TUPE — An increasing trap for the unwary claims handler?

The Office for National Statistics has highlighted the rise in the number of completed mergers and acquisitions in the UK in Quarter 2 (April – June) 2025, with the volume of acquisitions generally charting an upward trend over the past 10 years.  With such corporate acquisition comes changes to employment status.  This can have a significant impact on EL and PL claims, requiring both claimant and defendant claims handlers to confirm that the correct legal entity is being claimed against, whether any indemnity is available, and ultimately that the correct insurer is funding the claim. As a recent PL personal injury claim highlighted, the impact of the Transfer of Undertakings Regulations 2006 (TUPE) can be a trap for the unwary.

It is a familiar legal concept that where change of employment to a new employer is governed by TUPE, the employer’s liability for an incident pre-transfer will often transfer to the new employer. The effect is that, in law, an employee who subsequently pursues an EL claim must bring it against the new employer even though they did not employ the claimant at the time the incident occurred and were not themselves, in fact, negligent.  The purpose of TUPE is the protection of employees in the event of a change of employer, in particular, to ensure that the employees’ rights are safeguarded.   Whether in fact the liability transfers or the new employers (and their insurers) are able to secure an indemnity from the transferring employer (and their insurers at the time) will depend on the nature of the agreement governing the transfer and the specific facts of the case.

In ABC v Huntercombe (No12) Ltd (D1), Active Young People Ltd (D2), Dr Banisetti (D3) and Dr Tattersall (D4), the status of the claimant didn’t change but the employment status of the direct tortfeasors did, requiring consideration of what effect the doctrine of vicarious liability has on TUPE and the transfer of liability in such circumstances.  Somewhat surprisingly, this was the first time a higher court had been required to consider the issue.

In ABC, a PL case, the claimant sought damages for the wrongs committed by medics D3 and D4 whilst the claimant had been an inpatient at D1’s hospital.  The business of D1 was subsequently sold to D2 and the transfer was one to which the TUPE Regulations applied. The question arose whether TUPE transferred D1’s vicarious liability (for the actions of D3 & D4) to D2, and if so, whether D2 could avail themselves of the indemnity which D1 would have had from its insurers in respect of the claimant’s claim for damages and costs.  In turn, this would determine which entity was the correct defendant and who should fund the litigation.  This fundamental issue required a consideration of whether there was a “sufficient connection” between the transferred contracts of employment of D3 / D4 and the “relevant liability” (i.e. the risk insured against) in order to transfer the liability from D1 to D2.

As set out in ABC, for the TUPE protection to arise:

• The connection between the liability of a transferor (in this case D1) and the contract of employment must be direct, in the sense of being a liability the transferor has to an employee if the liability is to transfer; and
• if the transferor has a vested (or contingent) right against a third party which arises purely as a result of such a liability, that right will also transfer.

However, in this case, it was felt that if D1 had any real “liability” at all, it was not owed to its employee.   It followed that the connection was too remote. The relevant “direct” liability here was the liability of the employee to the third-party claimant. The only liability attaching to D1 as the blameless employer was a secondary, no fault, vicarious liability for a wrong committed by D1’s employee and this was deemed too remote to invoke the TUPE protections.  Consequently, the alleged vicarious liability of D1 to the claimant (a third party) did not transfer to D2 by virtue of TUPE for the alleged torts or breaches.  Had they have done then the effect of TUPE would be to transfer to D2 any right that D1 may have had to indemnity by its public liability insurers, albeit that had not been necessary to determine in this case.

Consequently for those handling EL/PL claims it is necessary to understand if any transfer of employment has taken place since the time of the incident, whether in respect of the claimant’s own employer (in the case of an EL claim) or the employer of any alleged tortfeasor (whether in an EL or PL claim) — something which in the current climate could be increasingly common.   Failure to identify the correct defendant (and their insurers) in time can bring severe cost implications or lead to a claim being struck out for failing to identify the correct defendant in time.  TUPE will continue to be a trap for the unwary!