regarded as having been the property of Mr Stott, and the work which the employees did, and the revenues that they generated, also reverted to Mr Stott (or, rather, to his trustee in bankruptcy).

“Of course, people cannot be regarded as ‘property’, but a law firm derives revenue by selling the services of its employees.

“It seems to me to stand logic on its head to argue that, as a void contract, the sale of the undertaking – the law firm – must be regarded, as a matter of law, as though it have never taken place, but that the transfer of all contracts of employment between the firm and its employees are capable of subsisting independently as an economic entity.”

HHJ Barklem allowed Ms Noble’s appeal, adding that if he were wrong, “I find that the ET did not give adequate reasons as to the legal basis for its conclusions”.

In any case, the EAT heard that the claimants have each received the sums held by the tribunal to have been due to them from Ms Noble from the redundancy fund.

Moreover, her bankruptcy would have extinguished her obligation to pay the claimants in any event. The appeal was heard “out of interest in concluding the matter”.

The judge also found that the tribunal had erred in law in dismissing a separate claim by Ms Noble that she was not an employee of Mr Stott, a question “which was not before it and on which the appellant had not been heard”.

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