TUPE and pre-pack arrangements

10 July 2017

The European Court of Justice (ECJ) has ruled in a Dutch case on 'pre-pack' administration and TUPE protection for employees.

Pinsent Masons report on the case of FNV v Smallsteps; a chain of childcare providers, Estro Groep BV (EG) who owned almost 380 childcare centres employing approximately 3,600 people. It became clear that EG could not meet its obligations, and it devised a plan which provided for restructuring the group under a pre-pack arrangement. A new company called Smallsteps was created.

In addition to the plan for the pre-pack arrangement, EG had an insolvency administrator appointed. Smallsteps purchased approximately 250 of the 380 childcare centres and two days later, the administrator dismissed all of the EG employees. Smallsteps immediately offered contracts to 2600 employees, but 1000 were dismissed.

Four former EG employees (who worked in childcare centres taken over by Smallsteps but who had not been offered contracts) and a Dutch trade union brought claims, arguing that the Applied Rights Directive applied to the pre-pack arrangement, and they should have transferred to Smallsteps.

The court referred the question to the ECJ which decided that TUPE applied. TUPE applies where a business is being salvaged, and does not apply where it is being liquidated. The pre-pack was prepared before the declaration of insolvency, and the exemption from TUPE did not apply. The case was referred back to the domestic court for consideration.

This appears to be the first case where the ECJ has considered the application of TUPE in a pre-pack situation.  The decision accords with how pre-packs are treated in the UK, i.e. that administration is not instituted with a view to the liquidation of the transferor's assets, and that therefore TUPE will apply to pre-packs.

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