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In Kavanagh and others v Crystal Palace FC (2000) Ltd the Employment Appeal Tribunal found that an employment tribunal had erred by finding that dismissals by an administrator were fair because they were for an ETO reason.
The sale of the ailing football club was delayed because the main creditor of a separate company that owned the stadium was reluctant to agree its sale. The administrator decided to mothball the club during the close season and, for cashflow reasons, to make certain staff redundant.
The tribunal found that the dismissals were connected to the eventual transfer but were fair as they were done for an ETO reason i.e. reducing the wage bill to keep the business afloat.
The EAT held that, following the Cout of Appeal’s decision in Spaceright Europe Ltd v Baillavoine, where an administrator dismisses as part of a process aimed at eventually selling the business, the ETO defence is unavailable.
The dismissals were, therefore, unfair and liability transferred under TUPE to the transferee.
This seems a controversial decision. Where Spaceright dealt with an employee who was dismissed primarily to make the business more attractive to purchasers, here there were cashflow problems that motivated the dismissals. The case certainly makes it more difficult for administrators to dismiss with confidence that an ETO defence could later be used against unfair dismissal claims.
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