Case update
Vicarious liability and TUPE:
ABC v Huntercombe Ltd and others
Summary
The High Court held that, where an employee transfers under TUPE to a transferee, the transferor’s vicarious liability for wrongdoings committed by the transferring employee does not also transfer to the transferee. In coming to its conclusion, the High Court held that the Doane case – which had previously held that a transferor's vicarious liability for the negligence of a transferring employee could pass to a transferee under TUPE – had been incorrectly decided.
Practical takeaways for companies
It is expected that this case will be appealed to the Court of Appeal. In the meantime, given the potentially significant financial consequences of this judgment for companies transferring employees under TUPE to another company, TUPE clauses within agreements such as Master Services Agreements or Asset Purchase Agreements should be carefully considered in terms of risk allocation between transferor and transferee.
Facts
Huntercombe (No. 12) Ltd (Huntercombe) owned and operated a hospital. ABC was an in-patient at that hospital and alleged that he had suffered abuse from two hospital employees. Whilst the two hospital employees were employed by Huntercombe at the time of the alleged wrongful acts, the hospital business was subsequently sold to Active Young People Ltd (Active) and as a result of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) the two hospital employees had their employment transferred to Active.
ABC issued High Court proceedings seeking damages for the injuries sustained in hospital and argued in the proceedings that Active, as the current employer of the two hospital employees, should be held vicariously liable for acts committed by the two employees, even though those acts were committed prior to the TUPE transfer when they had been employees of Huntercombe.
What is vicarious liability?
Vicarious liability is the doctrine in which an employer is liable for the acts committed by its employee while the employee was acting in the course of their employment – regardless of whether the employer itself had committed any blameworthy conduct.
What did the High Court have to decide?
Regulation 4(2) of TUPE provides that, where there has been a relevant transfer of a business or a service provision change, then “all the transferor’s rights, powers, duties and liabilities under or in connection with” an employee’s contract will be transferred to the transferee.
In light of this Regulation, the High Court had to consider as preliminary issues to this case:
(1) whether any alleged vicarious liability of Huntercombe in respect of the alleged wrongful acts committed by the two employees during their employment with Huntercombe would be part of the “liabilities” that would transfer under Regulation 4(2) to Active?
(2) If so, would Regulation 4(2) also transfer to Active the benefit of Huntercombe’s insurance in respect of any damages/costs arising out of the alleged vicarious liability?
What did the Court find and what were the key takeaways?
When working though the previous case law, the High Court noted that the correct approach was to interpret domestic legislation in light of the wording and purpose of the European Directive that it seeks to implement.
As TUPE derives from the Acquired Rights Directive, the High Court considered the wording and purpose of that Directive and held that its purpose was the protection of employees; namely to safeguard employee rights in circumstances where their employer changes and their employment transfers.
Using that approach, it held that Doane had been incorrectly decided and that a transferor’s vicarious liability for the tort of a transferring employee should not pass to a transferee.
In coming to its conclusion, the High Court looked at the language of Regulation 4(2) of TUPE and noted that employment rights “under” an employment contract are different to employment rights “in connection with” an employment contract. “In connection with” denotes a wider range of liabilities than “under” and so it did not follow that all liabilities arising “in connection with” an employment contract would pass from transferor to transferee. Instead, the High Court considered that for liability to transfer “in connection with” an employment contract, there needed to be a “direct” connection between the relevant liability and the transferring employment contract.
Here, the vicarious liability of Huntercombe (the original employer) was not owed to the two hospital employees – instead it arose on behalf of the two hospital employees and was owed to ABC, an in-patient. As it was a liability not owed to the transferring employees, it was not sufficiently direct to arise “in connection with” the employment contract for the purposes of Regulation 4(2) of TUPE. Therefore, the High Court held that Doane had been incorrectly decided and a transferor’s vicarious liability for tortious wrongdoings does not transfer to a transferee. Accordingly, Huntercombe would remain responsible for the alleged wrongdoings committed by the two employees prior to their transfer to Active.
In respect of the second preliminary issue, the High Court also held that, if it was wrong and vicarious liability does indeed transfer under Regulation 4(2), then Active’s rights to claim the benefit of Huntercombe’s public liability insurance would also transfer.