The Court of Appeal’s decision in ABC v Huntercombe (No.12) Ltd & Others provides important guidance for insurers, public sector bodies, healthcare providers, local authorities, educational institutions and other organisations involved in TUPE transfers.

The judgment addresses a significant and potentially far-reaching question: does an employer’s vicarious liability to third parties for employees’ pre-transfer conduct pass to a transferee under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)?

The Court of Appeal’s answer was unequivocal: it does not.

Factual Background

The claim arose from allegations made by a former patient, anonymised as ABC, who had been detained at Huntercombe Hospital, a privately operated psychiatric facility for young people. The claimant alleged that she suffered abuse and mistreatment during her admission to the hospital in 2018 and 2019.

In 2021, the operation of the hospital transferred from Huntercombe (No.12) Limited to Active Young People Limited (AYPL), pursuant to TUPE. As part of the transfer, the relevant workforce moved to AYPL and became employees of the transferee.

The claimant contended that Huntercombe’s alleged vicarious liability for the pre-transfer acts and omissions of those employees transferred to AYPL under Regulation 4(2)(a) of TUPE. The argument was of particular significance because Huntercombe had entered liquidation, and although it had insurance there was a large deductible of £250,000 per claim, therefore limiting the prospects of recovery against the original employer. The claimant therefore sought to pursue AYPL as the current operator of the undertaking.

The issue also carried wider significance, with reports indicating that more than 50 related claims are being pursued in connection with alleged treatment at Huntercombe facilities.

The Legal Issue

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

The claimant argued that:

• vicarious liability arises by reason of the employment relationship;
• the liability is therefore sufficiently connected with the transferring employees’ contracts of employment; and
• responsibility for such liabilities should accordingly transfer to the new employer under TUPE.

AYPL contended that TUPE is designed to protect employees and preserve employment rights, rather than to create additional routes of recovery for third-party claimants.

Court of Appeal

The Court of Appeal dismissed the appeal and upheld the first-instance decision, holding that TUPE does not transfer a transferor’s vicarious liability to third parties for employees’ pre-transfer acts or omissions.

The Court emphasised that both the Acquired Rights Directive and TUPE are fundamentally concerned with safeguarding employees’ rights when an undertaking changes hands. The legislation is directed at rights and obligations arising between employer and employee, rather than liabilities owed by an employer to unrelated third parties.

In reaching its conclusion, the Court held that:

• employees have no legal right to require their employer to be vicariously liable for their wrongdoing;
• vicarious liability is a liability owed to the third-party claimant, not to the employee;
• claims brought by third parties therefore fall outside the purpose and scope of TUPE’s transfer provisions; and
• a transferee does not assume responsibility for undisclosed third-party claims merely because the relevant employees transferred under TUPE.

The Court distinguished earlier authorities in which liabilities owed directly to employees had transferred under TUPE, noting that the present case concerned liabilities owed to third parties rather than rights arising from the employment relationship itself.

Implications

The decision provides a welcome clarification for insurers, acquiring organisations and risk managers involved in corporate acquisitions, outsourcing arrangements and public sector reorganisations.

The judgment confirms that TUPE protects employees’ rights and transfers employment-related liabilities but does not transfer an employer’s vicarious liability to third-party claimants for historic wrongdoing committed by employees before the transfer.

Had the claimant succeeded, transferee organisations could have inherited substantial liabilities arising from historical conduct predating the transfer, including abuse claims, negligence claims, human rights claims and other forms of litigation, often without any prior knowledge of the allegations. Such an outcome would have created potentially significant and unpredictable exposure for acquiring organisations.

Indeed, the Court expressly recognised the unfairness that could arise if a transferee became liable for potentially multi-million-pound third-party claims – which TUPE does not require a transferor to disclose as part of the employee liability information provided before the transfer.

Conclusion

The Court of Appeal’s judgment defines an important boundary to TUPE’s operation and offers greater certainty to organisations involved in business transfers and service provision changes. While TUPE transfers employment-related rights and liabilities, it does not operate to transfer an employer’s vicarious liability to third parties for employees’ pre-transfer wrongdoing. Nevertheless, organisations involved in TUPE transfers should continue to undertake thorough due diligence.