Employers’ Liability Insurance - Tort claims by transferred employees

(Martin v Lancashire County Council and Bernadone v Pall Mall Services Group, May 2000 (forthcoming in [2000] Lloyds Rep IR))

The Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), which implement the EC’s Acquired Rights Directive (Council Directive 77/187/EEC), made a fundamental change to the common law principles affecting the employment relationship. At common law, the relationship between an employer and an employee is assumed to be one of mutual trust and confidence, and the contract thus forms one of a number of personal contracts that cannot be assigned. The practical effect of this rule is that where the employer transfers his business to the purchaser, all employment contracts are automatically terminated. The impact of the Directive and the Regulations is to preserve the relationship on the sale of the business, and to transfer to the purchaser – under reg 5(2) of TUPE – “all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract, shall be transferred ... to the transferee”. In the joined cases Martin v Lancashire County Council and Bernadone v Pall Mall Services Group , May 2000 (forthcoming in [2000] Lloyd’s Rep IR) the Court of Appeal has, in a decision of great interest to liability insurers, held that the Regulations have the effect of transferring tort claims and rights against insurers.