Insolvency – Continuity of Employment

Many employment law rights depend on how much continuous employment an employee has completed. Normally, this must be with the same employer or with an associated employer. The Employment Rights Act 1996 entitles a person to claim unfair dismissal provided they have continuous employment of one year. This will include any weeks during which an employee is absent from work on account of a temporary cessation of work.

In Da Silva Junior v Composite Mouldings and Design Ltd., the Employment Appeal Tribunal (EAT) held that continuity of employment was preserved where an employee of a company that was in voluntary liquidation subsequently went to work for a company with the same majority shareholder.

Mr Da Silva started working for Andream Ltd. on 11 November 2005. The majority shareholder was a Mr Greenwood, who held 75 per cent of the shares. On 20 November 2006, Mr Greenwood incorporated a new company, Composite, that was exclusively his. Andream Ltd. was in financial trouble and on 1 December 2006, Mr Da Silva and the rest of the workforce were dismissed as the company was entering into creditors’ voluntary liquidation.

In early January 2007, Mr Greenwood acquired some of the assets of Andream from the liquidator and began trading as Composite. On 14 January, Mr Da Silva began working for the new company but was dismissed in August of the same year and brought a claim for unfair dismissal.

There was no dispute that the period between Mr Da Silva’s dismissal in December 2006 and his commencing work on 14 January was a temporary cessation of work. The issue was whether or not Mr Da Silva had the necessary qualifying period of continuous employment to bring a claim of unfair dismissal. Mr Greenwood contended that control of Andream was no longer his once the liquidator had been appointed. The EAT found that Andream, although in the hands of the liquidator, had not been dissolved and therefore continued to exist. Mr Greenwood effectively controlled both companies and they were therefore associated employers. Mr Da Silva could therefore proceed with his claim.

The Employment Tribunal had not considered whether there was a relevant transfer for the purposes of the Transfer of Undertakings (Protection of Employment Regulations) 2006 (TUPE), so the EAT did not argue this point. Whether or not TUPE applies depends on the nature of the insolvency proceedings. Where these are analogous to bankruptcy proceedings and involve the liquidation of the assets under the supervision of an insolvency practitioner, TUPE does not apply.

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