Insolvency

Case 4: The facts

Tony Donaldson and 14 colleagues worked for Newtown Construction Scotland on a contract awarded by Perth and Kinross Council. The company became insolvent and an informal arrangement operated for the company to do some work, but on a day-to-day basis only. The liquidator failed to find a buyer for the company, and the council eventually took the work back in-house.

The ruling

The EAT held that, as the company had become insolvent, the council's taking of the work back in-house did not amount to a transfer of a stable economic entity - and therefore did not come within TUPE.

Where there is an irretrievable insolvency and cessation of business, the EAT said that TUPE could not apply. It held that "an operation which depends for its existence on a day-to-day handout of work to which it is not contractually entitled, and which could be terminated at any time, cannot be held to be a stable entity".

Perth & Kinross Council v (1) Donaldson, (2) Newtown Construction and (3) Meldrums [2004] IRLR 121