In the recent High Court decision of ABC v Huntercombe (No 12) Ltd and others, the court delivered a significant ruling clarifying the scope of liabilities that transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). Specifically, the court addressed whether vicarious liability for torts committed by employees prior to a transfer can pass to the new employer under Regulation 4 of TUPE.
Background
The Claimant brought proceedings seeking damages for injuries sustained while she was an inpatient at a hospital operated by Huntercombe (the transferor). The injuries were allegedly caused by the acts of two employees. Following a TUPE transfer, these employees became employed by Active Young People Ltd (the transferee). The Claimant argued that the transferee should be vicariously liable for the employees’ actions due to the automatic transfer of liabilities under TUPE.
Legal Framework
Under Regulation 4 of TUPE, in a relevant transfer, “all of the transferor’s rights, powers, duties and liabilities under or in connection with” the contracts of transferring employees pass to the transferee. This provision is designed to protect employees’ rights and ensure continuity of employment when a business changes hands.
Employers are generally held vicariously liable for torts committed by their employees in the course of employment. The key question in this case was whether such vicarious liability, arising from a tort against a third party prior to the transfer, is among the liabilities that transfer under Regulation 4 and, in particular, whether the words “in connection with” is capable of capturing those liabilities.
High Court Decision
The High Court held that vicarious liability for torts committed prior to a TUPE transfer does not transfer to the transferee. The judgment emphasised that the purpose of TUPE is the protection of employees in the event of a change of employer, in particular to ensure that their rights are safeguarded.
The principles that can be drawn from the case law are that the connection between the liability of a transferor and the contract must be direct (i.e. liabilities the transferor has to an employee). In this case the only direct liability is the liability of the employee to the third party. The only liability which attaches to the transferor is the secondary indirect liability.
Unlike liabilities which are a fundamental part of the employer and employee relationship and therefore sufficiently closely connected to the contract, vicarious liability is not a direct obligation arising from the employment contract but rather a secondary liability without any “coherent or agreed jurisprudential underpinning”. As such, it falls outside the ambit of Regulation 4.
Implications
This ruling provides much-needed clarity for employers on the limits of liability transfer under TUPE. It confirms that while transferees inherit many obligations from the transferor, these do not extend to vicarious liability for pre-transfer torts committed against third parties. Employers assuming responsibility for a transferred workforce can take some comfort in knowing that their exposure is confined to liabilities arising directly from the employment relationship. However, this decision may leave claimants, like the one in ABC, with limited recourse if the original employer is cannot meet its liabilities.
Many thanks to Salma Khatab for her help in preparing this post