Crystal Palace FC Ltd v Kavanagh and Others

Due to the recent successes of Crystal Palace Football Club (please note, this statement refers mainly to their achievement in reaching the Premier League, not so much their results so far this season……) it is easy to forget that as recently as the 2009-2010 season the Club were languishing towards the bottom of the Championship and in dire financial straits. Crystal Palace FC (2000) Limited, the company which then owned them (‘Old Co’), had been placed into administration on 26 January 2010 and faced the serious prospect of liquidation.

As is often the case when sporting clubs are placed into administration, the administrator found that liquidation would leave few or no assets to be realised for the benefit of its creditors. He therefore sought to sell the Club as a going concern. There was interest in purchasing the Club from a consortium, led by Steve Parish, and following complex negotiations agreements were reached for the sale. This took place on 19 August 2010, when CPFC Limited became the owners (‘New Co’).

Prior to this however, 25 Old Co employees were given letters of dismissal by the administrator. This took place on 28 May 2010. The Court of Appeal have recently considered a case concerning 4 of these employees, which looked at whether these dismissals were unfair by reason of the operation of Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). This rule states that any dismissal will be unfair if the sole or principal reason for the dismissal was for a reason connected to the transfer that was not an economic, technical or organisational reason entailing changes in the workforce (an ‘ETO’). Importantly, if this is the case then the liability for these unfair dismissal claims would have passed from Old Co to the New Co.

When the original unfair dismissal claims came before the Employment Tribunal, it was found that the reason for the dismissals was an ETO reason, therefore any liability remained with Old Co. The employees appealed this decision to the Employment Appeal Tribunal, where it was found that they had not been dismissed for an ETO reason, therefore liability had passed to New Co. Unsurprisingly New Co appealed this decision to the Court of Appeal. The Court of Appeal reversed the finding of the Employment Appeal Tribunal and followed the decision of the original Employment Tribunal. This took place at a Hearing on 3 October 2013.

In making their decision, the Court of Appeal agreed that the reason for the dismissals was to enable Old Co to continue to trade, with the ultimate objective of selling it on to a purchaser waiting in the wings. It therefore followed that the decisions to dismiss the employees was for an ETO reason, due to the fact that it was necessary in order to allow the company to continue trading.

With the finances of sporting organisations ever present in the public eye and some reports forecasting a continuing increase in the number of Clubs being placed into administration, it is certain that a lot of attention will be paid to this finding, particularly by insolvency practitioners who will find comfort in the protection against claims being made by former employees. The decision will also no doubt come as a relief to Crystal Palace supporters, who will be hoping that the Club put the extra cash towards ensuring their Premiership survival.

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