ASOS deal - what happens to the employees?

In order to assist the rescue of failing businesses, the Transfer of Undertakings Regulations (TUPE) include specific insolvency provisions which allow transferees of insolvent businesses greater flexibility than would otherwise be the case.

Where the transferor is the subject of "bankruptcy proceedings or any similar insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor" the  "normal" TUPE rules do not apply. 

When TUPE rules don’t apply, what happens to employees?

This means that employees will not automatically transfer to the transferee, and dismissals by reason of the transfer will not be automatically unfair. So, employees of a transferor that is subject to "bankruptcy proceedings or any analogous proceedings" lose the key protections of the automatic transfer principle and the special protection against dismissal. 

This will be so, even where a terminal insolvency procedure has been expressly chosen in order to avoid TUPE.

What does it mean when TUPE does not apply?

The effect of TUPE not applying in these circumstances is that employees do not automatically transfer to the transferee and the transferee will not inherit the transferor's rights, duties, powers or liabilities under or in connection with the employees' contracts. 

In addition, if the transferee decides to employ them, employees will not have the protection against variation of their contracts provided by regulation 4(4) of Tupe.

These measures clearly make the business more attractive to a potential transferee but may be detrimental to the employees.

What if there is money owed to the employee?

Any Money owed to the employees such as unpaid wages, notice pay and redundancy pay only rank as unsecured claims in a formal insolvency process and rank second to last in the order of priority. Employees may at best only receive a few pence in every pound owed to them.

However, former employees of an insolvent employer will be able to claim certain debts from the National Insurance Fund (NIF) including arrears of pay, holiday pay, statutory notice pay, basic award/statutory redundancy pay and some pension contributions. Where these payments are subject to the statutory cap deductions for income tax and NICs in relation to arrears of pay and holiday pay will be applied after the cap on weekly pay is applied. 

Contact the Employment team here