Does TUPE transfer an employer's vicarious liability to a third-party?

In ABC v Huntercombe (no.12) Limited, the Court of Appeal considered whether TUPE transfers an employer's vicarious liability to a third party for acts allegedly committed by employees before the transfer. 

What is TUPE?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE regulations’) protects employees where there is a ‘relevant transfer’. This includes: 

• Business transfer: where a business, or part of a business, transfers and continues operating in a recognisable way
• Service provision change: where services are outsourced, transferred between contractors, or brought back in-house. 

When TUPE applies, employees assigned to the transferring business or service automatically move from the old employer (‘transferor’) to the new employer (the ‘transferee’) on their existing terms and conditions, apart from certain occupational pension rights. 

Regulation 4(2)(a) of the TUPE regulations provides that, on completion of a relevant transfer, all the transferor’s rights, powers, duties and liabilities under or in connection with employees' contracts transfer to the transferee. 

What is vicarious liability?

An employer can be held vicariously liable for the wrongdoing committed by an employee during the course of their employment. 

For example, if an employee acts negligently while carrying out their duties, a claimant may bring a claim against the employer as well as, or instead of, the employee. 

The question before the court in this case was whether that liability transfers to a new employer under TUPE. 

Background

ABC alleged that she suffered mental and verbal abuse during a hospital stay and that staff restrained her on more than 200 occasions. 

At the time of the alleged incidents, Huntercombe (no.12) Limited owned the hospital. In March 2021, a TUPE transfer took place and Active Young People Limited (‘AYPL’) took over the undertaking. 

ABC originally brought proceedings against Huntercombe. However, Huntercombe later entered liquidation. ABC therefore added AYPL, along with her consultant psychiatrist and responsible clinician, as defendants. 

ABC argued that AYPL had inherited Huntercombe's vicarious liability for the alleged acts and omissions of the consultant psychiatrist and responsible clinician because that liability transferred under TUPE.

High Court

The parties agreed that the transfer from Huntercombe to AYPL was a relevant transfer under the TUPE regulations.

The High Court had to decide whether regulation 4(2) of the TUPE regulations transferred any vicarious liability owed by Huntercombe to ABC.  

The court rejected ABC's argument. It concluded that the liabilities which transfer under regulation 4(2) of the TUPE regulations must have a direct connection to the employment relationship. Huntercombe's alleged liability to a third party did not fall within that category and therefore did not transfer to AYPL.  

ABC appealed. 

Court of Appeal

ABC argued that the phase in regulation 4(2)(a) of the TUPE regulations “liability…in connection with” the contract of employment should be interpreted broadly. She contended that an employer's vicarious liability arises because of the employment relationship. Since the alleged wrongdoing occurred during the employees' employment, the resulting liability was connected to their contracts of employment and should therefore transfer.

AYPL argued that the court needed to interpret the TUPE regulations in light of the Directive, from which the regulations are derived. The Directive exists to protect employees when their employment transfers to a new employer. Its focus is on rights and obligations between employers and employees, not liabilities owed to third parties. 

The Court of Appeal agreed with AYPL and dismissed the appeal. 

Why did the Court of Appeal reject ABC's argument? 

The court gave several reasons: 

1. TUPE exists to protect employee rights: the primary purpose of the Directive and the TUPE regulations is to safeguard employees' rights when a business transfers. In this case, ABC was not relying on any employment right that transferred under TUPE. Instead, she sought to enforce a claim as a third party. The court found that TUPE was not intended to transfer liabilities of that nature. 
2. Vicarious liability is not an employee right: an employee has no contractual right to require their employer to be vicariously liable for their actions. The employer's liability to a third party exists independently of any right held by the employee. As a result, it does not form part of the bundle of rights and obligations that transfer under the TUPE regulations. 
3. TUPE focuses on liabilities owed to employees: when read as a whole, TUPE deals with rights and liabilities arising from the employment relationship, such as claims employees may bring against the employer. The regulations do not address claims brought by third parties against the transferor. The court considered this omission significant. 
4. A contrary outcome would be unfair and impractical: the court considered it difficult to justify transferring liability for historic events to a transferee that had no involvement in those events and may have had no knowledge of them. If Parliament had intended third-party liabilities to transfer, the legislation would have needed to say so clearly. Neither the Directive nor TUPE contains such wording.

The Court of Appeal confirmed that an employer's vicarious liability to a third party for acts committed by employees before a TUPE transfer does not pass to the transferee. 

Instead, that liability remains with the transferor. 

The court therefore upheld the High Court's decision and confirmed that ABC could not pursue AYPL for Huntercombe's alleged vicarious liability. 

What does this mean for employers?

This decision will provide reassurance if you take on employees under TUPE. You do not inherit an employer's vicarious liability to third parties. Those liabilities remain with the transferor.

The judgment also reinforces an important principle: TUPE exists to protect employees and preserve employment rights when businesses or services transfer. It does not provide a mechanism for transferring every historical liability connected to the transferor. 

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