The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") say that:
TUPE does not expressly deal with vicarious liability, a form of secondary liability. This type of liability arises where an employee commits a wrongful act in the course of their employment. It could be an act against a third party (such as a customer, patient or member of the public) or another employee. In either case, an employer may be held liable for the employee’s actions even though it did not itself commit the wrongful act.
Last year, the High Court held that vicarious liability arising from wrongful acts committed by transferring employees against third parties does not transfer under TUPE. The Court of Appeal has now unanimously upheld that decision, providing clarity on the scope of the liabilities that will transfer.
What happened?
Huntercombe owned and operated a psychiatric hospital in Maidenhead. The claimant, ABC, alleged that two Huntercombe employees had committed wrongful acts whilst she was an in-patient at the hospital. ABC brought a personal injury claim alleging that Huntercombe was vicariously liable for the actions of those employees.
Huntercombe later sold its business to Active Young People Limited. TUPE applied and the employees (including the two alleged wrongdoers) transferred.
ABC initially brought claims against Huntercombe only. But after finding out that Huntercombe had gone into liquidation, she added Active Young People and the two doctors to her claim, arguing that Huntercombe's vicarious liability had transferred.
Last year, the High Court rejected ABC's case. ABC then appealed to the Court of Appeal.
What did the Court of Appeal decide?
The Court of Appeal agreed with the High Court that Huntercombe’s vicarious liability to ABC did not transfer.
The High Court’s decision had centred on the need for a liability to be “direct” in order to transfer. This meant a liability the transferor has to the employee, not a third party. The Court of Appeal’s reasoning differed.
The Court of Appeal’s starting point was to look at the EU Directive from which TUPE stems. It reiterated that the purpose of the Directive is to protect and safeguard employees’ rights in the event of a change of employer. The objective of the legal framework is to ensure that an employee can enforce rights against the transferee as if it were the transferor.
With that in mind, the Court reached the following conclusions:
- TUPE’s purpose is to safeguard employees’ rights, not third-party rights.
The Directive’s aim was to ensure employees can enforce rights against the transferee. ABC was not employed by either Huntercombe or Active Young People. She was a third party who would have no other right to bring a claim against Active Young People. The transferring employees had no “right” to Huntercombe being vicariously liable for their actions.
- Vicarious liability provides no legal protection to the employee.
The Directive also aims to “protect” employees, which could be interpreted more widely than safeguarding employees’ “rights”. However, employees receive no protection from their employer against claims by third parties.
Although an employer may also have secondary liability, it is not required to “bear the brunt” of any third-party claim. For example, an employer could require an employee to indemnify it for any damages it must pay because of vicarious liability or bring a statutory contribution claim requiring the employee to contribute towards the damages.
- Vicarious liability is not “in connection” with a contract of employment.
When determining which “connections” transfer, the purpose of the Directive is determinative.
Since the employer's vicarious liability to a third party does not create any employee right or protection, it does not arise "in connection with" the contract of employment.
- There is no information requirement relating to vicarious liabilities.
The Court also looked at the wider provisions in TUPE. Regulation 11 sets out detailed provisions requiring the transferor to provide information to the transferee about employee rights and liabilities. This is so the transferee knows in advance what liabilities it is taking on.
There is no requirement for a transferor to disclose any third party claims. The focus is on the employee’s rights. The Court considered this was not an omission but the result of deliberate policy.
- It would be counterintuitive for a third party to bring claims against a transferee.
A transferee would know nothing, and have no right to know anything, about events involving third parties before the transfer. The transfer was wholly unrelated to ABC, and the Court’s view was that upholding ABC’s claim would result in “an arbitrary outcome”.
TUPE takeaways
Transferees can breathe a sigh of relief that they will not inherit vicarious liabilities owed to third parties. For Active Young People, the consequences of a different decision would have been significant: there were 50 similar claims brought by other claimants against the same respondents.
But transferees are not completely off the hook. This decision was focused on the liabilities owed towards third parties. Transferees could still inherit liability for acts committed against other transferring colleagues before the transfer. This includes the full range of employment-related liabilities, including discrimination claims, unfair dismissal claims and other employment claims. This is because the liability is owed to the employee, who had a right to claim against the transferor, and arises in connection with their contract of employment.
Here are some of the key takeaways for transferees:
- Do your homework: It is crucial to do thorough due diligence of who is transferring and what liabilities may be lurking. Although liability for third party claims may not transfer, there are lots of liabilities owed by the transferor to their employees which will transfer. Although the transferor is required to provide some information about employee liabilities, transferees will often want a more detailed picture. For example, to understand what previous complaints or grievances have been raised (in, say, the previous two years) to understand if claims could later come out of the woodwork.
- Warranties and indemnities: Transferees should negotiate appropriate warranties and indemnities for any pre-transfer liabilities. As this case shows, transferees can be joined to legal proceedings concerning pre-transfer events of which they are unaware. Any business purchase agreement or outsourcing agreement will usually contain indemnities so that the transferor picks up the cost of claims arising from acts or omissions before the transfer. Those indemnities should cover damages payable for successful claims, as well as the legal fees and other costs of defending a claim, even if it does not succeed.
- Understand the wider context: Any contractual indemnities will be of limited value if the transferor later becomes insolvent. ABC sought to include Active Young People only because of Huntercombe’s insolvency. Understanding the transferor’s reasons for selling a business or outsourcing work can help transferees assess its financial position and the risk of a broader range of claims.
- Insurance cover: Previous case law has suggested that the benefit of any employers’ liability insurance covering liabilities connected with an employee’s contract of employment, such as a personal injury claim, would also transfer. The High Court indicated that it agreed with this position, and the Court of Appeal did not disturb that finding. Transferees may therefore want to assess, as part of their due diligence, whether any such insurance policy applies and how valuable the cover would be in practice.
Transferors will also want to take steps to manage their liabilities and minimise exposure:
- Take action before any transfer: Transferors need to be aware they will retain any third party exposure, even if the relevant employees are transferring. They should review any complaints or incidents before any transfer to ensure they have any relevant evidence or information from the employees. This will become harder to obtain once they are employed by somebody else.
- Scrutinise your insurance protections: Huntercombe had public liability insurance, but it carried a very large deductible. This meant that Huntercombe would have to pay £250,000 out of its own pocket for each claim before its insurer would pay. Transferors will want to understand the protection insurance offers and ensure it will still be available once employees have transferred.
ABC v Huntercombe (No.12) Limited & Ors [2026] EWCA Civ 1161 — the full judgment is available here.
