In this case, the High Court held that a transferor's vicarious liability to a third party for its employees' pre-transfer negligence did not pass to the transferee.
Facts
The Claimant, ABC, suffered injuries while she was receiving treatment at a hospital owned and operated by Huntercombe (No 12) Ltd (Huntercombe), which she alleged were caused by the negligence of two doctors employed by Huntercombe. Following a TUPE transfer, the doctors' employment transferred to Active Young People Ltd (AYP).
ABC brought a claim for damages in the High Court against Huntercombe (the transferor and first defendant), AYP (the transferee and second defendant), and the two doctors (the third and fourth defendants).
At a preliminary hearing, the Court held that Huntercombe's vicarious liability for the doctors' alleged negligence did not transfer to AYP under TUPE. In reaching this conclusion, the Court took into account the fact that vicarious liability is a form of secondary liability (the primary liability being that of the employee who committed the wrong). It also had in mind the purpose of TUPE, which is to safeguard the rights of employees after their employment transfers, and the wording of the relevant provision of TUPE, which states that all of the transferor's rights and liabilities "under or in connection with" the contract of employment of a transferring employee shall transfer to the transferee.
The Court held that for liability to transfer under TUPE, the connection between the liability and the employment contract must be direct. Effectively, it must be a liability owed by the transferor to an employee, either under or in connection with the contract. In this case, if Huntercombe had any liability, it was owed to ABC, not to the transferring employees. The connection with the transferring employees' contracts was therefore too remote for that liability to transfer to AYP under TUPE.
However, the Court noted that, if it was wrong on this, and vicarious liability did transfer, it would have found that Huntercombe's right to claim on its public liability insurance also transferred to AYP, because the right to claim on insurance is a contingent right which arises purely as a result of the transferring liability. This reflected previous case law in which it was held that a transferor's right to claim under its employer's liability insurance would transfer where the liability that gave rise to that right to claim transferred.
What does this mean for employers?
This decision provides helpful confirmation that a transferor's vicarious liability to third parties, arising out of a transferring employee's negligence, will not transfer to a transferee under TUPE. This seems sensible, given that the purpose of TUPE is to safeguard the rights of employees; it is not concerned with the rights of third parties.
It is important to note, though, that the scope of liabilities that may transfer under TUPE remains broad. An employer who will be the transferee in a TUPE transfer should therefore undertake a careful due diligence exercise to identify any potential claims it might face. Given the High Court's comments in this case regarding the potential for insurance cover to transfer in circumstances where the liability that gave rise to a right to claim on insurance transferred, it is also worth a transferee enquiring as to what insurance policies the transferor has in place. Finally, the transferee should always seek to include appropriate warranties and indemnities in the commercial contract with the transferor.
