In ABC v Huntercombe (No 12) Ltd and others, ABC, a patient at a hospital owned and operated by Huntercombe (No 12) Ltd (‘Huntercombe’), sought damages for injuries caused by the acts of two hospital employees. At the time, the employees had been employed by Huntercombe. However, following a transfer of Huntercombe’s business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’), the employees had since transferred to Active Young People Ltd (‘AYP’). ABC argued that Huntercombe should be held vicariously liable for the employees’ acts.
As a preliminary issue, the High Court had to determine:
- whether Huntercombe’s vicarious liability towards ABC, if it had any, had transferred to AYP under TUPE; and
- if so, whether the benefit Huntercombe had under its public liability insurance had also transferred.
The High Court ultimately decided that Huntercombe’s vicarious liability had not transferred to AYP under TUPE. For it to have done so, there needed to be a direct connection between the liability and the employees’ contracts. In other words, it had to be a liability that Huntercombe owed to the employees. Here, any liability Huntercombe had was owed to ABC, not to the employees whose acts had injured ABC. The requisite connection between the liability and the employment contract was therefore missing. However, if the Court had got this wrong, and if liability had transferred, the benefit under the insurance policy also would have transferred.
Key takeaways
In a TUPE transfer, any liability the transferor (the original employer) has towards a third party will not transfer to the transferee (the new employer), even if that liability arose due to the actions of a transferring employee. The transferor will remain responsible for paying any damages, though it may be able to be indemnified under its insurance policy, which will also stay with the transferor.
The liability position under TUPE often runs contrary to principals of commercial fairness, particularly as the application of TUPE means that liabilities caused by one party automatically transfer to an objectively ‘blameless’ party — the transferee. Further, as this case demonstrates, there can often be a lack of certainty about where liabilities will land for the parties involved. It is therefore important for the parties to consider potential TUPE liabilities as part of the commercial process by carrying out thorough due diligence prior to entering into binding agreements and negotiating a clear division of liabilities through warranties and indemnities. Recording the agreement between the parties as to how such liabilities will be covered can be tricky, so please reach out if you would like assistance reviewing your sale documentation or providing appropriate employment-related warranties and indemnities.
