Transfer-related dismissals

Case 2: the facts

Friction Dynamics Ltd was put into administration by its managing director, Craig Smith, after being ordered to pay around £3 million to striking workers it had unfairly dismissed. The administrator made all its staff redundant and a few weeks later the assets were sold to Ferotec Realty, which was also owned by Smith.

The company was subsequently transferred to Dynamex Friction Ltd, which was set up with the assistance of Smith who went on to purchase 60% of its shares. Some of the dismissed employees were taken on by Dynamex Friction under new contracts of employment. Others brought claims of unfair dismissal, arguing that the dismissals were unfair under the TUPE transfer regulations, which make transfer-related dismissals automatically unfair even if they took place before the transfer.

The ruling

The evidence revealed that Mr Smith had anticipated that putting Friction Dynamics into administration would result in the administrator dismissing all staff and a new company taking over the business within months. This was exactly what occurred, with him ending up controlling the new company.

However, the Court of Appeal held that the administrator had not colluded with Smith. The reason the administrator had dismissed the workers was purely economic and not because of any proposed transfer and therefore they were not transfer-related.