The High Court has recently confirmed that a transferor’s vicarious liability for torts committed by its employees before a TUPE transfer does not pass to the transferee.
Understanding vicarious liability
Vicarious liability means an employer can be held responsible for tortious acts committed by its employees where such acts are carried out in the course of employment. For example, an employer can be liable for the negligent acts of one of its employees if those acts were carried out in the course of employment.
Vicarious liability in TUPE context
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees where, for example, an organisation’s assets are transferred to another entity, such that the employment of employees who are assigned to that transferring business transfers automatically with it to the new business owner. It can also apply in some outsourcing scenarios.
Where TUPE applies, any “rights, power, duties and liabilities under or in connection with“a transferring employee’s contract also transfers to the new employer. This means the new employer (the transferee) effectively steps into the shoes of the original employer (the transferor), meaning any claims transferring employees might have against their employer would also transfer and become the responsibility of the transferee.
However, in a TUPE transfer situation, what happens in respect of any tortious acts committed by its employees (for which the transferor was originally vicariously liable)? Do these vicarious liabilities of the transferor also transfer over to the transferee, with the employees who committed the acts? Or does this vicarious liability stay with the transferor? Put another way, is it only an employer’s liability to its transferring employees that transfers under TUPE, or does it extend to transfer liability to third parties where the transferor is only indirectly vicariously liable for the acts of its employees?
The recent case of ABC v. Huntercombe clarifies this point.
Case overview
In ABC v. Huntercombe, ABC brought a claim in the High Court, saying she was injured by two employees while she was an in-patient at a hospital run by Huntercombe (the Transferor). Subsequently, Huntercombe’s business transferred to a new company, Active Young People Ltd (the Transferee) and the employees transferred under TUPE to the Transferee. ABC argued that the Transferor was vicariously liable for the actions of the two employees as part of her personal injury claim.
The High Court held a preliminary hearing to decide two key issues:
- whether the Transferor’s vicarious liability to ABC, for alleged torts committed by its employees before the TUPE transfer, passed to the Transferee under TUPE; and
- if such liability did transfer, whether the Transferor’s right to claim under its public liability insurance for ABC’s claim also transferred.
The court’s reasoning
The High Court held that vicarious liability did not pass to the Transferee under TUPE. However, if that conclusion were incorrect, the court confirmed it would have decided that the Transferor’s right to make a claim under its insurance policy for those matters would have transferred as well. The court highlighted the need to identify which “liabilities…in connection with” the employees’ contracts had transferred to the Transferee. To make this decision, the court considered the following matters helpful:
- the purpose of TUPE is to protect employees’ rights and entitlements, such that it follows any liabilities of the Transferor to its employees should transfer to the Transfereeafter a TUPE transfer; and
- the vicarious liability in question was a form of secondary liability of the Transferor to a third party arising as a result of an act/omission of its employeesi.e. if this liability did not transfer to the Transferee, it would not impact the transferring employees’ rights after a TUPE transfer, so was not caught by TUPE.
The court concluded that:
- for a transferor’s liability to pass under TUPE, it must be directly connected to the transferring employee’s employment contract (i.e. it must relate to a right, obligation or liability owed to the transferring employee (an Employee Liability);
- if the employer has a right against a third party arising purely as a result of such transferring Employee Liability (e.g. a right to claim on an insurance policy), that right can also transfer; and
- in this case, the liability the Transferor owed was to a third party (ABC), not to its employees, so the connection was too indirect and did not transfer under TUPE.
Practical impact
- Due diligence: This is key in any TUPE transfer, particularly for transferees who will potentially be inheriting the liabilities. It is important to fully understand the scope and value of potential liabilities that the transferee will inherit and be mindful that some of these liabilities may be latent and yet to materialise. Notwithstanding the fact that this case held that vicarious liabilities did not transfer, had the claimant in the case been another transferring employee, the outcome would have been different. Where liabilities are identified, ensure there is appropriate warranty and indemnity protection where it is possible to apportion these liabilities.
- Reputational damage: Even where such third-party vicarious liability does not transfer to the transferee, inheriting employees who have been grossly negligent is likely to cause other reputational damage and, of course, could result in further subsequent potential cases of negligence against the new transferee employer – it is sensible to ensure any diligence requests seek to cover all these bases irrespective of TUPE liabilities.
Insurance: As noted, if the personal injury claims here belonged to transferring employees against the Transferor, these liabilities would likely have transferred to the Transferee. In such cases, consideration should be given to whether there is protection under the transferor’s insurance policies and whether the benefit of these insurance policies also transfers.
