TUPE transfers: Court of Appeal confirms that vicarious liability for employee torts does not transfer under TUPE

Businesses taking on staff through a TUPE transfer need to know exactly what liabilities transfer to them. Generally, they inherit liabilities to employees arising from acts of the transferor prior to the transfer – but what about when employees have injured a third party? Does the employer inherit liability for the third-party claim? 

In the recent case of ABC v Huntercombe (No.12) Ltd, the Court of Appeal considered this point – namely whether an employer's vicarious liability to a third party for the alleged torts of an employee passes to that employee's new employer following a TUPE transfer. 

Background

ABC claimed damages for injuries suffered while she was a patient at a psychiatric hospital owned and operated by Huntercombe (No.12) Ltd, the transferor. In around March 2021, there was a TUPE transfer from Huntercombe to Active Young People Ltd, the transferee. ABC's claim alleged that during her four-month period at the hospital, occurring prior to the transfer, she was mentally and verbally abused by individual members of staff. ABC argued that the transferor's liability for the acts of two of its employees subsequently transferred to the transferee under regulation 4(2)(a) of TUPE. The High Court rejected ABC's argument, finding that the connection between the transferor's liability and the employment contract had to be direct, in the sense of being a liability that the transferor had to an employee. ABC appealed against the decision. 

Purpose of TUPE 

The Court of Appeal emphasised that TUPE is designed primarily to protect employees' existing rights on a transfer of undertaking, enabling the employee to look to the transferee to perform the obligations which the employee could have enforced against the transferor.

Scope of liabilities transferring under TUPE

The court unanimously held that a transferor's vicarious liability to third parties for torts committed by employees before a TUPE transfer does not pass to the transferee. 

The court held that the connection between third-party tort claims and the transferring employment contracts was not sufficiently direct. The vicarious liability of an employer to a third party is secondary or "parasitic" on the employee's direct liability to the third party. 

The court noted that regulation 11 of TUPE, which expressly identifies the liabilities that pass on a transfer and sets out detailed provisions under which information about those liabilities pass from the transferor to the transferee, does not have an equivalent provision for third-party claims.

Further, the court held that it would be counter-intuitive to make a transferee liable to a third party for events it neither knew nor was entitled to know about. A third party's ability to make a claim against a transferee with no relevant involvement in, or responsibility for, the actual events that gave rise to the claim would need some clear permissive wording in the legislation because it would otherwise be at odds with ordinary legal principle.

Practical implications

The decision provides welcome certainty for transferees involved in TUPE transactions and confirms that historic third-party tort liabilities will generally remain with the transferor unless expressly assumed through contractual arrangements. 

Although the decision clarifies the position in respect of liability for third-party claims, businesses should continue to carefully consider indemnity protection in transfer agreements due to the risk of a transferee inheriting the transferor's liabilities to employees for acts and omissions which occurred prior to the transfer.