No Transfer of Vicarious Liability Under TUPE, High Court Rules

When a transfer of a business takes place to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applies, does any vicarious liability of the original employer to a third party for wrongdoing by an employee transfer to the new employer? The High Court has answered that question with a resounding ‘no’.

A woman was seeking damages for wrongs suffered while she had been a hospital inpatient. She claimed that the company that had owned the hospital was responsible for wrongs committed by two of its employees. The company had subsequently sold its business, and it was accepted that TUPE applied to the transfer. The Court considered as preliminary issues whether the effect of Regulation 4(2) of TUPE – under which the transferor’s ‘rights, powers, duties and liabilities under or in connection with’ contracts of employment transfer to the transferee – was to transfer any vicarious liability of the company for torts and/or breaches of human rights by its employees to the new employer.

The Court noted that domestic courts are under an obligation to interpret legislation, so far as possible, in the light of the wording and purpose of the Directive it seeks to implement. The purpose of the Transfers of Undertakings Directive, which TUPE implements into UK law, is to safeguard employee rights after a transfer of employment.

The question before the Court could effectively be expressed as whether the connection between the relevant liability and the employment contracts was sufficient to bring the liability within Regulation 4(2) so that it transferred to the new employer. The Court observed that there were no cases decided at High Court level or above where vicarious liability of the type at issue had been found to have transferred under TUPE.

In the Court’s judgment, previous cases showed that the connection between the liability of a transferor and the contract must be direct, in the sense of being a liability the transferor has to an employee, if the liability is to transfer. The cases described liabilities that are sufficiently closely connected to the contract as fundamental parts of the relationship between employer and employee. If the company had any liability, it was not owed to its employees: the relevant direct liability was the employees’ liability to the woman. The connection between the liability and the employment contracts was therefore too remote and the liability did not transfer under Regulation 4(2).